right now on options action, the stocks close deep in the red. the major averages are on a three-day losing streak. we will drill down on where to go from here. also, the next big reveal for apple with an iphone event. we chart the next move for the technology giant. we look back at lulu lemon, up 6% on the back of earnings. the professor is here with what you should do next. we're taking your tweets and helping you risk less and make more. i'm courtney reagan and for melissa lee. this is options action live

from the nasdaq market site. we are carter werth, and [ indiscernible ]. gentlemen, thank you for joining us. let's begin tonight with another friday selloff and another down week. the s&p falls 4 out of 5 days, finishing down 3% for the week. the financials get hit harder. shares of the s&p bank index are down almost 4%. with the master here, laying out where one hard-hit name is heading from here. carter, what does the chart tell you? >> we will look at capital one. just as a follow-up from last week when we drill down on regional banks and rate sensitive areas of the market. the big news this week was that the two year yields, after showing a bit of life faltered at the end of the week. the low yields, it is not good for financials in principle. we have seen this in the quarterly reports.

the loan-loss provisions are taking up. as the operators of these enterprises get ready for the assumptive quality deteriorating in the loans they have, let's look at capital one, which is not a high quality lender. they are lower quality. with a few simple charts. we do know, this was a huge win off of the covid-19 lows. they hit 178 last year. now, they are down 43%, it is exactly 50%. does that mean it holds? no, i don't think it does. the second chart is the same timeframe. it annotates the importance of the level for which it is sold off. you are at the level of the pre- covid-19 selloff and the highs of 2017. there is a reason that it has stopped going down. it is finding support. it is not likely to hold. let's drill down more immediately. the next chart is a chart of

capital one. this is an unrelenting downtrend. it looks like we will break again. we will make new lows. we have relative performance, one of the most important factors in investing. this is not a chart of capital one on the screen, this is a relative strength line. this is better to go to the financial sector. we know capital one is going down, but it is going down even more than the sector in which it resides. that is not good. we are sellers. >> the charts make a strong case. what is the trade here on this one? >> it is interesting, when we deal with cyclical stocks, they often look at the market tops. this is because of the economic cycle we have to deal with. right now, if you look at this on a forward basis, capital one

looks exceptionally cheap. this will be lower next year, at $18. that is less than six times earnings. one thing that is interesting is what carter pointed out about loan-loss provisions. we saw an uptick from the first and second quarters for capital one from 680 million to 880 billion. i would flip that around. i would think about it this way. if you have a weaker economy, what is the impairment you should look at for that $400 balance sheet? that ultimately means the increase in the provisions is fairly modest. the real headwinds could see significantly more loan-loss provisions. this is a company that has relied heavily on intensive marketing. many people are watching that now and are familiar with it.

given the fact that the stock has declined quite significantly and options mediums are elevated as a result, we are looking at the quick spread. i was looking at the 190 foot quick spread today. i knew that would cost me about two and half dollars. that is normally what i am looking for. this is a risk relationship of about 3 to 1. right here you are risking 2.5% of the current stock price if it fails to hold this area of support that we have identified. again, one thing that is important to remember, you will see companies looking very, very cheap in situations like this. it is a revision in the financials that will bring truth. >> i know you are worried about what the fed is telling us. if capital one is exhibiting

some pain, but the consumer may have more cracks and credit gets more strained, i can guess what your take would be our capital one. you tell me, i don't want to put words in your mouth. >> it is fine. we tended to be on the same page. i am willing to let you speak for me anytime. there are a couple of things that stick out to me. carter pointed out the relative strength. that tells you quite a bit. if you look at the performance, year to date, it is down double what the xl f is. you mentioned pain. mike mentioned, he did not mention it, he alluded to value traps. that is what capital one is here. you need to think about where we are in terms of the credit and economic cycle. others have come out and said, listen, we do expect there to be turbulence going forward. you think about where capital one is, in terms of the hierarchy of the financial names. it is likely to be one of the first to show cracks.

i think the trade set up going into that name gives you the best opportunity, if there will be credit erosion, you're dealing in a name that will likely have the first mover disadvantage in terms of credit erosion. >> now we go to kroger. we are playing the supermarket stock. what are you doing here with kroger? >> kroger is the opposite circumstance as a financial like capital one which is lower on the demographic scale. we are talking about a consumer staple. this is a low data stock. it is relatively cheap, trading at four dollars, give or take. the company is executing well. they have seen increases in costs. this is probably toward the low end of the range. it is reasonable.

they are really executing quite effectively. there is saying on digital. we do have earnings coming up. this is a name we own in our portfolio. this is the low bid. we have earnings coming up next week. that will present a catalyst for the upside. when i was looking to do is the cause of risk reversal. i was looking at january. i was going to purchase the at the money calls. they would cost less than four dollars. i was going to sell against it. it was looking at $2.80 in premium. the idea was to capture the slightly elevated premium you will see going into a catalyst like this one. because it is a low beta stock, the downside is having the stock at $45, it is reasonable to take on, given that the stock has experienced some weakness. we did end this one to our

position. >> we go from the financial name to the consumer staple name. what are the technicals for the kroger charts? >> of all the points, kroger is low data. consider this, kroger has the same sales as home depot. it is 1/10 that of home depot at 300. it is because it is a low margin business selling groceries. kroger, since 1979, has paste the s&p. here is the one you are to your chart. this is the uptrend and the selloff. we bounced right off of the trendline. look at the second chart. this is over 5 years. this is a perfect uptrend. look at the all data chart. this is the final chart. this is a perfect uptrend. this stock has kept up since

1979. started on the lower beta basis in a steady way. it is the opposite of regional banks. this is the place to be on the long side. >> that is interesting. we will turn our attention to energy. we are up 20%, and we have a way to play the group for high energy gains. we have seen some nice moves. what would you do now? >> carter did mention, you don't always have the opportunity to determine why the stock does this. it be mindful of where you have positioned yourself, and where you want to get along in name. speaking of beta, this is high beta. that is why i have chosen this over a name like xle. november is at 145 . i also

have a twist. you have the option to finance this with a downside short dated input. you will get this call for $11.50. you will sell this at four dollars. this is a great risk reward. your profitable above that mark. we have this down market. it is a situation where, this is an area where analysts are constructive. we have all types of geopolitical headline risk, as far as commodity prices coming out of ukraine and russia. this is an area where you can try to buy on the pullback. this is a way for you to do this on a risk that is defined. you can check out the volatility and sell the downside and finance that to make it cheaper. >> mike, what is your take on the xlp trade?

>> are become full selling that. i do have to say that, because i own it. this would be a risk that you face if you sell that. you would only at a lower price than where it is currently trading. obviously, if i own it, that is the same as saying i am willing to buy it here. be willing to buy it at a lower price is more reasonable. it calls for the risk reversal. it makes sense. still to come, we are gearing up for the big launch from apple. this is the first in person event since before the pandemic. traders lay out what to expect from that stock and everything options action. check out our news letter. we have more options action right after this.

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we're back on options action. mark your calendars, the yesterday and technologies coming up. we have the iphone 14 coming up on wednesday. they had their first in person event since before covid-19. how should you play it? you are all here to help us tackle this tighten and upgrade our portfolios. >> this is such an important company to the broader economy and the market. >> yeah. it is interesting.

if you look at the company from an operating standpoint, in many ways, it is almost the ideal company to be involved in the current environment, which is, we have rising rates. you want to be in low duration equities. companies generating a lot of income and cash flow now, as opposed to buying the growth companies that could have negative earnings and our prospect of the future. the problem i have with apple, at 25 times full-year earnings for next year, let's call it a $2.5 trillion market cap, it is not cheap. that is where we find ourselves in some trouble. will not grow at the same pace that it has historically. for a long time, that was the real attraction we saw in names like microsoft and apple. remember they were trading at material discounts on the basic premise. the company has become so big they could not grow much more. at that remains true. they are not trading at a discount to the market anymore. i think the cash flow story

supports it. the multiple is a resistance on the upside. >> carter, what are your thoughts on apple? >> that is the lens i have. the issue is, sometimes, there is no other way to say it, the stock is not at an inflection point. what was up 35% from its low, it was stretched. it has sold off almost 13%. the pressing is short. it seems overstate. buying it down, that does not seem like a technique i would want to pursue. it is where it belongs. i would rather be short then long. >> how about you? what is your take on apple? we did allude to this in the past. apple tends to do this.

this has presented itself as a margin of safety. i do understand the argument as far as flying to quality in turbulent times. you have not really seen the pullback in this name like you have with others. you have some high flyers. apple has not suffered the same downside movement that we have seen from other names that generate high cash flow. again, i am not here to trade for the sake of trading. i find it very hard to be long at this current evaluation. >> it is a very rich evaluation. coming up, we're stretching into one of mike's retail calls. we have the lulu trade. do not miss our special, back to business, coming up right now. we have more options action still to come, right after this break.

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welcome back to options action. mike laid out away to play lulu lemon. as big as the company has become, it has a lot of meaningful growth opportunities. i was looking at the spread, looking out to september. we are fine one and selling the inputs. before the big jump on the back of yesterday's results, what are you doing with lulu lemon now? >> we did own it going into earnings. the underlying shares as indicated, we hold it. it has been a roller coaster. the stock is unchanged, week on week. one thing we talked about last week, we believe the company is

trading at multiple growth. it is 27 times it grew. it was at 33% on the bottom line, year on year. they are demonstrating that they can execute with respect to the foot spread. it was really [ indiscernible ]. we are holding onto that for now. it represents a decent hedge to the downside. >> you have a take on how you would play it from here. i am looking at this slightly differently. what do you do when you have had a name that made a move? you want exposure because you believe the type of consumer services is higher end. it has the ability to pass on inflation. you don't want to chase. you want to minimize the cash outlay. i'm looking at the october 275, 330. i am selling that. i am buying the call at 3 1/4.

he don't really start to participate on the upside until 110%. the downside is that you buy the stock down at a discount. it's about a 14% discount because you have the cash outlay. that is how i like to play names that already have made a significant move. i believe in the name, but i don't want to chase the move late to the party. when you look at the chart, what does this tell you? this was a stock, before the earnings pop, it was down almost 9%. it was saved by the bell, if you will. it has overhead supply. my hunch would be to take advantage of this reprieve. i would just ask that. >> lulu is up almost 7%.

up next, we have your tweets and the final call. options action is sponsored by think or swim by td ameritrade.

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welcome back to options action. we are taking tweets. at first fans as i owned the tesla september 2 273 261, vertical put spread going into the close. the tesla drops below 273 during after hours, am i at risk of assignment? micah, what do you think? stomach this is an excellent question. the short version is yes. that is because there is a narrow window of time after the markets close when the options traders can file something called a contrary exercise advice. on the expiration, drops below the short strike. that is a possibility. it will only be sophisticated options traders it will do that. it is an important

consideration. the next tweet says, i think the chip selloff is overdone. i looking for a balance from nvidia . what you think about the call spread? i picked some up today for $6.30? what are your thoughts on nvidia? >> i like that right level. i don't like the stock. the gap is down from two days ago. nvidia is acting worse. i would not want to be involved in nvidia. >> would you purchase the natural gas fund and sell the calls against it? >> i would, but i will keep it quick, short dated and upside. there is a lot of geopolitical turbulence. >> all right, it is time for the final carl call. cell capital one and by

kroger. >> i will cell capital one as well. >> okay, and mike? >> use quick spreads on capital one, and get long kroger and macaroni. we covered a lot of ground. that does it for us on options tonight on this special back to business, a rocky start to september. stocks tumbling in the afternoon. on average september is the worst month for the major indexes. is today's action just the start of a swoon? turning to losses after investors forgot about the jobs report and focused instead on the growing energy or in europe. we will break it