what he acknowledged under oath was perpetrating a massive fraud and the fact that he is telling you that "all i did was send an e-mail" shows that he is still committing fraud on you. -- captions by vitac -- 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 as of late. are options traders ready to put their money down on this beaten down sector? plus, apple's the final to report names next week stock surging over 30% this year. 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 a jolt. and see how much action is left for meta after a massive move this week. i'm melissa lee. this is "options action."

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 in just 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, regioning banking 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. kre. even as news came out as being reported. >> 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 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, that was the beginning 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 these lows should hold, and it becomes a pair of 2s after an aggressive move. >> 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

right now, long term, this is -- that's not my game i'm not a long term man. i thin there's every possibility you'll see further general deterioration in credit-related securities. >> mike, what's your take? >> yeah. well, every bank has liquidity concerns that's the first thing. 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 assets, you're going to do so at a very big loss. the second problem the banks can face, of course, 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, or on the commercial side. even commercial real estate, which is obviously the thing that everybody's looking at. the rates of defaults continues

to remain 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 actually bullish so you've got these idiosyncratic situations. 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 of which it's a constituent is de minimis at this point. 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 but this is the reason why year seeing things like kre trading sideways on 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 so i'm wondering i mean, have you seen action in individual names that indicate that 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. >> yeah. no melissa, it's a 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 option prices ridiculously priced basically saying the company's going under. fig the page, though. look at the xlf. these financials, big banks, lots of big banks in there that implied volatility only sitting at 18. implied risk isn't there credit spreads, saw those tick up during the week and then all of a sudden the last two days 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 contagion spreads outside of this one spot. could other regionals suffer same situations? sure is the kre priced right? to carter's point. so much back and forth action, 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 the next few moss, whether you're talking about banks or other areas of the market. those names are going to suck it up implied volatility not there, so why not move prices higher and those kind of names 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 would be higher, lower, or range bound? >> so, i think over the course of the next 30 to 45 days it's probably going to be a range bound. i would perspectively 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 t 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 frc business, implied volatilities were higher certainly a lot higher than in the money center, and i think deservedly so, but if you're going to try to flip a coin and say, which way are you going to 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 one of the biggest names. apple rallied nearly 30% this year, and with results due thursday, brian is setting up a way to play this name. brian?

>> yeah. apple is just one of those names. it is so highly correlated to the s&p 500. as tha hits the 200 mark -- have to own apple if they want to be invested right? it's such a benchmark for the s&p. however, having said that, when i look at analysts out there, i'm seeing 10% key decline in sales in mac sales we see decelerating growth i 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 billion in stock buy back that hasn't grown at all. 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 in the stock to some degree. 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 first looking at this today. i'm looking at $10 wide strikes. you're looking at the downside here of basically paying 30 cents net. if we go kind of 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. after earnings basically this stock has typically moved about 3%, 4% after earnings. out of play. the great thing is on the upside strike on a $10 market here, less of a move on the upside to participate in the upside. skew, we options traders like to 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 sequential 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. if we get a positive surprise you'll participate, 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. call it 26.5, 27 times earnings we we don't see any eps growth. >> all right for everything "options action" check out our website and newsletter much more "options action" right after this >> announcer: still to come, with another big week of earnings ahead we're looking at two names that keep you on the go just in different ways we're playing starbucks and uber with "options. plus, calling all "options action" fans reach into your pocket grab your phone and tweet your question at "options action. if it's nice we'll answer it

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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 with options, of course.

to get us going, mike's brewing up a trade on coffee king starbucks. mike >> last week we talked about mcdonald's, which is definitely not on the holly index, but starbucks is earlier we were just talking about a company trading 28 times earnings in the form of apple, but starbucks, the big difference is that starbucks we are anticipating eps growth, maybe as much as 20% year on year as we look out to next year now, a couple good things about this. companies, you know, basically saying that they're going to do about $20 billion in returns to shareholders, either by buy backs 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

i mean, for them, maybe it's not huge, but that works out to probably $60 million to $70 million a year in float money they effectively get on that. 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 that they've imposed oakar the last three years. i don't know how much longer they can do that the 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 i think the way to play this to the up side, because at 28 times it's not cheap relative to the market, although reasonable given the growth rate. i was lookin 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.

making that bullish bet. >> carter, what do you think >> from my point of view it has characteristics that are desirable. first thing is price line correlation is bullish. relative strength to the market and to peers, also very impressive 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 112, 114. a lot of smart people think one year from now, it's worth less than it is now i suspect that's not right. >> all right cut to another name on tap next week 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? >> yes this is a really 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. a little over $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 right? they're the ones with the scale. on the downside they have been fighting these regulatory battles. first they were doing it here in california now they're doing it with the department of labor, about whether or not the drivers are going to continue to be considered independent contractors, gig employees, if you will, an 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 achieve next week, look for the number to be over $600 million for the quarter. that's about half what ebitda needs to be to hit targets. 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. they're 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 sort of peak profitability you're going to get is up about 10% or so. maybe a little bit less following earnings, and, then, of course, if you have tha and things are working out, you can hang on to the longer dated call. >> brian, what do you think of this trade >> yeah. it's a good trade, because mike mentioned 10% to the upside. earnings the last 12 quarters, two-thirds of the time, the stock move more than 5%. certainly there's potential for it to jump up if their earnings are well and get up towards that 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 on this stock at least slightly to the upside >> carter? quickly on the chart >> has always characteristics from a bearish to bullish reversal stock dropped 70% from peak and it's been exhibiting great relative strength ever since. >> cbw stamp of approval. up next, meta madness. doubling for the year. how do you manage the name after such a run we'll lay it out when "options action" returns. >> announcer: "options action" is sponsored by -- 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!!

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it was one of 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 right here. clearly they have levers when mark zuckerberg heard the call people didn't like where he was investing money in the metaverse rather wanted to spend mon on free cash flows, spin a few nobs 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 or cash covered puts, because you don't have to, because of a re-rating in the stock so now you can look to avoid a 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 terms of standstill rates or returns and still have ver low probabilities that those things are going to be assigned to you i was looking up the 215s, maybe downside 255s on the upside. >> carter, where do you think the chart goes from here >> so there's a principle when you get a re-rating. gaps come in twos and sometimes threes we've gapped twice now right? which is to say, if the analys community is behind and stock beats a lot, 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, the right calls, trim, to do something, the right calls, to do something before, as they say, someone does it for you. >> up next, tweets and final call >> announcer: "options action"

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time for some tweets our first fan asks, selling cat calls ahead of earnings. what's your strategy brian, what do you say >> well, a cat with nostrils a tug and form, back and forth movement for some of these guys. cat could get to q 40. at the same time we turned down, earnings aren't great. 200s in the calls. 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. >> all right time for the "final call." c.a.r.t. braxton worth. >> uber a laggard that looks like it will come to life. >> brian stutland. >> yeah. apple earnings is going to be big, but i want to do this in a risk reversal. sell a downside put, buy an upside call. play to the upside and see how it shakes out. >> 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 "options action." see you back next week meantime, don't go anywhere. m m&m "mad money" with jim cramer starts right now. - [announcer] the following is a paid presentation for the ninja wood fire outdoor grill and smoker. (intense music) (meat sizzling) - [fey] grilling, the ultimate test of culinary arts, only reserved for masters who've spent years perfecting it. using smoke, and fire, machine, and nature. - it's not actually that complicated. watch. you do that. (machine beeps) - that was easy. - [mark] hi, i'm mark - [fey] and i'm fey - [mark] and we're the grill dads