right now on "options action," this chart is our theme tonight -- a retail route. xrt nowhere near keeping up with the market the consumer data confirming the sentiment. buckle up. we'll show you how to hedge with options. trading something we've never done before. financing relies on rates, rates rely on the ten-year and we round out the consumer conundrum on the look back with

a recent restaurant trade. should we stay for coffee or yell check please? on the desk, mike khouw, carter worth, and brian stutland. welcome to you all in equities, as you might expect, tesla, apple, jpm, morgan, boeing, and alibaba. we'll touch more on tesla in a bit. on the financial side of things, the qs, brazil when it comes to bonds. usually trade the tlt, but tonight we're using something new. we'll show you later on. sales data piling on to indicators the consumer is finally getting tapped out the figure marking the weakest month over month figure, reflected in the xrt carter, show us where we are right now. >> the beauty of the xrt is it's

equal weighted it's got big ones, amazon, walmart, but you don't have the influence of one game. it is literally flirting with 52-week close. here is a broad swath of the consumer depicted in a pure sense. amazon is not too much of a flu this or that you've got everything from gap to urban outfitters and it's the definition of poor relative strength speaks to the problem of a so-called good stock market. you see it in general motors and other areas related to consumer. we're thinking xrt breaks lower. flirting with its trend line and again, it is making new relative lows. you can see it on the screen right there. to the s&p it's not a good setup. >> are you saying it's broadening out for retail and consumer it's been so specific to industry,

where you are, electronics and home goods, not good groceries, good. are you saying you're seeing a broader trend of consumer weakness even if you go into today's report it wasn't all bad there was strength in online sales, restaurants. >> restaurants have been good, and luxury look at lvmh now the richest man in the world. >> it's true hermes, i don't know if you saw overnight. double digit growth in the u.s. no slowdown. >> but the big heavies like target, gap, carters there's an expression -- this dog won't hunt they're not doing well, and i think there's a message there. >> mike, what do you think >> yeah, it's interesting of course we've seen some recent underperformance, but i think it's important to remember that if you're looking at xrt, xrt is still up about 34%, 35% from the prepandemic highs, and that's actually more than the s&p is up over the exact same period, and there's a reason that we've seen

that kind of outperformance, and that was basically it was the perfect setup for retailers during the pandemic. consumers were flushed they went out, they spent, and basically that is the dynamic that's coming unwound, and that's the reason the trade itself is coming unwound if you take a look at the entire group -- i'm going to talk about the p.e. of xrt, but i'm going to exclude the outliers. so not going to include amazon or gap stores, which doesn't have earnings to speak of at all right now. cheapest stocks in the group -- you mentioned a couple of them we're talking about the companies that are selling cars like penske and the grocers. as a group, there's still almost 15 times earnings throwing out the high fliers. we're not going to count that, throws away the averages to me, that still may not be cheap enough relative to the s&p when we think about the weakness that could come for some of

these. i definitely think that's interesting. what's also interesting is we're seeing the spread between opt opt options premia and -- implied has come in, but not as much as volatility the reason for that is i think people are expecting the correlation in the group would rise general sense there could be consumer weakness. so i think a way to play this on the short side because of the dynamic i described is with a put spread looking out to june, the 61/55 put spread just under $1.60 when i was looking at that shortly before the close. that's a way to basically fade xrt. important to remember while we're starting to get earnings, a lot of the retailers don't report for some time it's not going to get captured by may expectations. the reasons we're going to june,

some companies reporting at the end of the month. >> brian, do you agree with the weaker call on retail? >> well, it's kind of interesting because our macroeconomic indicators, we have a star rating on that, sits in the middle at three seems like dead money, and probably why the retailers haven't participated with the rest of the market is it is dead money. we're in an environment where rates are low, maybe there's a recession coming according to some of the fed advisers commodities moving up, oil moving higher. that's going to hurt consumers we're kind of in this dead money area, and to me it makes sense when you lay out a put spread like mike said, if there's risk to the downside, looking at -- that's a great payout. we've seen implied volatility. that can reflect some of the movement that can occur in the space for these guys buying a put spread makes a lot of sense if you want to play a long short technique here, i would use this

to be long that put spread and be short retailers while owning other parts, other sectors we have had consumer discretionary under way. i kind of like this play. >> do you like these plays i know you pointed out xrt or do you go name specific >> how about home depot? down almost 8% on the year you've got got these -- >> housing is in a weak spot. >> exactly, but housing stocks have been strong you've got curious nonparticipants that can't be brushed off as don't matter. >> final word to you, mike, to button up the conversation. >> i think the really important thing here is that we need to recognize that, you know, the sharp increase in rates, the sharp increase in prices -- the combination of these two things ends up having a profound impact on consumers' ability to spend if you don't think that's going to be reflected in retail

results upcoming, i think you're for a painful surprise this is not an expensive way to hedge your educatixposure. >> people have been saying that a long time since the fed started raising rates -- >> and boy, don't you wish -- the instant you started saying that, shouldn't you have shorted the xrt there? it's been dead money or worse. yes, they have been saying and it, yes, they have been 100% right. >> i was going to say, we've also seen job gains and, that's kept the consumer alive, but to your point, haven't seen much from the stocks. >> we've also seen weakening employment pictures in the white collar space that's going to play into consumer confidence, although the numbers came in slightly over survey. >> guys, we'll wrap the conversation there, but keep in mind, for everything "options action," check out the website and newsletter we've got more show, "options

action" coming up after a quick break. >> announcer: coming up, our consumer theme continues with one of the biggest purchases one can making a car of course we're looking at the crowd favorite tesla or is it still the crowd favorite find out what the options market thinks next. plus, calling all "options action" fans, reach into your pocket, grab your phone, and tweet us your question at "options action. if it's nice, we'll answer it on air when "options action" returns.

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welcome back to "options action." are cracks in the consumer stocks theme of the day

continues. one of the biggest ticket items people buy is a car. tesla a popular maker and popular stock, but does the options market signal it's thinking differently down the road, mike, on tesla what do you see? >> this is an interesting one. tesla is one of my holly index names. holly index is basically the list of stocks that my wife really likes because she loves their products and buys their products that is what she drives. loves tesla. loves the one she drives and is trying to encourage me to get one. they are the leader in the ev space. i don't want to take anything away from them the tax credit situation as an example has levelled the playing field. as many will remember, they exceeded the threshold of cars sold and were no longer eligible for the tax credit and recent rule changes have changed that, so they are not essentially at a

competitive disadvantage to other auto makers, and i think that's a good thing for others and tsa la significantly however, they have been lowering pricing. a lot of people point to that as evidence the company is trying to gain market share over the competition, which is interesting because they are the market for electric vehicles, so i don't think that's what's going on to me, the decline in prices is probably more indicative of oversupply and i also think that some of the real rapid adoption of evs, probably some of that first hockey stick has already taken place. so to me, if one's inclined to do so, i'm thinking that the stock probably does not have a whole lot of upside here as you pointed out at the beginning, the options markets are basically expressing the fact that they have quite a lot of volatility. that means elevated options premiums i think a way to take advantage of that is by selling an upside

call spread and i was looking to may to do that, looking at the 195-2 hundred call spread. now, a couple reasons i'm using a call spread. one is the company is going to be reporting earnings. i do not like selling naked called or covering calls going into catalysts like that some redshirt has been done, suggest you want to avoid those situations, but this is a way you can collect premium. now, a quick and important point -- if this goes wrong and steve grasso, who i know was favoring getting long tesla at the end of the last show -- if that proves to be true, an important thing about these vertical spreads they will not go the full value the instant the stock runs through the strikes. if you get the trade wrong, the important thing to do is make sure you cover it quickly, and you won't lose that whole section of red you see on the screen, but i have a feeling they're going to have a hard time breaking through those levels. >> does seem the market doesn't

know how to interpret the price move that tesla's making when it comes to lowering prices how does this set up >> apparently some of the customers are furious. wouldn't be nice when you buy it and they cut the price days later. tesla is idiosyncratic, and we know to some extent it's not correlated with the major m manufacturers. we know the market makes a low in october, and we're up 15% off that low nissan is up 6, 7, toyota down 10 the group is heavy, and tesla also, to be fair, having had a collapsing and big ricochet is not performing in line with the market you can see on the screen we're at risk of breaking below the two converging trend lines i think it's a better bet to the downside and cselling a spread i a better way to do it. >> from car loans to home loans to business loans, consumers and

businesses that cater to them largely depend on financing, financing depend on rates. rates depend on the fed. brian stutland, we're depending on you to help us hedge here. >> lots of goings ons, because when you look at retail numbers, weak ppi came in lower than expected, although still expanding, so traders expected rates to go lower off these last couple numbers and they did it. ten-year was up throughout the day. seems to have been in this uptrend where rates have come down below that 3.5% mark. feels like the ten-ier note is stalling out, and with commodity, oil, like i mentioned, now the fed may have to start to pivot and continue their rate rise despite what the they're warning about the recession.

rates lower, people buy that bond for it to go higher so ief tracks the seven to ten-year notes on treasuries and as rates come down, that ief will move higher i want to be a call seller when you lack at ief, stalled off $100, come back down, i'd be willing to take in a bet if i'm long bond on a long duration or own ten-year notes, i'd be willing to sell a call, the may 19 strike. you collect 1.25% of premium on the call you sold. you'd have to be willing to get short to break even, 102 is the break even, and i use this call sell to overlay against any of my long bond duration. i think it's a nice play because i think we're going to stall out on the ten-year, significantly lower unless we get serious recession indications.

i don't think that would come until the back end of this year. we're not in that environment, and that's why i'm sticking with a short dated option. >> do rates look like they're stabilizing to you >> i'm notin the lower rates ca. we're same we were summer a year ago. now it's the rate of change and where you're headed. the truth is this, the consensus rates at ten-year, we're higher -- we're not. the charts i'm looking at suggest rates are going lower, and i think you want to be long tlt. i'm on the other side of this. >> mike, what about you? >> obviously april 28th we're going to get important data in the form of the pce, the fed's favorite measure of inflation. the goal for the fed was really to get to neutral. that is to say they would at least not have negative real rates. i think we're very, very close to that, and my sense is that if we get any continuing weak

economic data zbsh i think we'r likely going to see some of that -- i don't see the fed getting aggressive i expect a pause at the very least coming out of the next time around, because i have a feeling the data's the going to at least permit them to do that, and if they do, then there is a chance i think that rates could actually come in a bit, and i think that would be consistent with the economic picture, and it would be consistent with what the fed stated. >> you think they're going to pause in may the market is heavily in the quarter point camp right now. >> yeah, i know, and of course that's a little bit of a contrarian bet, but my view is -- look, they're going to be very hard about inflation, because powell does not want to be arthur burns. he'd rather be paul volker if he has to look at his portrait in

the fed. it is going to give them an excuse to pause, and i have a feeling they'll under significant pressure to do that. >> it inflation is too high for comfort. >> i agree it is high, but it is a question of reaching neutral it is not simply an issue of -- where the rate policy is going to land is such that you don't have negative real interest rates, and if they feel like they can make that claim and feel it is still trending in the right direction and they see weak economic data, it wouldn't surprise me to see them pause, and a .25% hike isn't much in the grand scheme of things >> no. >> up next, a recent restaurant trade. should wask e for check or stay for dessert? "options action" back in a moment

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restaurants into earnings. remember this? >> from an operational standpoint they're doing quite well we actually did see an uptick in seated diners over their most recent reports we've seen for this this is a company that has a decently strong balance sheet. they have good size, and i think that puts them at a competitive advantage. i was looking at an april may call diagonal buying the longer dated essentially at the money, just under 6 bucks and selling the nearer dated -- this does not have -- net spending about $3.60. >> the stock has rallied, and now expiration on this trade is approaching. what do we do here >> this thing ran right to the short strike we got the magnitude

essentially this is a poor man's covered call, and i think it's time to take the money and run i have been negative on a consumer and i don't want to be contrarian to that now. >> all right up next, your tweets and our final call stay with us it's an entire trading experience. with innovation that lets you customize interfaces, charts and orders to your style of trading. personalized education to expand your perspective. 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.

good luck. td ameritrade, this is 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. - in the last two years, we quadrupled our team and the pace we're growing, i couldn't keep up without ziprecruiter. they do the legwork and they get my job posting in front of the right candidates. i love invite to apply. i instantly see great candidates and i can invite them to apply. we have hired across all departments, engineering,

marketing, hardware, field techs. you can basically tell ziprecruiter who you need, when you need it, and they deliver. - [narrator] ziprecruiter. rated the number one hiring site. try it for free at ziprecruiter.com try it for free at ziprecruiter.com welcome back to "options action." time to take some tweets our first fan asks, with earnings around the corner, what would be a good covered call sell from microsoft for microsoft? what do you think, brian >> i think we maybe missed a little bit of the opportunity today. we saw volatility get smacked. amazon to other names selling premiums market down, meaning option premium contracted i would wait let's see if it makes a run up into earnings. wait for a run-up before selling call. >> next fan ask, i own long

dated january 25 calls of vail that were brought for almost no time value >> good alternative. a lot of time. i would stick with it. good way to play the space. >> our next tweet asks, any thoughts on a may 1971/65 put spread on akam it's been making highs and lows all year competition could be fierce. >> if you're going press it short, put spreads are the way i'd like to play it. this is going to capture earnings stocks 82.5 as of today's close. put spread, use tight to the money. i would think the may 80/70 would get you done final call, carter >> xrt, fade it. >> brian >> don't call on ief. >> mike? >> xrt, i think the way to make

a bearish bet is we put spread. >> some bears here on the consumer that's going to do it for "options action. back next friday, 5:30 p.m. eastern. don't go anywhere. mat money starts now have a great weekend, everyone my mission is simple, to make you money. i promise to help you find it. mad money starts now hey, i am kramer. welcome to mad money. i am trying to make you some money. my job is to educate and teach you., at 1-800- --.