♪♪ right now on "options action," this chart is our theme tonight, a retail route, xrt nowhere near keeping up with the overall market this morning's consumer data confirming the sentiment. buckle up. we'll show you how to hedge with options. then, trading with something we've never done before. consumers rely on financing. financing relies on rates. rates rely on the ten year and we wound out the consumer conundrum with a look back on a recent restaurant trade, should we stay

for a cup of coffee oriel check please i'm sara eisen this is "options actions." on the desk tonight mike khouw, carter worth and brian stutland. in equities, as you might expect, tesla, apple, jpm, morgan, boeing and alibaba we're going to touch more on tesla. the qs, financials, bonds, and brazil we usually trade the tlt, but ton we're using something new for us, and we'll show you what later on let's get to our main focus today. the retail sales data, piling on to the recent indicators th consumer is finally getting tapped out the figure marking the weakest month over month reading since november, all of this recently reflected in the retail etf, the xrt. carter, show us where we are right now. >> the beauty of the xrt, it's equal weighted, 89 stocks, and it's got the big ones like walmart, amazon and target

but because it's equal weight, you don't have the influence of one or two names it's 89 stocks 2.5 trillion, same as apple. it is literally flirting with 52 week lows. here's a broad swath of the consumer depicted in a pure sense, right, amazon's not too much of an influence, this or that, everything from gap to urban outfitters and it's the definition of poor relative strength i think it speaks to part of the problem with the so-called good stock market you see it in autos, ford and general motors and other areas related to consumer. so we're thinking xrt breaks lower. it's flirting with its trend line, in effect since the covid low. 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 that it's broadening out for retail and consumer it's been so specific to industry where you are. >> sure. >> electronics and home goods not good.

>> not good. >> groceries, good are you saying you're seeing a broader trend of consumer weakness even if you go into today's retail sales report it wasn't all bad. there was strength in online sale, restaurants. >> sure, restaurants have been good, and luxury. >> and sporting goods too. >> look at lvh, the richer man in the world. >> better than lvmh was hermes. >> incredible growth big heavies like target and gap and carters, especially this dog world hunt they're not doing well i think it's -- there's a message there. >> mike? what do you think? >> yeah, it's interesting, of course, so we've seen recent underperformance it's important to remember if you're looking at xrt, it's still up 34, 35% from the pre-pandemic highs that's actually more than the s&p is up over the exact same period there's a reason that we've seen that kind of outperformance. that was that basically it was the perfect setup for retailers

during the pandemic. consumers were flush, they went out and spent. 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, now i'm going to talk about the p/e of xrt i'm going to exclude the outliers i'm not going to include amazon or gap stores which doesn't have any earnings at all to speak of right now. all of the cheapest stocks in the group, which you actually mentioned a couple of them, we're talking now about the companies selling cars like penske automotive and the grocers for example creating ten times. as a group 15 times earnings, throwing out the high flyers as carter points out it's equal weight index we're not going to count that. it throws out 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 that

we're seeing the spread between options premium, and how much the underlying xrt etf is moving around it's quite wide. it hasn't come in as much as volatility the reason i think is people are expecting the correlation in the group could rise, there's going to be a general sense that there could be some consumer weakness. the way to play this on the short side, because of the dynamic, i was looking out to june the 61/55 put spread, we look to spend 25% of the distance between the strikes this is a little bit more than that, but just under $1.60 when i was looking at that before the close. that's the way to fade xrt it's important to remember although we've started to get earnings like out of financials, a lot of retailers don't report for some time it's not going to get captured even by may expiration, the reason we're going out to june some companies will report end of the month. >> brian, do you agree with the

weaker call on retail? >> it's interesting because our macroeconomic indicators, right in the middle at 3 it seems like in a sense dead money. that's probably why the retailers haven't participated to carter's point with the rest of the market. it is dead money we're in an environment where rates are low, but maybe there's a recession coming according to the fed advisers so then commodity prices are moving up. oil is moving higher here. that's going to hurt consumers we're in this dead money area. to me it makes sense when you lay out a put spread, some risk of the downside here, payout of 3 to 1, that's a great payout. option premium not really reflecting the movement that can occur in this space for these guys certainly buying a put spread makes a lot of sense to protect the downside or play a long/short technique here i would use the put spread to be long the put spread and short

retailers while owning other parts of the market. we've had consumer discretionary under weight relative to the rest of the market i like this play. >> do you like these plays i know you pointed out xrt, or name specific? >> i think either one is fine. talk about home depot. down 8% for the year you've just got these -- >> housing has been a weak spot. >> housing stocks have been strong you've got curious nonparticipants that are just -- can't be brushed off as don't matter. >> final word to you, mike, to button up the conversation. >> the really important thing here is that we need to recognize 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 in for a painful surprise and so this is not an expensive

way to hedge your exposure if you have it and not an expensive way to lean against the group. >> the only thing i'll say is that people have been saying that a long time ever since the fed started raising rates in march of last year >> and boy don't you wish -- by the way, the instant they started saying that, shouldn't you have shorted the xrt right then and there it's been dead money or worse. yes, they've been saying it and yes, they've been 100% right. >> i was going to say we've also seen job gains through that period that's kept the consumer alive. to your point haven't seen much from the stocks. >> we've also seen weakening employment pictures in the white collar space even though the consumer confidence numbers came in slightly over survey. >> today was good. we'll wrap the conversation there. keep in mind for everything "options action" check out the website and the newsletter, and we've got more show, "options action" coming up right after a quick break. coming up, our consumer

theme continues, with one of the biggest purchases one can make, 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. "options action" is sponsored by thinkorswim, by td ameritrade

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welcome back to "options actions. "one of the biggest ticket items a car. tesla is a popular maker and a popular stock. does the options market signal that it's thinking differently down the road, mike, on tesla, what do you see? >> this is an interesting one. tesla is a holly index name, the list of stocks that my wife really likes because she loves their products and buys their products that is what she drives, and she loves tesla. she loves the one that she has and she's trying to encourage me to get one this is a company that is obviously the leader in the ev space. i don't want to take anything away from them there are some things that actually have gone to help the company recently the tax credit situation as an example has leveled the playing field because as many will remember they had actually

exceeded the threshold of cars sold, and were no longer eligible for the tax credit in recent rule changes have changed that so they are not essentially at a competitive disadvantage to other auto makers, i think that's a good thing. both for consumers, and for tesla specifically however, they have been lowering pricing recently, now a lot of people have pointed to that, as evidence that the company is trying to gain market share versus competition, which is kind of interesting because of course they are the market for electronic -- for electric vehicles 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 kind of thinking that the stock probably does not have a whole lot of upside here now, as you pointed out, at the beginning, the options markets

are basically expressing the fact that they expect 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. i was looking out to may to do that, essentially looking at the 195/200 spread, buying 200s against it a couple reasons i'm using a call spread, the company is reporting earnings i do not like selling naked calls or even covered calls, frankly, going into catalysts like that. some research has been done suggesting you probably want to avoid those kinds of situations. i think this is a way that you can look to collect a little bit of premium now, quick and important point if this goes wrong, and steve grosso who i know was favoring getting long tesla end of the last show, if that proves to be true, an important thing about these vertical spreads they will not go to the full value of the spread the instant the stock runs through those strikes if you get the trade wrong the important thing to do here is make sure that you cover it quickly.

you won't actually lose the whole section of red you see there on the screen. i have a feeling they're going to have a hard time breaking through those levels. >> does feel like the market doesn't know how to interpret, carter, the price action, not the stock, but the price moves that tesla is making when it comes to lowering prices how is the setup >> well, apparently some of the customers are furious about that nice when you buy it and cut the price days later we know tesla is idiosyncratic and we know that to some extent it's not correlated with the other major manufacturers. consider this, we know the market makes a low in october. up about 16, 17% off that low. but things like gm and ford are up 6, 7. nissan is up 6, 7, toyota is down 10. the group is heavy tesla also, to be fair, having had a collapse and a big ricochet, is not performing in line with the market its relative performance is poor

you can see on the screen here, at risk of breaking below converging trend lines i think it's a better bet to the downside, and selling a call spread is the way to do it. >> all right, let's continue the puns, and back up from tesla to a more macro view from car loans to home loans to business loans, both consumers and businesses that cater to them largely depend on financing. financing depends on rates rates, of course, depend on the fed. brian stutland, we're depending on you to help us hedge here. >> yeah, well, lots of goings-on. when you look at retail numbers, weak ppi number came in lower than expected, although still expanding. traders really expected actually rates to maybe go lower off of these last couple numbers and they really didn't the ten-year was up throughout the day today. it seems to sort of been in this up trend where rates have come down below the 3.5% mark we're at the top end of the trend moving up in the recent last few weeks here. so it feels like maybe the ten-year note is stalling out, and with commodity prices recently moving up

we look at oil like i mentioned earlier in the show, now the fed may have to start to pivot and continue their rate rise despite what some of their advisers are warning about a recession. and so can the ten-year rate really continue in terms of be bought up, rates lower, people buy that bond for it to go higher so ief tracks the seven to ten-year notes on treasuries as rates come down, the ief will move higher. i want to be a call seller here. when you look at ief, it's kind of stalled out here at $100. come back down i'd be willing to take a bet, take in some premium if i'm long bond somewhere i my portfolio, and a long duration where i own ten-year notes, i'd be willing to sell a call here. sell it for $1.20. in a few weeks when you collect 1.25%, a premium on the call you sold, yes, be willing to get short ief above 99, break even, though, 100.2 is the break even on this point and i use this sort of call sell to overlay

against any long bond duration it's a nice play because i think we're going to sort of stall out here on the ten-year, and get significantly lower unless we get serious recession indications. i don't think that would come until the back half of this year we're not really ready in that environment and i'm sticking with short dated option and playing it in may. >> do rates look like they're stabilizing to you >> i'm not lower rates camp. as discussed earlier, we're basically the same level we were in the summer a year ago, one could say it's not about where you were, compared to where you were, and now it's the rate of change where you're headed the truth is this, the consensus was rates for at 5%, high force, we're not. all the charts i'm looking at would suggest rates ultimately are going lower. you want to be long tlt, i'm on the other side of this. >> mike, what about you? >> obviously on april 28th we're going to get some important data in the form of the pce, the feds favored measure of inflation the goal here, of course, for

the fed was really to get to neutral. that is to say that 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, you know, any continuing weak economic data, and i think this -- we're likely going to see some of that, i just don't see the fed getting aggressive i kind of expect a pause at the very least coming out of the next time around because i have a feeling that the data's 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 has stated. >> you think they're going to pause in may, the market is like heavily in the quarter point camp right now. >> yeah, i know, and of course that's a little bit of a contrarian bet but, you know, my view is that, look, they're going to be very

hard about inflation because powell does not want to be arthur burns he'd rather be pau volcker if he has to look at his legacy underneath the painting in the fed of his portrait if we have significantly weakening economic data it's going to give them excuse to pause. i have a feeling they're under significant pressure to take that. >> i don't know. i think inflation is still too high for comfort >> i agree it is too high but it's 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 if they feel like it is still trending in the right direction and they see weak economic data it wouldn't surprise me to see them pause. 25 basis point hike ain't much in the grand scheme of things. >> right up next, we're going to take a closer look back on a recent restaurant trade, should we ask for the check now? 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, seen sales and margin outperformance we did see an uptick in seated diners over their most recent reports that we've seen for this this is a company with a decently balanced sheet. they have good size that puts them in good competitive advantage. i was looking at april/may call diagonal buying the longer dated at the money, 150 call, spending just under $6 for those and then selling the nearer dated 155s in april, this does not have weekly options. net-net you're spending about $3.60. >> so results have come and gone, the stock has rallied and now expiration on this trade is approaching. mike, what do we do here >> the thing ran right to that short strike so we certainly got the magnitude of the move correct. i think when these things roll off it will be fine to take the trade off. we've had a small profit

it's a poor man's covered call and i think it's time to take the money and run. i've been negative on the 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 "options action" is sponsored by thinkorswim by td ameritrade be trading. look! what's up my trade dogs? you should be listening to me. you want to be rich like me? you want to trust me on this one. [inaudible] wow! 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." time to take some tweets first fan asks, with earnings around the corner what would be a good covered call sell for microsoft? what do you think, brian >> i think we maybe missed a little bit of the opportunity today. we saw volatility get smacked, lots of options sellers from amazon to other nasdaq 100 names, they were selling option premium. in fact, the market was down and volatility, meaning option premium, contracted. i would wait and see if microsoft makes a run-up into earnings, sell a call later if a sell in may goes away. wait for a run up before i sell the call >> next fan, i own long-dated january 25th calls of vale bought at almost no time value

i'm up modestly. better alternatives? >> a lot of time, a lot of time, and close 1596, stick with it. good way to play the space. our next tweet asks, any thoughts on a may 19th, 71-65 put spread on akamai technologies making lower highs and lows all year, and competition will get fierce mike, take this one. >> yeah, if you're going to press a short put spreads are definitely a way i'd like to play it, this is going to capture earnings, quick point, stocks 82.5 as of today's close. if you're using a put spread use something tight to the money, i would think maybe the may 80/70 would get you done final call. >> xrt, consumer, fade it. >> brian >> long call on ief. >> mike? >> xrt, i think the way to make a bearish bet is with a put spread.

>> bears on the consumer that's going to do it for us on "options action. we'll be back next friday 5:30 p.m. eastern don't go anywhere "mad money" with jim cramer starts right now. have a great weekend, everyone - [announcer] the following is a paid presentation sponsored by rex md. - guys, we're going to talk about your performance in the bedroom, because it is important. you deserve to be the best you can be, and your partner deserves it too. so what do you do when you need help? well, first know that it's actually very common. in fact, performance issues happen to about 50% of the men over the age of 40, not just old guys either. but here's the great news. there are pharmaceutical solutions that can help. these are medically proven, fda-approved solutions, the kind your doctor or pharmacist prescribes and recommends.