bullard: he's the person who broke the law. that's where the blame needs to be -- with this person who's not a fisherman, he's a crook. -- captions by vitac -- 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. i'm sara eisen in to want for melissa lee. this is "options action" live from the nasdaq site on the desk, mike khouw, carter

worth, and bonawyn eisen another pivotal week for retail earnings 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? ahead of earnings on tuesday >> two ways to look at target. of course on its own and as an absolute chart as bearish to bullish reversal another way to look at target, ands -- and this is very important, ratio target to walmart. walmart is the favorite, and target is th 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 target, that is. you've got a trade for us, here, 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 the 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 of the 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 course of the next week to ten days, you know, this is way when, even though options premiums are elevated, you can limit that risk, and spending $5 over $167 # stock, i think, is one of the ways that you can think about making 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. you've seen from walmart, even though they beat earnings, like the guidance and the inventory with the whole life well accounting presented some challenges i think we've seen this story play out before. target lagged after walmart lagged 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. in fact, if you were to look at

auto zone's performance -- >> 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 >> actually, it's not. that's the funny thing 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 preceding 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 prices bode well for an ability to expand or at least hold margin in this particular name >> 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 maintain your old car. this is a company that's delivered consistently good eps growth right now it's trading about 20 times trailing, but we're looking at maybe 13, 14% year growth, they're not really expecting -- 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 chart is such an outlier to auto stocks, and consumer stocks in general >> not high correlation. to autos, it's this, 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 -- you can see it there on the screen, it is actually not extended it's very different than aap as an operator, and the chart

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 equal and opposite circumstance, if one is north by northeast, this is 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. i don't like this one. i would rather, auto zone over aap, using it as a comp. >> got it. >> the only positive thing i really can say is it's multiple, it's about 11, 11.5 times. but that's more of a value trap. if you look at margin 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

it's kind of perplexing in some ways because there has to be some operational issues that could be resolved here because you see other operators in the space who seem to be doing okay, but they are not >> okay, bonawyn would rather not. let's be clear finally, dollar general sliding nearly 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. and so you have companies 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 either short the stock and hedging their exposure or taking 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? that doesn't - >> how convenient. >> how long do we get to use that excuse. >> 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 a 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. >> right, and 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 business i'm going to try to find a glimmer of hope here 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 starts to kind of turn i'd rather play with the trend than against the trend. >> rather not again. for everything op"options actio, check out our website and our newsletter

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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 as the largest grocer in the u.s. 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 of that store without 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

relative to other retailers on the grocery seed, and they also negotiate very good prices, and you would also think that people who are cost-conscious are going to try to get the best prices. that is helpful. 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 names in kroger, too, by the way, that 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 going to spend a little less than five bucks on that spread that's the kind of math we typically like, payoffs of 3 to

1 or slightly 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. of course 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. also another amazing long-term chart. has done a lot of nothing 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 seat 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. it's wasting time. >> bonawyn >> greatest sin of all i will break the tie here. carter got me thinking i understand mike's trade. if i put it in a vacuum and it's

the only name that i hold, i can understand the premium, to hedge it i would be less concerned about costco in my portfolio than many other pockets. i'd with more inclined, and i understand the trade multiple, but more inclined to spi premium hedging something else, particularly something more catered to the discretionary or retail 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 other big player, which is kroger. 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, too, again i was looking at a put spread. luckily a name like is relatively low volatility, so options premiums are not that elevated i was looking to the regular way, 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 for this but it is clearly under pressure

there's probably a reason. 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 get cheaper. >> 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 that 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 am going

to hedge >> i think the albertson's deal is a heavy lift, too. >> these integrations are always an issue they're mentioning, they think there's going to be billion dollars worth of synergies. if that's true, two years from now, wrap in 2024, that's going to be meaningful it's like a 30% increase >> 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. are coming for you next, and during february, we're celebrating black heritage here's our own frank holland ♪ >> no one does anything alone. during black heritage month we must remember the people that laid the ground work for the opportunities as we 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 mom or my grandparents, or even further back, took less, endured

disrespect and put their own dreams to the side, and put me in the position that i'm in 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 opportunities when there wasn't a way, and it was all hard work, sacrifice, and prayer. >> announcer: "options action" is sponsored by thinkorswim by td ameritrade. anna. hi anna, this position is all over the place, help! 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.

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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." 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 you can follow some of the other trades we were talking 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 calls there. 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 in it. >> 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 the question is, is it weakness to take advantage of, or weakness to stay away from only two types, i think you 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. in that context. >> well said on "options action." up next, your tweets and the final call ♪ >> announcer: "options action" is sponsored by 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 recent draft kings recent run still not profitable or break even thoughts on may $20 puts bonawyn? >> 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 on the at the money or 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 risk reward seems nice here. mike >> they are expensive, but should be, because this thing moves around and i'd rather buy the calls in the stock giving yourself some time. 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 murky waters stick with azo, auto zone. >> mike? >> for target, call spreads are a way to play it with very limited risk. >> love the retail talk. thank you all tonight. that's going to do it for "options action. back next friday 5:30 p.m. eastern time "mad money with jim cramer" is up next. have a great weekend, everyone

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