right now on "options action," the state of the consumer so important that we are devoting a second week to it we're getting ahead of earnings from target, dollar general, and two under the radar auto related names. then we're following in the grocery footsteps of category leader walmart with the number two and three in the space slated to report next week finally, an arctic blast from the past week that is, and yeti, and how we're managing a trade that left us cold. this is "options action" live from the nasdaq site on the desk, mike khouw, carter

worth, and bonawyn eisen another pivotal week for earns, so we're devoting a second options friday to them we are talking target, up 10% but sliding from recent highs. carter, what do the chart say? >> two ways to look at target. of course on its own and as an absolute chart as bearish to bullish reversal if you look at that, walmart is the favorite and target is the less desired or wanted on wall street we're playing the opposite we think target is actually going to do better on its earnings result than walmart did on it. >> one of the reasons why is they're more exposed to consumer discretionary than staples mike >> this is an interesting situation, because target doesn't look terribly cheap on a trailing basis this is a name that's moved

sharply on the last several earnings they have had they have had two double digit moves out of the last three earnings they reported implying an 8.5% move right now. this is a difficult situation. i would not be inclined to go out and purchase to stock right here but i do think that when you consider the environment we're in, the fact that we've seen -- they had some good relative strength in target today i think one thing you could do is look out to the end of march, the march ending 170/190 call spread i was looking at that today. you could spend just over a quarter distance between the strikes. $20 widespread you'll spend just over $5. if you have a name that's going to move, call it 8%, 9% over the next week to ten days, this is a way when, even though options premiums are elevated, you can optimize that risk it's one of the ways you can think about making a bullish

play in this name and others i think we're in a tough market environment, and this is a way you can limit your risk when you're making an upside bet. >> bonawyn, three for three, bullish target >> no, although i do like the trade. i like the fact that you're outlaying a limited number of cash the options spread allows to you contain your risk. you know what the payouts are going to be. i'm just not inclined to be getting any more exposure to the consumer even though there's a decent business mix. walmart beat earning like the guidance aninventory. i'm inclined to think a similar situation might happen if you want to play the bull case, this is the way i would do it however. >> another consumer facing name, auto zone. that stock also positive for the year, carter. >> this, if you were ever to look for something that's north by northeast, steadily higher, never extended, auto zone is it.

>> look at that chart. >> since its ipo, it's almost doubled that of microsoft. this is one of the most reliable operating companies that exists, and i think it will just be more of the same in response to earnings. >> why doesn't it look overextended >> it's not. that's on your screen you're seeing with the chart. the rate of change if you look at a log chart, it's not getting any further ahead of itself than it's been in any proceeding 12 month period. >> bonawyn >> i like this one, particularly when compared to an nnap i'm going with auto zone particularly when you look at margins and the inflation that you're seeing in the auto space, right? i think used cars and new cars bode well for an ability to expand or at least hold margin in this particular game. >> mike? >> you have a consumer that's under some pressure, you know, when we have really low rates, you didn't like your car, you could go and trade it in, have low monthly payments

we had obviously very high used car prices as well if you have a consumer that's being stretched a little bit, maybe you're going to try to pai maintain your old car. this is a company that's delivered consistently good eps growth now 20 times trailing but looking at 13%, 14% growth i already said i thought s&p earnings overall are going to fall, but this is a place i could see them rising because i think this is an area you are going to see consumer demand because they're under such pressure. >> i imagine the stock is such an outlier to auto stocks and consumer stocks. >> not high correlation. if you look at o'reilly, it's almost as good to your question of extended, if you measure how far above its moving average it is, it is actually not extended. it's very different than aap as an operator, and the stock reflects that. >> the rival is advanced auto

parts. shares down more than 5% this year, so what do you see in that chart? >> this is the wequal and opposite circle if one is north by northeast,s this south by southwest, down and to the right. generally speaking as a rule, don't buy stocks in downtrends >> bonawyn, this is one you like >> no, no, no, let's not put words in my mouth and don't put those words in my mouth. the only positive thing i really can say is it's multiple, 11, 11 1/2 times but that's more of a value trap. if you look at before, there's a reason auto zone trades at a premium. >> it's trading at 11 1/2 times earnings because year on year participating top line growth is really negative. going to be flat year on year. same thing with eps. this is not a growing company. in real terms it's actually a

shrinking company, and that's what a value trap basically is perplexing because there has to be op operational issues that could be resolved because you see other operators in the space who are doing okay, but they are not. >> okay, bonawyn would rather not. let's be clear finally, dollar general sliding 13% this year, but if more consumers trade down, could its stock trade up, mike >> yeah, it's interesting. doesn't look that way, does it you know, that would be the natural conclusion that we would make now, one of the things that bonawyn was bringing up is that some of these retailers have had actually pretty surprising inventory challenges because consumer demand has really been moving around and shifting around, and i also think that there was just an ideal environment for retail we were in during the pandemic that has now essentially gone away. you have companies, and i think that people anticipated they were perfectly set up. in fact it turns out quite the opposite is true

this week we did actually see a big bullish bet. somebody went out and bought a thousand of the may 280 calls. you take a look and say, the stock is well below. my suspicion is someone spending a small amount of money on a call like that is short the stock and hedging their exposure or take a punt, not willing to reach out and buy the stock. >> they preannounced this week, and it was pretty ugly they blamed the winter storm, cut guidance and provided a weak outlook. >> providing a weak outlook on a storm? >> how convenient. >> i guess that's traffic and inventories. carter >> look, price momentum tells you more about a business. just to be clear, no one wants to accept this, but it's important. if you have a chart that's going down for five years is that he business that's growing sales and margins and get more customers or the opposite? price momentum is -- >> opposite. >> exactly. >> when stocks are going up

generally they're good operators. this is a stock that's rolled over not good. >> there is this idea that some of these stocks are recession proof when the consumer trades down walmart talked about it on their call they benefit. >> at some point a stock, it's a dirty word, can be cheap but this is not cheap here. >> do you agree, bonawyn >> i do. there is a lot i like about this emphasis i like the consumables, their expansion into the health care business which you're seeing a lot of other companies do. i think they have some things going right, but i can't catch a falling knife and that chart is ugly until that chart starts to turn -- >> check out our newsletter. more "options action" coming for you after the break.

welcome back to "options action" on a friday. as we have been mentioning, this coming week is another big one for consumer related quarterly results. last week walmart set the stage

with the picture of a consumer becoming increasingly stretched. this week, the number two and three grocers are set to report. mike got his call to action on the first one, costco. >> we're going to be talking about two different names. fundamentally i kind of like both, but i think both are in a dangerous spot right here. first one we're going to talk about is costco. this is one of my holly index names. anybody who shops at costco knows you can't walk out with spending quite a lot of money. there's a couple things you like about their business model first of all, the membership model. you don't have challenging inventory problems there additionally, less inventory problems than their competitors. costco has very few skews related to other retailer. they negotiate good prices and you would also think people who are cost conscious are going to try to get the best prices

they appeal to a slightly higher end than dg. that said, the thing is trading at 32 times earnings, and we are not in an environment that's going to favor basically the growth story and growth names, and i think that's really what costco is. like many other stocks in this environment and like the market itself in a higher volatility, i think one of the things you do if you own this name -- this is one of the things in kroger we happen to own. but going into their numbers, i think you might want to take advantage of using put spreads to hedge i was just looking out again to the end of march i was looking at the 470/450 put spread that's the math we like, three to one or better only going to be risking one of the stock price if you risk a bearish bet. so this is relative to the price itself obviously a relatively small outlay but it's a difficult

environment, even for the names we like. we own stock so sometimes you want to hedge the downside. >> it's funny you call costco a growth stock. >> it's priced that way. >> in terms of what it sells, staples. amazing long-term chart. has done a lot offing in in the last year. >> that's right. so, the question is, is something about to change, or is it going to be more of a lot of nothing? that's the case. from my seed it's in the apple category it's not particularly immediately exciting up or down. it's probably where it belongs but in that kind of thing i'd rather take a chance and lose money or make money than the greatest sin of all which is fallow money. >> bonawyn >> greatest sin of all carter got me thinking i understand mike's trade. if i put it in a vacuum and it's the only stock i hold, hedge it. i would be less concerned about costco in my portfolio than many other pockets. i'd be more inclined to spin

premium hedging something else, particularly something more catered to the discretionary or retailed side of the consumer sub sector i think costco's fine, that membership backdrop gives me a margin of error, margin of safety that i don't think is in a lot of other names. >> let's turn to the player best buy. set to report results thursday as well. what's the setup they have had a nice run. >> interesting because this is another name i own, and only trading ten times. i don't really expect to see that come in a whole lot it is a relatively stable business they're in the midst of working out this albertson's acquisition. this is the first acquisition they have had since 2015 or so the thing is, when i bought this originally -- and i look at charts but i am not a chartist we're going to rely on carter for that but it doesn't look good at all. and so here, too, is a situation

where -- this is a name i want to hold, but i have -- i want to know why the stock is trading so poorly here i was looking at a put spread luckily a name like is relatively low volatility, so options are not that elevated. i was looking to april expiration in this case, the put spread one of the reason wes use put spreads in situations like this, when volatility is elevated is i'm probably assuming that the valuation is going to create a floor in there somewhere and that's the reason that i'm not just buying a put outright i don't think the bottom is going to fall out of this. but it is clearly under pressure i'm sure there's a region. we're probably going to find out. >> true, the strong run has really been in the sales gains that they have had, and the stock is up from prepandemic, but not performing perhaps as well as, say, mike thinks it

should or that the results have reflected. >> not performing well, seems so simple that says it all if something is really cheap, it won't stay there money goes to it therefore the market is making a conclusion that it's not cheap, albeit ten times earnings, but there's no growth here no growth in that income and the real risk is that it could getcheaper. >> this is what always happens, too. when you're trying to look at something -- this is a trader's market, and you're trying to look at something from a long-term fundamental standpoint, what i usually assume is the case is if the price action is inconsistent with my fundamental view, that i'm missing something, and i'm waiting to find out what that is earnings could be what that is i don't want to sell the stock i'm not going to sell it at ten times earnings, but -- >> i think the albertson's deal is a heavy lift, too. >> these integrations are always an issue they think there's going to be a billion dollars worth of synergies. if that's true, two years from

now, wrap in 2024, that's meaningful. >> if they can get the deal done. >> if they get the deal done and recognize the synergies. >> albertson's is not trading as if it's getting done necessarily. when we come back, a few past trades. the options updates. and during february, we're celebrating black heritage here's frank holland. >> no one does anything alone. during black heritage month we must remember the people that laid the ground work for the opportunity wes all enjoy today. for me that's my parents and especially my mom who always explained to me, everything that we have has been worked for, sacrificed for, and prayed for, and none of it was given. i know there were many times my parent, grandparents and further back took less and put me i'm in the position today i was the first person in my family to graduate college never forget, it was all made

possible by my family who found a way to open doors and create pouniewh treast oprtits enhe wn' any. hard work, sacrifice, and prayer

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yeah! it's time to take control of your investing education. cut through the noise with best-in-class education resources that match your preferred style of learning. learn your way. not theirs. td ameritrade. where smart investors get smarter℠. welcome back to "options action." a few weeks back, the traders highlighted a bearish bet in xrt, the retail etf. since then down nearly 5%, mike. not bad. >> i think we've pretty much told you how we feel about the retail sector i think so far today, so if you were inclined to follow that trade, i think you can stay in it or follow some of the other trades we were talk about earlier in the show. >> which is you do not like retail and stay bearish. >> in general, no. >> last week, mike kept it cool with a bullish trade in yeti the company missed earnings and the stock is down 9% since then. what's the trade there >> we were just buying call there is we actually didn't risk

essentially the same amount as purchasing the stock i feel like it's starting to hold up now. i'm going to have to defer to the technician on this one, because i'm inclined to buy more calls. >> i'm with you. unhappy outcome. drop in heavy volume in response to what must have been unhappy news i never look at the earnings reports because the price action tells us something's wrong is it weakness to take advantage of or stay away from i take advantage of it. >> you liked this too, bonawyn >> i did i was a proponent of risking limited premium via calls. the guidance wasn't pretty let's call it what it is long and wrong there, but clearly defining risk is a highlight of why you're going to use options to express whether it be a bullish or bearish view. >> well said on "options action." nacandhe your tweets a t fil ll thinkorswim® by td ameritrade

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welcome back to "options action." it is time to take tweets. first fan says a little perplexed by the draft kings recent run still not profitable or break even thoughts on may $20 puts bonawyn in. >> run-up was about expectations versus reality the loss was narrower than expected terms of the strike of the put i'm not declined to buy in the money put in this particular environment we have been talking about conserving premiums. i'd buy something more downside. >> our next fan asks, nvidia, too far too fast how would you play it, carter? >> i think it is as good as it was, consider this where it closed, last week's high was 230, and it closed at 232. that's all you got definitely too far too fast. i would trim longs or buy the

230 puts for april going for about 16 bucks >> wow, not impressed with nvidia. >> time for one more tweet them one asks, with sofi coming down after earnings pop and several catalysts in the coming year such as the student loan repayment decision by the supreme court, how do you feel about the july 21st $7 calls mike >> they are expensive, but should be, because this thing moves around and i'd rather buy the calls. stock looks weak to me otherwise. >> time for our final call carter. >> target on the long side playing for a good response to earnings. >> bonawyn >> if you care to swim in the retail mushrky waters sick with azo, auto zone. >> mike? >> for target, call spreads are a way to play it with limited risk. >> love the retail talk. that's going to do it for

"options action. "mad money with jim cramer" is up next. have a great weekend, everyone my mission is simple, to make you money i'm here to level the playing field for all investors. there's always a bull market somewhere and i promise to help you find it. "mad money" starts now hey, i'm cramer. welcome to "mad money. welcome to cramerica other people want to make friends, i'm just tierying to mk you some money call me at 800-743-cnb krr or tweet me @jimcramer. got a serious of numbers from january that were way too high and the hotter the