>> "you should be in prison for a long time. and i hope that you never do this again to anyone. and i hope, actually, that you this again to anyone. and i hope, actually, that you have a miserable life." it's friday, and it's time for "options action. i'm melissa lee. tonight the s&p 500 snap ago four-week-long rally is this a bump in the road or a slump into next month? and oil services manufaoving th opposite direction up and find out how not to lose your baggage with me, our panel of experts. let's get straight to it the market stocks closing lower

across the board while they have made an impressive run since the june lows, the rally may be losing some steam carter, why? >> it's the big question we're all wondering. is it simply a counter trend down or is this the beginning of some new bull ish period let's draw some charts no judgments, let's put some lines in this is the exact same chart, and can you see quite precisely that on the way up, the market sort of responded or adhered to that trend line drawn, and now

it's the opposite. how much lower can it go let's zero in a little tier. let's look at spy. you can see this sort of major juncture in relief we've rallied to the penny to a down trend line. now where might we beheaded let's zero in a little tighter this is the mathematically precise channel the market has been ascending in since the june-july lows i think we're going down at least. >> thank you for that, carter. mike, how do you trade this? >> yeah, i mean, i'm kind of in

carter's camp here i think people who have been following the show know that we're long only mostly this our fund for sure, and we did pair our positions pretty significantly after what i think was a pretty great week for retail the question you have to ask yourself is really, i think right now is how you want to play it from a pn options perspective. as carter said, the lines draw themselves if you think that you are in a down trend, and therefore you're likely going to drift to a target, then that's when you probably want to use a debit spread if we were range bound, that would be the real circumstance where you would look to sell premium credit spread. we are in a down trend

we've hit the upper end of that. he's identified a target and is expecting us to drift to that lower one. therefore i think the debit put spread is the trade that's going to make the most sense he spoke pacifspecifically aboue high 3 hundreds. i was looking at the october it would cost a little over $7.70. m most people would know that i am usually looking for a three-to-one payoff with i'm putting on a debit spread like this which is close to at the money but it's not in the money, and that's essentially what we're getting right here the idea is that you're just going to use the strike that you are selling to help financial the purchase of the option that you're buying. >> tony, what's your take on this >> yeah, so i'm certainly in the same camp as carter and mike with respect to the broader view of the markets, and if you look

at the 430 level that s.p.y. traded lower from earlier this week, it's the intersection of some pretty important levels you have the down trend that carter drew for you, but also the 200-day moving average that ticked on the moving average to the penny and bounced lower. from a probability-based perspective i agree. where i kind of diverge a bit from carter's view is really how far the market's in decline. i'm not as bearish i think you see a target to the down side f i like mike's trade structure. it's one of the most capital-efficient ways to take a bearish exposure in this case, he's risking less than 2% of s.p.y he's targeting that 380, 390 target that carter has i think this is going to pull

back to around the 400 level and this is where tebity spreads allow to you have a lot of control into how much you're risking and what your target price is for example you might use a 420-400 debit spread that's going to risk a little less, closer to 1% of s.p.y. but only give you about a two-to-one risk-reward ratio. i would rather risk less, potentially make a little less here as well >> carter worth fans will remember that carter joined us on a fast sell of apple. that seems to be part of this call, this overall bearish view. if you have a bearish view of the biggest stock of them all, this makes total sense >> a lot of auto correlation or impact 7.2% of the s&p. but the, and how low we go, who knows, of course

and tony is making all the right points there is something that i'm denying which is an unfilled gap in the s&p it's that sort of level that i'm thinking >> let's check out crude oilclo oilclosing out the week. tony in. >> i want to say the look at bak baker hughes if we take a look at the oil services etf that baker hughes is part of, what you see is a very clear uptrippeend. now we've seen a bounce higher if we look at a chart of baker

hughes, what you see is that same uptrend, that same clear uptrend that we've pulled back to after that 40% massive decline that i think now we're going to bounce higher and continue higher. but most importantly, if you look at the relative performance of baker hughes to the oih, oil services etf, this is a stock that for the most part trades on par with the etf so as we expect the etf and the stock to bounce higher from the trend lines, i expect a little outperformance from this stock based upon where it's currently positioned recently they sold off their operations in russia apar and the sale clears the deck and provide as opps a long expo.

i don't want to pay too much team in time decay because i don't have a direct catalyst for this in the short run. i'm going to use a trade structure that meek uses quite often. i'm going out to october and looking at the 24, 26, 29 call spread risk reversal i'm selling a $24 put option that obligates me to buy the stock at around 24.60 or so and using that to finance the purchase of the 26, 29 call spread and i'm doing it for about a 40-cent credit it gives me an upside exposure here all the way tup to 29 >> what do you think of the

trade? >> well, as he pointed out, it's a trade i use quite a lot, so i like that element. if you're collecting 40 cents or 50 cents, that's not actually such a bad premium collection. that's nearly 2% of the current s stock price. having participation to the upside but not having that immediate down side exposure is attractive so by selling the down side put you do have sort of the level of reference point at which you could sort of say okay i'm willing to draw a line in the sand and get long here i'm not long this particular name, i am long halliburton. and for those of you who have stock on, like if you happen to own baker hughes already or if you own halliburton, a put spread caller will give your spread the same as essentially what tony articulated.

>> i'm all for it. if you look at oih's relative strength to the overall energy sector, it's four. but as the hilines are drawn, tonnytony knows exactly what he's doing. >> tony, have you also looked at xle? >> i have looked at xle. i think it's also an opportunity as well in addition to had specific name here i actually like xle as an etf. still to come, if you like summer travel, you think the recent run in the jets etf is coming to a close. there's lots more on our website and in our news her. we'll be right back.

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welcome back to "options action." jek check out the jets etf does this promising performance mean the travel trade is ready to take flight not so fast. khouw and carter don't think this one is ready yet.

but we do have ways for you to collect profit at baggage claim. so many puns in here buckle your seat back. it's team it's time for the call to action >> is there anybody who has heard pleasant stories about air travel lately? i traveled a lot over 100,000 miles per year. since the pandemic i have never really come back to traveling the way i used to, nowhere near in fact. we did see a big uptick in consumer leisure tra. but travel. we're seeing almost eye wateringly high tint prices. almost anytime i talk to anyone, friends and neighbors, this is the first thing they complain about. and you combine that to

stretched budgets due to other inflationary measures that's not a great recipe we are coming to the end of the biggest lei biggest leisure season since we reopened when we were talking about, the jets may go lower. it's about 1.5 times as volatile as s.p.y you are going to want to use something like a debit put spread to take advantage of the fact that the trend is generally bearish. but the premiums are relatively high i was looking at the october 18, 16 put spread. that's a little bit more than the distance that i usually like

to spend the volatility of jets is higher therefore the objections premiums are higher. i think that's probably the way you want to play it if you think there's some down side, and personally, i think it's likely to follow the trend of the broader market and this's lower >> carter what's your take in. >> follow the trend of the broad market but with beta numbers tell the tale. in fact, you see the stacking order here of s.p. ych. versus q the transportation etf, of which all the airlines are a member. and bringing up the rear you see jets at the bottom down 16.3 now a comparative chart is worthwhile look at this five-year comparative chart. i mean, what, q's up 130

all positive, even the iwm and there's of course jets, down 40% over the last five years let's do some here and now charts no hines or drawings, and final iteration with lines and drawings i think we're breaking trend here just as the market's about to break its minor uptrend which will get juice in this case. and then one thing about fundamentals debt, big debt is always a problem. and it's a retardant to growth >> tony, what do you think of the airlines >> yeah, i completely agree. the issue here isn't so much demand, because we see that a number of flights in north america back to 2019 levels. revenue for many of these airlines back to 2019 levels, but it's that high cost and high fuel cost that is significantly hit the bottom line. if you look at, we're nowhere

close to 2019. that's why the airlines are trading below the 2019 levels. i've made a few attempts on picking the bottom of these airlines when international travel looked like that was coming back. and the most important chart here that carter's referring to is that relative performance that poor relative performance is impossible to ignore. i'm in the same camp that airlines could head lower. again, just like the one he's using for s.p.y. it's the most capital-efficient way to take a bearish exposure on a specific etf that you have a bearish view on. here he's risking about 3 p% to get a two-to-one ratio. >> last word to mike

>> yeah, i think carter brought up an interesting point here, which is the debt levels you know, can you see the market capitalization of a fall, but if that's offset by an increase in debt, it's going to increase the volatility of the equity if the whole enterprise is swinging around by roughly the same amount, the more levered it is, the more the stock's going to move on a percentage basis. up next, we're taking a look back at one of tony's home improvement trades much more "options action" after this

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he wanted a streamlined version he could access anywhere, no download necessary. and kim. she wanted to execute a pre-set trade strategy in seconds. so we gave 'em thinkorswim® web. because platforms this innovative aren't just made for traders -they're made by them. thinkorswim® by td ameritrade welcome back to "options action." time for a trade update. last week, tony laid out a way to go short home depot >> we're back to a pretty important level, that 315 level. this is a prior level of support that's now going to be a level of resistance. we see a lot buyers no longer stepping in. perhaps some sellers getting back in. i'm going out to september and buying the 310, 280 put spread

that's risking only about a little over 2% of the stock's value. >> since then, home depot has climbed about 2% there as still some time left on the trade, but tony, how are you playing it now >> yeah, there's definitely some time left on this trade, but when you get a trade like this with a catalyst like on earnings, when you get it wrong it's time to cut your losses on this particular trade. doi i do think there's an opportunity for this stock to come back. i would trade out the position if you have more than one contract and leave the other half to potentially for home depot to drift a little lower to the down side. >> it's time to take some your tweets what is the strategy to collect premiums i could use like sp ychbspy or qqq? >> the first thing is, this guy has a pretty good crystal ball

it's hard enough to call the market's direction without telling you when it's going to go down and when it's going to go up. ho however, if you think it's going to drift only mildly, you could sell some credit spreads to the upside. i think that would be a good way to play it and then wait for to months before you start making bullish bets >> our next twitter user asks, what's your trade on bitcoin through bito in. >> let's talk about bitcoin first, it's the same sequence as the market it topped this week, but it was a 43% move, right, from 17 00 t 25 i would be short or sell a tall credit spread above. >> all right, we do have time for one more this one says, with buffett buying, apple selling bonds to buy stock and money going into s&p index funds, how do i manage

my apple short plays if this thing doesn't behave the way we think it will? take this one, tony, please? >> i think that's a fantastic question, and i think this is a broader question with respect to when a trade tonightdoesn't wor what do you do you should have a plan and stick to that and make sure you don't throw good money after bad money. if you want to get out of a trade and into another one separate the two decisions >> up next we have the final call

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