high to the lowest low in just a period of a couple of years. it's a classic american story in some ways. >> glad that you guys could come by and take a look around. so thanks again, and we'll see you later. welcome to friday and "options action. i'm melissa lee. the markets taking a late-day turn lower to cap you have an ugly week, month, and quarter. the s&p 500 at a new 2022 low. one of the big surprises this week, apple. you've gotten a lot of questions on this one since we proposed it as a play last week. is the theory still intact how should we adjust we'll go through it together for those who want another more mild mannered trade, we've got something for meat and potatoes. first let's get quick thoughts on the week from all of and what

a week it was. first let's get quick thoughts carter, kick it off. >> bad week, and i think that the seduction -- and that's why you use that word, somehow we're going to bottom at the june low, put in a double bottom, it's not like that. it's a hit parade. there's wisdom in price. stocks go down a lot, and then what happens they start missing their earnings that's what we're getting now, the second act the data's coming back from individual companies it's not good. >> scott, what was your take >> melissa, horrible week, but i thought the close was really surprising if you look at the roll volatility index, s&p lost 55 handles today, but the vicks gave back. that's the friday effect contrary to what carter said, i think most people think the june low is going to hold, the worst

is passed and they're not, surprisingly, not particularly worried about what's going to happen in either the uk or ukraine over the weekend >> mike, i feel like you're in carter's camp. i feel like you think the june low won't hold you tell me? >> that's a good guess yeah i don't think it's going to hold here's the premise for why i don't think it will. if we think about what happen pd to the economy during the pandemic, obviously in terms of productivity, wealth creation, it was decimated but the reason we saw a lot of prices go higher, prices for homes, prices for cars, prices for stocks, prices for bonds was of course because we are creating a lot of money rather than wealth. and what we're hearing from the fed right now is they're going to undo a lot of that. if that's true, then we have to get back to basics and start thinking about what the value of things are now, if the cost of debt capital rises that means the earnings of indebted companies are going to go down as their interest goes

up at the same time that's happening, the multiple you should be paying for socks is also going down. if you put those two things together, that does not take you back to the june lows. it takes you to numbers that are considerably lower so as long as the fed stays on the track that they are currently -- and i'm not saying that absolute certainty, because of course central bankers have blinked in the past they've done it most of the time, actually, but if they don't blink, we're going lower. >> let's get to some trades, shall we if you're sick of the volatility -- that's a hint -- you sold what you need to, but sometimes it's best to go back to tried and true. carter worth, is that an apt way to describe biotech? >> remember, this is a very sort of high fliers risk/reward area. you get it right, stocks triple. wrong, cut half. over the weeks staples got murdered, utilities even worse health care was down guess what was up?

biotech. that's an important thing. a lot of little ones look to be bombing. let's look at some charts. first is xbi, that's the etf what you see is fairly well defined lows let's annotate those lows. the next shows you how procise they are we've bounced exactly at the covid low. all right, moving on, how can we draw the lines we can draw them as a cup and handle, head and shoulders doesn't matter what you call it, it has all the elements of a reversal formation finally, look at the here and now charts those were five-year charts. these are one year charts. same far with a different set of lines, look at the head and shoulders bottom even as "x" value is pulled become, and you can see that it's drifted lower for the past sort of eight weeks. it's making new highs for the

s&p 500. we like it a lot >> mike, what's the trade here >> we have xbi trading close five-year lows it's pretty volatile, so we saw that area that carter was pointing to. implied volatility for xbi is close to five-year highs this sets up an interesting dynamic for a trade we really like in situations like this because when you get higher implied volatilities that we have now, some of the spreads we like to use ends up with wider break evens. so right now the implied volatility is approximately 50%, and that's versus a 33% average. if you take a look at a call spread risk reversal going out three months, the break points for that trade are going to be down 8% for the short put and up 8% for the short call. with implied volatility at 50%,

those break evens expand to down # 1% and up 11%. so what does that mean we could put that trade on for approximately even your downside risk is that you're going to get long xbi, at that lower short put strike of 72, which is a pretty substantial discount to where it closed today alturn lavly you have exposure from 82 up to 90 on the high side, so essentially 10% of upside between now and december. you get called at 90 so think about that. when you're looking at trades like this in higher volatility environments, you're downside and upside break evens demand, that's a stock we like, especially if we can draw a line on the downside, which is what carter is trying to do here. >> scott, what do you think a this trade >> it's interesting. i like this space, particularly

right now, because it's not going to be whip sawed with the rest of the market, and i think mike laid out a strategy that i know he likes to use, and i think it makes a tremendous amount of sense here particularly in the volatility regime we see right now, again, this makes a lot of sense. if you end up take a loss on this you have to remember why you put the trade on, and it's because we've seen strength in the sector, and it's just the alternative to buying the etf here >> let's switch gears. check out oil. crude following 2%, closing out the quarter, down nearly 25% that's the first negative quarter since q1 of 2020 but will the crush continue? scott, you've got a way to play the commodity. >> i do. melissa, it's interesting while crude oil's had a tough time, in general, energy prices have stabilized we saw what happened in gasoline prices early in the year, and

then they came back down that's fantastic if you look at the names, exxon mobil, that stock is back in the middle of the range it enjoyed most of the year some of our fears abou economic growth are going to be unrealize, jobless claims. the thing about exxon mobil is all -- inherently diversified just by the nature of their business i think exxon mobil is going to go sideways for a while. we're using options. we can take advantage of that, and the way to do it in exxon mobil is by selling an iron condor let's not get too flummoxed by the terminology. we do that in november by selling a 75 strike put and a 95 strike call and limiting our risk one way to look at it is we're selling a strangle and limiting the risk by buying a wider strangle when i put this on today i collected a net of $2.15

that is my max potential profit. my max potential loss is $2.85, but that only happens with exxon mobil below 75 at the november expiration or above 100. and so that would require a break of either 14% or a rally just over 14%, and the max profit we're going to realize between 80s dollar and $95 at that expiration. again, i think we're going to see energy prices and energy names go sideways for a while. and we get to take advantage of that while defining our risk >> carter, what do the charts tell you about exxon or the sector >> importantly, in a very bad week, again, with utilities and everything else getting hurt guess what else besides biotech was up in the week energy oil services, oih, nicely.

i like it. i like energy. >> mike, do you like the trade >> yeah, look, we have for support basically we have been helping to depress oil prices recently by selling out of the spr among other things, and now we have a slowing economy. those things help keep a lid on oil prices, but basically maintaining some level of support is that at some point, the spr, lows not seen since 1984 and lower if you think about it relative to global consumption on a daily basis, that creates support for oil and then of course we still have a war going on, and the prosecutor of that war is one of the largest oil producers in the world. so you combine those things and i can see where you have some measure of support but also some measure of resistance. this does make some sense to me, and i am long energy balanced myself all right. still to come, last week we suggested a play to for apple to the long side. this week that looks not so good but remember why we use options and how they layer in flexible to keep up more "options action" check out our website and newsletter

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action last week, carter constructed a long play on apple as a relatively defensive position. it was based on a broader thesis this week, however, we got some specific negative news from the company that whipsawed us in the other direction. we've gotten questions on this one. let's get to answers with how to adjust on mike's call to. >> first thing we want to point out is we thought this might be a more defensive play, and we'll let carter get to whether or not that thesis remains intact despite this week's weakness on a relative basis but the important thing to think about was that in a highly volatile market we used a relatively simple structure. we simply bought the november 1, 60 calls by doing that we had exposure to the upside but limited downside. the share are up more than we spent to get them. four or five bucks and they're down $3 today.

a couple things we can do here one, the amount of remaining risk in this trade is relatively limited. on a per share basis you're looking at $1.50 per share is the total risk remaining if you keep hold of this position at most you would lose $4.50 if these things expire worthless. the other thing is, though, when you have a really simple position like just long call, it's also possible to trade around that position you could short stock against it, if you want to go around and use hedge. but of course if your thesis is you want to be long, something you can do is leg into a risk reversal by selling downside puts to help the finance the purchase of those calls at that higher price when i was looking at this earlier today, you could sell the 115 puts for as much or more than those calls are still worth at this point. you'll of course still be taking on the risk you own the stock at that 115 strike price point. that's considerably lower than

today i heard at the end of fast money they thought it might go down to june lows. that 115 strike is well below that >> carter, do the technicals support the original long-term thesis >> right, so the issue here is the relative strength, right the stock on monday. tuesday, yet knew relative strength highs, nasdaq 100, and out comes this news, which drops the stock. let's look at a couple charts. the two panel, the line is where the stock peaks. beginning of the year. but the bottom shows relative performance. outperforming all the way. what i would look for to back away from this is if we break trend, and this is an absolute trend. we hold here and bounce, stick with it. we undercut it, don't. and then finally, check this out. this is an all data chart going back to the stock's ipo in the early 1980s. we are literally -- talk about

converging trend lines it's as low as the imagination will allow. >> scott, what's your take here? >> listen, it's a great company, and if i get to buy it at a much cheaper level i would love to do that i think a global take on this is, don't think, oh, how much lower can my call go it can go down by another $1.50, so don't let it go away. trade around it and make a better trade. >> scott, you've got another trade, and some might think this is also a defensive play >> it is and i do think it is a defensive play we tend to think of staples, the traditional staple as defensive plays. the companies that make the stuff that you either have to buy or sell the stuff that you have to buy. but, you know, names like coke

and pepsi and walmart still have stratospheric p.e.s. all those p.e.s are the in mid 20s. let's take a look at a defensive name you can buy for a discount. that's verizon verizon is a good business, low p.e. of 7.5, good cash flow of $10 billion for the trailing 12 months, and listen, this is essentially a utility. some would say it's a ubiquitous utility, everybody has to have it with a pe of about 7.5 and a yield of 6.5%, and really good fundamentals, we can take advantage by selling the november 36 strike put in verizon. when i put this together we sell it for 95 cents, and we're going to take that and buy a call. so we also get upside exposure and we're going put on a risk reverse. we're paying a net of a nickel it would go "x" dividend on october 6th. we'll see the stock balled in. we're putting on a risk reversal, selling a put, using that to buy a call

we get a bullish exposure to the upside on a name that i would love to buy given the dividend yield and the really minuscule p. e. >> mike, your thoughts o verizon and on this trade? >> yeah, so the dynamics we're setting up, you'll notice that the risk reversal that scott has here gives you very nearside exposure but doesn't give you downside exposure until the stock falls by another couple bucks. part of that as he pointed out is a function of the dividend. another part of that is going to be what we call skew there's a little bit of a bid for puts one of the reasons that would be the case is the telecom stocks tend to carry substantial debt one of the reasons we see the p.e. where we do, the skew where we do is i think investors now are shunning companies that carry debt on their balance sheet, companies like verizon and at&t, which i happen to own, by the way i think there's a good reason for that, but i also think there's a point at which we ought to recognize these

companies are going to stick around, at least for the near future and so i think this trade makes a bit of sense this is not going that far-out in time. so you have time to adjust your view in the next couple of weeks. >> carter, how does this one look >> i'm on the other side of this verizon today is same as it was in september of 1997 that's 20 years adjusted for inflation, you talk about a disaster what about now here's the thing, it has not kept up on utilities it is an operating business that is basically shrinking, as far as i can tell, land lines and all other things it's a heavy debt user i just don't like it. >> scott, last word on this? pretty strong arguments against your position. >> i think carter's forgetting the fact that it's paid a whole bunch of money in dividends over that time, and relatively unvolatile, so i don't think we're going to have that much trouble here.

>> hold on, not forgetting dividends. utilities pay divdants, too. i'm just talking about the utility average versus verizon utilities are up 300%, 400%, and verizon is -- >> we're going to let that go. street fight on utilities. who knew coming up we're taking your question to the tweets. more "options action" after this hey professor, subscriptions are down but that's only an estimated 15% of their valuation. do you think the market is overreacting? how'd you know that? the company profile tool, in thinkorswim®. yes, i love you!! please ignore that. td ameritrade. award-winning customer service that has your back.

welcome back to "options action." time to take some tweets the first one is for everyone. the entire panel gets to play. what is your favorite buy and hold forever name to write out of the money covered calls scott, why don't you kick it off. >> well, melissa, obviously the problem here is if you're buying covered calls you may not get to hold it forever, but you have to take that into account for me it's google wonderful business that throws off a ton of cash. in october at the money calls have a 40-% implied so you get something for selling those calls. >> carter? >> it's the seventh largest stock in the s&p, and it's defensive, united health care.

>> unh mike khouw >> the guy asking the question said forever, which implies a long time. google hasn't been around that long i like john deere. that was found in the 1837 when you're doing calls you don't want stocks that are going to explode to the upside and you don't want things that are going to go out of business, either. that's also true >> our next tweet says with the continued strength of the dollar, how about a update on gold carter, how about it >> dollar's cracking here. extended bad week. what was up besides biotech and energy gdx, up 7.5% gold bullion also up. i like gold. >> our next viewer asked, what do you think about cash secure puts in amd? forward eps is 15 times. mike >> i like it this is one of the situations where you're looking at a name,

the price has been significantly depressed and implied volatility is higher. so both of those things setup nicely, but the chart doesn't look so good, although i'm not the right person to ask about that there's somebody else on this panel who is >> who would that be raise your hand, please. >> i'll take a shot at that. >> i'm with mike. >> that's it >> that's it >> all right well put up next, we've got the final call thanks to avalara we can calculate sales tax on almost anything, anywhere, automatically. avalarahhhhh.

what if tax rates change? ahhhhhh. filing sales tax returns? ahhhhhh. managing exemption certificates? ahhhhhh. business license guidance? ahhhhhh. does it connect with accounting? ahhhhhh. item classification? ahhhhhh. cross-border sales? ahhhhhh. what about? ahhhhhh. ahhhhhh. do you have those budget markups? thank you. mmhm. [bubbles]

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joining us this week mike. >> i like call spread reversals. for those thinking of buying the falling "i"s, calls are a better way to do it. >> what a week, what a month, what a quarter we'll be back here next friday at 5:30 p.m. eastern but do not go anywhere "mad money" with jim cramer starts right now (dramatic music) - welcome to today's program. i'm milton lawrence and with me is dr. wendy walsh. our topic on today's program is the potential health risk individuals and families who have served, worked, or lived on marine base camp lejeune, or marine corps air station new river in north carolina. scientific and medical evidence indicate