much as it quickly discards them. it's a pretty hard lesson that, for all the celebrity worship and the whole hollywood limelight, that that limelight, as it were, can be turned off very quickly. right now on options action, the energy trade has been running at low power this week the sector underperforming the major average but the protesser set to make the case now is the time to get bullish. plus time the send your strong dollars on an investing trip abroad one of our traders says you should we doing just that. later from the iphone reveal to our big trade. and as always it is friday and we are taking your tweets. i'm melissa lee. this is options action let's get right to it. the energy sector has garnered a lot of attention for the up

trend since the middle of the summer but the trend says it's been going a lot longer than that and part of a bigger move higher so carter, what are you looking at >> to your point sort of a dull week for energy shares, the sector but of course it's the only one that's had a really good year, right, up to 45% let's look at a few charts and figure it out together the first is simply a relative strength or ratio. all right, it's the performance of energy versus the s&p and what we know, of course, is energy having underperformed badly in 2018, '19, '20 has had a big '21, '22 let's look at energy itself. the next is a five-year chart of

the xle, the atfetf that matches the sector now we're re-approaching the highs. in my eyes that's setup well to break out and finally make again the new highs. and then the here and now chart, third and final. this is xle again, over six months and what we know you have very well-defined minor uptrend in effect since the june, july low. and we've bounced off that trend line well repeatedly, and to my eye we go higher >> mike, what's the trade? >> you know, i think one thing we should say is that i think the days of $50 a barrel crude are probably not on the near term horizon for us. and when we look at xle, the etf really it's a tale of two stocks in particular, exxon and chevron. when we look at exxon from their most recent results we see

they're operating well they're accelerating their buy backs at this point, so i think that's a good sign and when we look at chevron this is a company trying to focus their time and attention pretty heavily particularly on the gas side in particular they don't have the kind of funding problems that shale has in terms of building pipe lines and getting natural gas out there. just being in texas if they're going to ship out to lng plants on the texas coast we take a look at the overall sector we're looking at price to cash we're getting 11.5% in that neighborhood so very reasonably priced the trade i'm looking at is one i often look to in situations where i think there could be some downicide potential i don't want to have exposure to november the buy the 80 strike

calls and financing that in call with sale. the idea here is to get about 10% up side participation between now and november expereration while avoiding for the most part 10% down side. of course this will behave a little bit like owning the shale in the near-term would but it's going to look like the chart on your screen to the immediate exposure on the down side >> what do you think of mike's trade? >> i think it makes a lot of sense. clearly it's a high conviction trade because you are selling a down side put. down 10% i don't know how much into a declining market going to reverse to that up side and makes a lot of sense there we've talked a lot about capital discipline, flee cash flow yield. all of those fundamentals also speak to mike's point. i typically like the setup

>> carter, what does the oil chart look like? does it look the same or similar? >> you get the spike to 130 a barrel, wall street predicts 200, of course it goes the exact opposite way and oil collapsed i like oil a lot it's down now and i think a lot of up side potential >> mike, did you think about putting on an oil trade, an oh trade? >> yeah, oh is different because it's not directly exposed to oil. we think about integrated companies they are essentially a reserve. rather than taking a look at some of for example the midstream and down stream companies which have different potential impacts. but, i mean, look the united states is the largest oil producer but the second largest is russia. that situation is not going to get immediately resolved oil prices have been repressed and we have seen some decline in consumer demand certainly transportation fuel demand is down more than a it was a year

ago. and actually to some extent as prices decline we might expect to see some reversion to the mean here. so i think all of those things suggests probably the weakness we've seen in crude more recently has probably come to an end. >> u.s. market snapping a losing streak seemingly feeling a bit better about the fed, inflation and economy, but the rest of the world is still looking at recessionary pressures what are you looking at? >> as you mention there is a tug-of-war between philosophically people believe we're kind of on the precipice of a new bull market or declining market i'm not going to get into the inner workings of that, but i will offer if you are in the camp of wanting to own a u.s. market i would look at a way to balance that out in an area i don't think there's much debate about whether or not they are in a worse situation both from an inflation standpoint and from a growth standpoint. so i'm looking at efa which is

pretty much your developed market ex-u.s., ex-canada. so i'm looking about a year out put spread which you can buy about $1.20. it's going to be closer to $1 here you're going to sell the 55 put at about 88 cents, net net you're going to spend about $12.01 a and what you're getting is protect. what you're ultimately going to get is exposure -- down side exposure to all of the geopolitical rifts going on with russia and ukraine and how the nat gas situation will play out. for those bullish the u.s. market you've got to take chips off the table somewhere and i think this is a way to hedge your portfolio if you don't actually want to do it in the domestic u.s. market

>> keep in mind it has been an underperformer relative to the s&p, but if you look on a five year basis the correlation runs about 80%. what we know it's developed markets, europe, austria, asia, far east the issue is it better or worse? and on that it is worse. >> worse what would you ato that before we get to mike >> i mean typically the u.s. domestic market has has outperformed any really time frame you've looked at so i didn't agree with carter that's the reason i'm suggesting you put on a trade that lets you profit if efa rolls over >> mike, your thoughts >> any economic pressures you think you're facing right now europe is facing them harder

and actually developed asia they have some problems too just demographically. i think as a hedge against the long u.s. trade i like it a lot. >> all right, still to come. a powerful rally over the last two months in the utilities. can you profit from this power play stick around and find out. and for everything options action check out our website and our newsletter there's much more options action right after this

welcome back to "options action." despite headlines of power shorages out west the utilities have a trend to plug into. mike >> yeah, so just taking a look what's going on in the markets generally there's a lot to like about the utilities. for one thing if we are in a rising rate environment that means that you probably want to be in what we call short duration equities, and utilities qualify in this area they are a higher yield by and large nearly double the dividend yield, actually, for the s&p so that's an attractive element. another thing we're entering a typically volatile time of year and the market is exhibiting significant volatility as well, and utilities tend to have lower volatility that makes them an interesting place to invest additionally but an important thing to think

about, too, our power situation in the united states is transitioning, and it is transitioning to renewables. it is transitioning to electric vehicles and as we think about that really from an economic standpoint in terms of capital investment, in terms of tax, utilities are really the space that are most ideally positioned to take advantage of that. now, looking at xlu, which is the proxy for utilities i'm taking a look at now, i am bullish. but of course it's kind of difficult, i imagine, given the out-performance we've seen for people to chase it here. and for that reason i was looking at using a call spread i was specifically looking out to november, and i was looking for 75, 82 call spread you'll notice this one is slightly in the money. what that means is you're going to have less of a standstill rate of decay because that 75 strike is actually away from the current level of xlu one quick point i would remind everybody of if you own xlu you

get the dividend, and if you own call options you do not. so this is really a way to play for price action more than it is yield, but of course if you own xlu you could consider just selling those 82 strike calls against it as well >> carter, last night on fast money you floored us with your stat on utilities versus xpx over time. >> sure, that was fun. let's look at charts and we can talk about that stat again so i have some xlu charts. we can roll through them fairly quickly. they're what you've seen before, but i think they make sense at least to my eye. here's the first one, no charts, no drawings. if you see the second iteration, i don't know if we have them there, but basically utilities are toying with the prospects of breaking out there you see it look at the next iteration, whether you call it a sort of head and shoulders bottom, a cup and handle, it has all the

elements of something poised to break out. but what you're referring to, melissa, which is a fascinating thing of course is utilities are generally boring they're low beta, conservative, they're safe, defensive. after all they have loud rates of return. the government controls them but the incredible thing is if you were to go back to 1997 the s&p has doubled the performance of the utility sector, but if you look at the total return s&p and the total return sector utilities, they're dead in it which is very humbling for all of us constantly trying to pick winners and find actionable things when riding utilities and reinvesting dividends has done as well with the s&p with its dividends. >> can you imagine just put it all in utilities and not to mention all the commission, the fees that you're paying to trade.

what are your thoughts here on utilities in general and mike's trade specifically >> i'll also add you won't have the same volatility you will there as you will in the broader market i think on the surface level you look at the risk reward and typically i don't like to look at 1-3, 1-4 type of pay outs but you gave two disclaimers secondly the fact you have that in the money call so considering you're already $2 in the money it's a low beta, cash yield positive, div depend type of situation you want to be in particular in this market environment. >> mike, last word >> yeah, i mean that's really getting right to it which is, you know, over the past 25 years this has not really is a sector we've thought of as having much growth opportunity but there is no question we are going to see a transformation in the way energy is delivered in this country, and this is really the industry that's going to be

at the forefront of it and regulated or not it's going to be a beneficiary. all right, up next with this week's iphone event behind us we're calling in our apple trade from a few weeks ago find out what to do with it next more options action in just a few. oh, is this what we're wearing today? see it works because it's pattern on pattern on pattern. anything but that one. come on bruno, don't be shy. there goes my park cred. we can't stop fashion fiascos, but petmeds is your trusted pet health expert.

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and a dedicated trade desk of expert-level support. that will push you to be even better. and just might change how you trade—forever. because once you experience thinkorswim® by td ameritrade ♪♪♪ there's no going back. welcome back to options action in the middle of last month carter and mike turned sour on apple not expecting even this week's iphone event to deliver much of a pop. since then the stock is indeed down more than 5%. so, mike and carter, what do we do here? carter, how do the charts look at this point? >> to be fair it's kind of a no-man's-land. if it's dropped to the extent and magnitude it has you really buy it because it's dropped, that's no technique. at the same time stay short, it's come down a long way.

i will say it's important yet again on a week over week basis apple underperformed while it was up what 1.2, 1.3% on the week that's pretty poor compared to the s&p up 3.6 and compared to the tech sector up 3.3. it's not a juncture with making a big bet makes a lot of sense >> mike, what do you think >> the trade we were looking at for apple is a put spread and it's run-down to a level it's trying to take money off the table with that put spread i would say the stock performance this week given the announcement they made is pretty poor you would hope something like that would propel it to out-performance, it didn't so i wouldn't be a buyer here despite the fact it's been tough to bet against this company for a number of years. >> a lot of investors think apple is the end-all be all when it comes to defensive stocks

it's got a stack in the balance sheet, an executer in terms of delivering and yet here we are. it does seem it's more of an apple specific problem because of the under-performance relative to big cap tech this week >> sure, no argument to any of those points you made. i will say i'm probably going to agree with them but probably from a slightly different lens here if you're owning the index or the s&p overall you're already quite long a bit of apple. so adding to that existing position to me and essentially going overweight the name doesn't make a whole lot of sense. i don't need to tell you i think the market is headed lower i've been that way for quite some time here i will say on a relative basis, yes, i like apple a lot more than i like other pockets of the market but, again, that's a relative value trade. but here looking to own apple i don't see a compelling reason to own it at this level or at these

valuations >> mike? >> yeah, i mean that's the other thing that in terms of valuations this name, and i think we've previously mentioned companies like microsoft for a long time unzuvdly traded at big discounts to the market overall. it no longer does, and you really need to continue to see them execute, which the company does very, very well but they do sell expensive products, and consumers have been stressed. we are seeing some rising delinquencies in places that suggests to me, you know, that the capacity essentially for consumers to go out and buy the latest and greatest in this case the iphone 14 is not the greatest >> carter, so goes apple, so goes big cap tech. so goes s&p 500. >> there's a good bit of that. #.2%, now just a day down to 7%. apple obviously informs the market there's a lot of auto

correlation, so not so good for tech this week if, in fact, look at the equal weight s&p technology sector versus the actual it underperformed the actual. tech is just not a place i think you want to be overweight. >> pockets, though, of tech? are there pockets in tech you like at this point >> sure. i mean i would say, you know, if you look at defense, certain cloud names i mean but here's the thing. it thing that will save you in tech right now in terms of performance is also the thing that could hurt you the most take a dukeo sign, for example that stock was down 60% year to date before it got revision in terms of guidance or a reaffirmation of guidance when people really thought this thing was going to rollover. i'm not a proepant going out and playing the highest pockets of

the market on the flip side it is where you're seeing these one day to one week moves that can actually make your entire year, but that is a game of roulette. right now i don't think that's supported in the pocket of the market that presents the most opportunity. with reward comes risk and i'm unwilling to take that piece of the risk all right, up next we're answering your questions on unexpected stock pops and much more we'll be right back.

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very high-priced if you think about it in terms of cash flow yield. right now about 20% free cash flow yield is what you're looking at versus 2023 estimate of free cash about $4.1 billion. i do like the space despite the fact i think it's going to have to come down a little bit. >> key levels to watch on the s&p 500. carter >> so many levels and they're all key i suppose, but i would cite the following there's an unfilled gap above at 4,218. that would represent a 3% rise from where we close the day and there's an unfilled gap below at 37.96. both are in play those are levels both on the up side and down side i'd be very aware of >> final call time kick us off. >> i think efa put spreads make a pretty compelling hedging trade. >> carter? >> i want to buy xlu, utilities

and i want to buy energy, xle. >> yeah, i like both of those and i think you can use either call spreads risk verrlss or call spreads >> that does it for us crypto night i (audience cheering) - [announcer] the following is a paid presentation for emeril's all new power airfryer 360, brought ton americtristar products incorporated. - hey everybody, it's emeril with huge news. we're introducing an all new pro-grade appliance that now you can have in your home. so, get ready to kick it up a notch. (audience cheering and clapping) - [announcer] we all love fried foods, right now. now you can. introducing emeril lagasse's all new power airfryer 360.