right now on "options action," financials and the fed. despite the meltdown in first republic, the regionals and the rest of the big banks have been holding up are options traders ready to put their money down on this beaten down sector? plus, apple's the final to report names can the tech giant keep phoning in big returns we'll debate that. and later we'll see if starbucks can give investor return earning as an a jolt and see how much action is left for meta after a massive move

this week. we're live from the nasdaq market site. on the desk, mike khouw, carter worth, and brian stutland. let's get to the banks as we mentioned the last half hour, the fdic reportedly getting ready to put first republic into receivership shared falling more than 40%, halted for volatility several times. despite this, the kre ending the day today about where it started the week, unchanged. what does this tell us about the price of first republic, regionals and the banking sector as a whole what does the options market think? in today's session in particular, carter, it was strong. >> right, so the big debate -- obviously discussing it at the top of the hour. is it a one off or four off or is it really something systemic? i think there will be more, but what we do know is it is not a j.p. morgan problem, and it's not a bank of america, not a citi bank, not wells fargo

so you start to get into where we are in relation to the plunge and what's important is a matter of trading is this -- again, markets are not efficient. an efficient market theory is preposterous, frankly. but they're very efficient in rerating a security or a group quickly in response to news. so you can see on the screen here that in five, six sessions, right, the kre index was rerated lower. that's like 150 banks down we haven't bunched since then. that was the beginning of march. -- i mean the begin of april what we have is price discovery. in aggregation, this group belongs here could there be another shoe to drop sure, but on an intermediate basis, this should hold. it becomes a pair of 2s. >> seems like the worst is behind the group. >> if you're a tactical trader i

would be betting you do not get anything immediately lower long-term -- that's not my game, i'm not long-term -- i think there's every possibility you'll see further general deterioration in credit securities. >> mike, what's your take? >> every bank has liquidity concerns when you have a situation where rates go from a low environment to a high one, that's when liquidity become a problem the reason is all those securities the banks hold, of course their market value is considerably lower if you need to satisfy your liabilities, which is your demand deposits, by selling those asset, you're going to do so at a big loss the second problem the banks can face is the credit problem, and we aren't seeing that yet. basically credit defaults in every major category, doesn't matter if you're talk about consumer loans and mortgages, commercial side, commercial real estate, the thing everybody's looking at -- the rates of

defaults and blin gwen sis remains low. but the problem is, if you have a higher rate environment and the economy does begin to slow, you're going to get both of those two things in lock step. that does present longer term a problem. if you're wondering why kre was sideways today, and by the way, flow we've seen in kre is bullish. fact of the matter is first republic is a small cap institution now. it's only about $650 market capitalization its respective impact on any index is dmin must you have to think longer term as carter was suggests to what the dynamics are for regional banks. my hope is we see policy changes because we need these as part of the economy. we need these institutions

i don't think we want to have incentives that move all the deposits from one to the other i hope we see responsible action in washington about that this is why you're seeing kre trading sideways on a day like today. >> we're showing the market cap, given the plunge now down 40% is sub $400 million so i get the math in terms of the waiting of any index, but i think the point is that there is not a fear there's not that contagion fear anymore, that that has somehow played out to some extent, because we're seeing first republic potentially go into receivership imminently, and it's not impacting how the other banks are trading, brian i'm wondering, have you seen action in individual names that indicate people are willing to take that risk when it comes to -- maybe it's the superrenales that are in favor right now. pnc, usb, you name it. >> great question, because when you look at the level of implied volatility of first republic, they were trading at 600% going

into this morning, and so that was screaming bankruptcy i've seen that before with plenty of companies. implied volatilities go through the roof ridiculously priced. sayss the going under. flip the pig look at the xlf. i know it's a broad based etf, but lots of big banks in there that implied volatility only sitting at 18. implied risk isn't there credit spreads, saw those tick up, and over the last two days they really snapped back, tightened, which means again, the systemic risk is not out there. i look at volatility indexes, the vix, saw those get hammered downward i don't think this spreads outside this one spot. could other regionals suffer same situations? sure is the kre priced right? probably to carter's point, where there's so much back and forth action, things have been repriced already i think when you're looking at

bigger banks -- he mentioned citi, j.p. morgan, bank of america. i think those guys are in great shape. i'd lean towards the big banks big balance sheet is going to be in whether you're talking about banks or other areas of the mark those names are going to suck it up implied volatility not there, so why not move prices higher and be an investor >> mike, i know we didn't prepare a trade or a segment because this is basically a developing story, but if forced to put a trade on kre, an options trade for the next six months would you bet that it would be higher, lower, or range bound? >> so, i think over the course of the next 35 to 40 days it's probably going to be range bound. i would specktively bet higher if you're look faring place where a factor could come in from the side that could improve the whole sector -- and that could be one of the thing i was

just talking about, some policy shift that says, for example, we are going to raise the fdic insurance limit on accounts from $250,000 to, say, $2.5 million, just so that you could capture a lot of small businesses, for example, that they're going to try to encourage activity that the that would support regional banks. i think you get a huge pop out of it. the interesting point, what brian was just saying. the implied volatility on kre, the regional etf is back to where it was a year ago, so way before we started seeing signature bank, svb, this business, implied volatilities a lot higher than the money centers, and i think deservedly so, but if you're going try to flip a coin and say, which way are you going see a big move my guess is on a surprise policy shift could be to the upside. >> let's pivot to next week, big tech apple rallied nearly 30% this

year, and with results due thursday, brian is setting up a way to play this name. brian? >> apple is one of those names, so highly core rated, as that hits the 200 mark -- have to own apple if they want to be invested it's such a benchmark for the s&p. however, having said that, when i look at analysts out there, i'm seeing 10% decline in mac sales, decelerating growth in terms of advertising and gaming. saw 17% growth last year, only 6% to 9% this year and a number of other factors. stock buyback may be stagnant, although still there analysts are expecting $23 million in stock buyback that hasn't grown. there are some concerns about this earnings event coming up, and i'm just looking at an options market, let me try to avoid this earnings event but still be invested. what i want to do is sell a downside put at the same time

finance purchasing an upside call by selling that downside put. the stock moved higher when i was looking at this today, but i'm looking at $10 wide strikes. you're looking at the downside of basically paying 20 cents net if we go sideways. but by selling sort of that downside put i'm not going to get into the stock until i see a significant move down. and after earnings the stock moved 3% 4rk% after earnings the great thing is on the upside strike on a $10 -- market the upside is going to cost les, and i'm going to have less of a move to the upside. i kind of like the structure and skew, we options traders like to call it, on selling the upside call. >> mike, what do you think >> i think i'd rather do this than actually buy the stock. my problem is we have sequence shl -- declines.

i think this is a real wait and see on the earnings, frankly i don't know that it would be terrible, frankly, if you really wanted to have some upside to buy that call. two and a half bucks, relatively small percentage of the stock price. otherwise risking very little. i have a harder time selling downside put, owning the stock at 28, going to be cheaper since you own at the strike price. >> all right for everything "options action" check out our website and newsletter much more "options action" right after this

welcome back to "options action." if you thought this week's earnings action was big, oh, boy, you just wait a huge slate of names on deck to report apple as we mentioned earlier, but also cruises, autos, pharma, semis, restaurants nearly every sector covered. how should you play the big week in with options of course. to get us going, mike's brewing up a trade on coffee king starbucks. >> last week we talked about mcdonald's, which is definitely not on the holly index, but

starbucks is and earlier we were talking about a trade at 28 times earnings, which is apple the big difference is starbucks we are anticipating eps growth, maybe as much as 20% year on year as we look out to next year a couple good things about this is company is basically saying that they're going to do about $20 billion in returns to shareholders, either through buybacks or dividends over the course of the next ten plus years or so. the other thing is the company is moving to digital, flexible about how they deliver the product. you have more pickup only drive-through. that's positive. banks earn the bit of a float, because in that deferred revenue column what you're seeing is all the money people deposited on to the app, which runs at $1.6 billion is it a big number for them maybe not huge, but that works out to $60 million, $70 billion a year in float money. now, about downside i would say they have challenges in terms of

increasing their prices. they've seen some steep price increases basically to offset inflation they've imposed. i don't know how much longer they can do that other thing i would try to keep an eye on is their margins, because that's really the issue. they've seen increased costs, they have increased their prices the latter probably can't go much further we're hoping they can achieve eps margins of 13% or so in the next 18 months smart would be to play it upside, because it's not cheap look out to june, i was looking at the 115/125 call spread usually looking to spend about 25% of the distance between strikes. implied volatility slightly elevated so it's going to cost you more buck it's going to cost you less than $3 a share. >> carter, what do you think >> from my point of view it has characteristics that are desirable. relative strength to the market and peers also very impressive

and it's just a very orderly reversal, bearish to bullish reversal stock down more in the market is reversed you can see that on the screen then there's this. 38 analysts cover wall street. their 12-month price target is 12 a lot of smart people think one year from now, it's worth less than it is now i suspect that's not right. >> uber set to deliver results tuesday as well. the ride sharing stock up more than 20% this year mike, how are you trading this one? >> it's a real interesting case. we always thought of uber as a growth company they weren't making money, this negative free cash flow, and that latter part is really important, because the company is actually saying they could achieve as much as $5 billion worth of ebitda, $4 billion free cash flow is what that would translate to for full year 2024.

that would be remarkable if we're thinking of the delivery space, this is the king they're the ones with the scale. on the downside they have been fighting these regulatory battles. first in california, now with the department of labor, about whether or not the drivers are going to continue to be considered independent contractors, gig employees, and rather are going to be full-time employees, and that would really be harmful to their business model if that happens. as we look forward to the upcoming earnings and think about the $5 billion worth of ebitda they're hoping to achooe next week, look for the number to be over $600 million for the quarter. this is really going to be the first quarter where we're looking for some of that real free cash flow of course options premiums, this is a volatile name, are quite elevated i'm looking for a move to the upside trying to mitigate the cost. i was looking at a may jsh june calendar call spread this is a situation where you

can lay out 40 cents per contract the idea is to buy that longer dated call, and then we'll see how the earnings play out. you will get some upside in this case you're going to see that that peak profitability you're going to get is up about 10% or so, maybe a little less following earnings and of course if you have that and things are working out, you can hang on to the longer dated call. >> brian, what do you think of this trade >> it's a good trade mike mentioned 10% to the upside earnings the last 12 quarters, two-thirds of the time, the stock move more than 5%. it's a potential for it to jump up and get up towards the short call strike. as volatility starts to come in, i'd take that short call off if that happens the stock could run higher i think mike is far enough on the upside to capture premium, play the upside slightly to the upside. >> quickly on the chart, carter? >> has always characteristics

from a bearish to bullish reversal stock dropped 70% from peak and it's been exhibiting great rel relative strength. >> cbw stamp of approval. up next, meta madness. how do you manage the name after such a run we'll lay it out when "options action" returns. - [soldier] take a look at this! - they've left us a gift. - [soldier] i think we misjudged them.

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welcome back to "options action." one of the biggest moves of the week, meta, the social media giant jumping more than 10%, and stock is up nearly 100% this year it's the fourth most heavily traded option this week. mike, how are you playing meta with this big run? >> i think twice on "fast money" we were highlighting some of the bullish activity we were seeing in meta going into earnings. we actually got more bullish

activity followings earnings and that's one of the reason it was the busiest stocks we saw all week this is an interesting situation. the company actually still, even now, relatively cheap. it's trading 15 times 2024 eps estimates when it's trading around 240 clearly they have levers when mark zuckerberg heard the call people didn't like where he was investing money in the metaverse, spin a few knobs and suddenly you have it a lot of it. my thinking is at this point we have had a big move. and when we often talk about things like covered calls, this is not a great trade something like this can happen um get big 10% spikes. i think this might set up well if you own the stock covered call now we have had a rerating in the stock, so now you can look to avoid a -- that had a critical catalyst and you can look from

now to july earnings we're going to be getting. any of those, you can sell some upside calls against stock, you can collect 10% to 15% annualized in standstill rates of return and still have very low probabilities that those things are going to be assigned to you i was looking up the 215s, maybe j downside >> carter, where do you think the chart goes from here. >> >> there's a principle you get in a rerating. gaps come in twos and sometimes threes we've gapped twice now everyone has to raise their price target they're like, yeah, but not going to happen again. when it happens again, which it just did, people move price targets up to the point where you're not likely to get a third gap. my hunch is reduce exposure, trim, right calls, do something before, as they say, someone does it for you. >> up next, tweets and final call

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there's no going back. time for some tweets our first fan asks, selling cat calls ahead of earnings. what's your strategy brian, what do you say >> canw cat and the industrials it's been such a tug and -- back and forth movement cat could get to q 40. at the same time we turned down, earnings aren't great, so i'd rather own calls, replace my stock and own calls rather than right a call and sell against it it's not like a meta situation i think this thing moves and i want to own a call in this situation. >> time for the final call. >> carter braxton worth. >> uber a laggard that looks like it will come to life. >> brian stutland. >> apple earnings going to be big, but i want to do this in a risk reversal. sell a downside put, buy an

upside call. >> mike khouw. >> i like starbucks going into earnings it's a stock that we own, and i think if you don't own it, one way you could play to the long side is with call spreads. >> that does it for us see you back friday. "mad money" with jim cramer starts right now 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. trying to make a little money. my job is not just to entertain but to educate and teach you call me at 1-800-743-cnbc or tweet me @jimkraimer >> months where the market just guts and