company and outside the company that are still actively being investigated. >> narrator: special agent durgin wants it to be perfectly clear. anyone that is involved in this fraud should expect a visit from anyone that is involved in this fraud should expect a visit from the secret service. -- captions by vitac -- . tonight on "options action." the fed make nos no bones about. the s&p dropping over 3%, and the nasdaq closing close to 4% down. >> we'll drill down on the sectors straight ahead, plus, what's next for the consumer the high end's been hanging on, but is everything in the retail space now more vulnerable in the

rising inflation climate this is o"options action. let's start with a look at today's big selloff. it was quite a day i know it probably spook add number of investors. were you surprised in the sharpness and the selloff with j. powell reiterating what he had said previously but saying it's not going away anytime soon >> you just touched on it by saying no bones about it it was a status quo week oil has been going up. it's up again this week. energy is the only sector up it was up last week. and interestingly, small caps are outperforming, which is to say what's leading on the way down the qs the s&p down much more than the russell 2,000 and yields didn't

even move. 2.97 last friday and this friday, 3.04. really really, it is just that, reiterating what we have already known. >> to mike khouw, what do you make of that, was it a knee jerk reaction just a friday in august? how do you make sense of it? >> i think there sometimes can be low ehers liquidity as we approach the labor day weekend one of the things that surprises me is that everybody is surprised. i mean, consider what we were hearing from people like mary daley, the san francisco fed president for quite some time. she had actually been saying, listen to us, we are going to continue to act. and i don't think that most people would argue that she is one of the most hawkish individuals at the fed so how can they be surprised when powell comes out today and says i'm going to continue to do

and i'm going to continue to say what i've been saying all along. this is not allan greenspan fed speak where it's gobbledy gook and we can't figure it out one of the natural things we would expect is that the fed does its job f, if it manages to get inflation under control and does have the necessary sort of side effects it's going to have a slowing effect on the economy, that actually what the ten-year rate did, which is essentially nothing, is exactly what would you expect >> yeah , and carter made that point as well on the ten-year. if i push aside the numbers i saw on the screen with the way the stocks were selling off and think about what's really happening here, j. powell wants to get inflation under control it's at 40-year highs. it feels like a good thing to do we all want this to be a possibility. we just don't want the tradeoff of depressed economic growth and

higher joblessness when we have this labor market that's so strong but should we all get a little bit comfortable with maybe a little bit of that pain? >> well, i think part of the pain you're also seeing in the stock market is in the retail sector coming from the expectation that higher interest rates, especially on home equity loans and adjustable rate mortgages and auto loans are things that are very painful on main street. that's like a day like today, the message was to the consumer, you're going to endure more pain as the guys have discussed, the interesting thing going into today and really at least going into this week, the cross asset correlation, bonds, stocks, commodities has been extremely high today it was not you actually saw the bond market de-couple. you saw commodities de-couple. we talked about energy that's fascinating when the cost of capital is zero, equities have a lot of leeway to one and can you buy

growth out to the future that's why semis underperformed massively. it's where the market has come from and expectations. the semi-conductors ral lied 30% in a month and a half or a little bit liisess and pulled b 10%. that shouldn't surprise people >> let's turn to the financials. rising interest rates should be a good thing for the banks, but a slowing economy could hurt the sector you think the regional banks bear the brunt of the impact why and what are the charts telling you? >> if rates are moving in their favor, in principle you want to be in interest rate sensitive names. i don't like regional banks. let's look at the kre. the first is yields. that's the big subject of the day. ten-year yields didn't move. 2.97 this time a week ago 3.04 a week

ago. but the kre, the sprd regional bank etf, and it's up to the right since the '09 low. but look at this chart relative to the s&p, next iteration it's down. it has been underperforming since the day it was launched. it's not a good place to be over time final two chart, the kre itself, the here and now chart, there's uptrend. those are perfectly parallel lines. we broke trend where might we be headed the final chart, i think we go back to the trend line above which we broke in july so a good, you know, five, seven, 8% lower, i'm a seller. >> thanks s, carter, that's ver interesting. what's your take on the fundamentals >> it's interesting that he

showed that long-term chart. the short-term chart they've outperformed but i tend to agree, my thesis would be we haven't even really gotten into credit dynamics. rooe regional banks have been strong. they talked about strong net income growth. and even where fee income was better than expected that fee income, capital market, et cetera, i think is going to be under a fair a pressure i think banks are better positioned on credit here, but what we haven't heard anybody talk about is really the credit impact of what a day like today actually could settle into >> hmm okay so then mike, what's the trade here for financials or regional banks? >> yeah, i mean one of the things we have in the options market right now is a result of what's going on are elevated options premiums i think when we're taking a look

at how to structure trades around our directional thesis, than this case, it is that regionals are going lower, you're going to look for spreads. i was looking out to november, the 65-60 put spread kre may have been close to $64, you can adjust those strikes depending on where things open up on monday but the idea here is that you want to mitigate some of the accelerated decay that you're going to get when you have these elevated options premiums. >> carter w, when it comes to rates, there is a lot of similarities between real estate and banks. what are you seeing? >> obviously, they're heavy users of capital, and they are very sensitive to the cost of money, accordingly, and i thought it would be good if we can to let's look at rates versus the kre i have a comparative chart here.

and what you'll see of course is that they are like railroad tracks that is a five-year chart. just to make that point even firmer, look at the next chart and include the s&p. so there you have kre over, deadlocked with iyr and s&p. it's the same setup. i don't like rates here in general either let's do a few iyr charts on their own. and what you see here is that we falter, we went below, broke below that moment in time, which is the pre-covid high, and now we're at a rally we're hitting our head again and so the final two charts, this is really up close and personal, just three months, no line, no judgments, no annotations. final chart, this is what my eye sees a minor head and shoulders top. we're right on the trend line, and i think we break >> mike, what's the trade then on the iyr

>> the rates generally, we have to understand that in the rate environment they might be facing higher capital costs, that's a challenge, and if there's economic concerns, for those who have seen a little bit of a rebound including office reads and mall reads which are still down an absolute ton, that's a risk area. residential reads have changed because landlords have been able to increase their rents. i'm looking at a vertical put spread in this case, the october 98-88 put spread is the one i was looking at in iyr that is correct was going to cost us just a little over a quarter of the distance that's what we're looking at, three to one if you get the trade right. and trying to mitigate some of the accelerated decay in higher volatility environments like the one we're currently in >> hmm fascinating stuff. the high-end consumer was holding out, but is that

changing for more on jackson hole and today's market selloff, stick around for "the fed factor". we're minutes away from that, that's at the top of the hour, but in the meantime, we've got more "options action" after this it's a thirteen-hour flight, that's not a weekend trip. fifteen minutes until we board. oh yeah, we gotta take off. you downloaded the td ameritrade mobile app so you can quickly check the markets? yeah, actually i'm taking one last look at my dashboard before we board. excellent. and you have thinkorswim mobile- -so i can finish analyzing the risk on this position. you two are all set. have a great flight. thanks. we'll see ya. ah, they're getting so smart. choose the app that fits your investing style. ♪♪

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welcome back to "options action." the overall retail sector getting hit by rate increases. there was hope that the higher end could hold out, but that hope could now be lost lululemon shares towndown more n 23% this year. there is likely more trouble heading into earnings next thursday we saw pain in the retail sector, just worry about consumers, the consumer psyche and the spending >> this is a name that we are long in one of our funds it's also, for those of you who watch fairly regularly, you know it's a holly index name. the index of securities that i track that basically matches what we spend our money on in our household. now the thing about lulu is, let's talk about the good stuff,

first. it is a high-end demographic, a more resilient customer base, they're probably more insensitive to economic pressures that we might be facing right now and the other thing, big as the company has become, it still has a lot of meaningful growth opportunities. they're expanding into footwear, they're expanding into men's apparel. and when you look at a company trading a little less than 30% forward earnings should we be looking at c companies like nike? we have earnings coming up on september 1st. whatever good things i might say about the company i have to recognize that that presents a he po tetential catalyst to push the market into what is a pretty heavy market and is not the cheapest stock out there i was looking at a one by two

put spread i was looking at september the 310, 260s. selling two of the 260s against it net-net you're spending a littl less than 10 bucks you'll notice that 260 is lower than the current price and i'm choosing a relatively close expiration because the cat le catlist i see is the earnings on the first of september >> what did lulu's charts tell you? >> well, it's struggling the all-data chart, well-defined trend line, you see it here. and we are just now flirting with breaking trend. consider this. lulu was $2.17 a share on in

'09, an incredible run to 400. more here and now, this next chart that is chart, that's just over the last 15 years the here and now chart, the final chart, we're in the apex, meaning this is a stand off between bears and bulls. i'm sure many people think it's going to break up. i think it's going to break down >> what's your take on lululemon in is there anything interesting for you, be the valuation or catalyst ahead of earnings >> i'd address, mike pointed out, is it a gap multiple or n nike multiple. it's a nike multiple they're growing faster than nike somewhere around 25% growth. but, again, a company like nike that has dtc

roughly 55% of their revenue comes from stores. the e-commerce trend is strong. this is where it's traded for the last couple years. in the environment that we're talking about that's emphasized by a day like today, the question is how should this multiple contract and what premium are you willing to pay to me, mid-20s on lulu is where you want to be looking at 11 bucks a share in 2023, if you take that to 30 times, you're talking about 310 a share. maybe you get to carter's level around 250 one group of stocks catching eyes

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fed factor "sprk, we're going tk down the nine-minute speech. he packed quite a punch tilling the markets that fighting inflation is the number one priority, even if, this is the key part, even if it hurts the economy. we are looking at every angle with the limited time we do have, bank, technology, the sq consumer, asking the question you want answers to many i'm sure the news with shepard smith is going to tackle it as well >> we will be sure to be tuned in the three indeces deep in the red after chair powell warned of some pain ahead as the central bank continues to fight inflation. you were pointing out more areas

of the market that could be more sensitive right now. what are you looking at specifically >> first of all, the defensive parts that are health care and energy, i think, are kind of obvious here but the high multiple tech stocks that have been under a lot of pressure for a year and a half and caught an enormous bounce demanpending on which on you were looking at, whether it's a zoom or a block high multiple tech companies, especially the ones not making money, are not only the ones under pressure, i look at roku and the tv ad business, we heard from zoom, we heard some of the disappointing numbers of all th these companies. we're putting a higher discount rate these companies are worth less if you have a screen on your desk, which i do

these names were down rmalmost o times the market today >> wmike, what's your take >> there's two issues to think about. one is how you discount future cash flows the other is the cost of capital. if you're dealing with growth companies not seeing profit, not seeing positive cash flow, what does that mean they need capital, this is basically a slough of headwinds for these names and the reason they're under such pressure. >> carter, what are your thoughts here? >> one of the things about being adored and loved, and this was such an adored and loved area of the market, they also have the most suffering on the way down and the beating they've had, and the bounce they've attempted to mount is feeble. and so the bounce is key it's just not in line with other

things and they are high data this is the last place you want to be in the event of general market >> tim, is there one name you're interested in playing? or you're looking at more carefully here today after we heard from the chairman? >> well, i guess if we're talking about from the long side, from the mega cap tech world, the companies that at times are painted with a high tech multiple brush, i mean, a google for example to me is the best value in tech and whether it's a peg ratio, which is a price to an earn beings growth of one or less than one an earnings multiple that's 17, 18 times, and you're getting growth north of 20%. days like today are days when investors do need to be making their list it's a scary time. companies that are printedictab. >> stick around.

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it's now time for the final call carter, let's start with you >> interest rate areas that are sensitive to what's going on, the long end of the curve. i don't like them. kre, iyr, u.s. real estate, also etf. i'm a seller >> okay, tim >> markets are a bunch of sentiment and poxsitioning and fundamentals sentiment is awful so investors remember that there's a lot of bad priced into this market as well. >> okay, and mike, take us home. >> we've had a dip that means we could certainly get a rip. i expect we will see some.

if you're making your bearish puts, do so with put spreads >> that does it for us on "options action" this evening. but we'll be back next friday, 5:30 p.m. eastern. don't go anywhere. the fed factor starts right now. >> this is a paid advertisement for csn. >> you know, the one thing you can count on in numismatics, which is the hobby of collecting coins, is that the pace of change, or change, is glacial. [ chuckling ] okay? we would hope from the -- oftentimes, as numismatists in a hobby and in a profession, we hope for a snail's pace from the united states mint. nothing is done quickly. nothing is done without