rights now on "options action," look closely. does this chart show a market that's standing firm in the face of adversity or look more like a heart beat heading towards a flat line? on a day when consumer rank drags down the indices, we'll address. we focus on one that's at a cross roads of conflicting indicators we're going to hedge home depot. we're taking a swing at deerest,

which is also slated to report next week. this is play action pac live from theart nasdaq site. on the desk tonight, stutland from one perspective, the market looks resilient, enduring hit after hit. but from a different perspective it could be on life support. there's a by fur communication in the market and both sides are telling different stories about the economy. which is likely correct? what does similar history support? what are you seeing, carter? >> bifurcation is a circle it's not about big cap and big names. it's about stocks and steep uptrends and equal and opposite stocks in steep downtrends think about an mcdonald's or lilly or hershey on a six-month basis they're making six-month highs at the exact opposite you have u.s. steel

what it represents is people clustering intofewer and fewer names as others continue to get worse. and one could say, so what that's why the market's unchanged. some are winning and some are losing but at some point the strong stocks are full, rich, expensive. weak stocks are low. sitting at a 52-leak low the market looks like it's quiet, it's in a range, but it's not. we have a few s&p charts we can look at them quickly. the sequencing since the high -- there's a chart with no annotations. next will show we have had these distinct rallies, and each rally has faltered at some point and ultimately this one is starts to falter, too, the rally off of the lows both from act but more recently just march. >> very interesting stuff.

mike, what do you make of this >> one of the things i would say of course is that any moment in time, you know, we can always look around and find some things that are likely to make in investors skittish if you peruse the internet i'm sure you see pop-up ads from doomsayers saying the end is nigh i will say what's interesting for me personally as an investor is that i have actually gone out and tried to pick up some of these piece of trash along the way, and actually ended up reducing a lot of those positions when i thought it was premature to do so i got into names like disney, paramount, at&t, i got into ford all of these only proceeded to trade lower in my face in relatively short order i actually took a lot of those positions off. and the principle reason for that is we do see consumer sentiment is quite poor. we are dealing with the reality of very steep rate hikes, and i don't think we've completely seen all of the implications of

that yet and we do see that a lot of the winning stocks, and carter just mentioned one of them, mcdonald's, it's tough to see how a name like that can extend further than now, trading well over the market average, the market probably shouldn't be trading at its market multiple either, and it is. so when you put all of those things together, it's easy to understand why you might have some concern we could falter here. >> brian, do you see the same concern as you look at the bifurcation trend? >> i do to some degree because carter's probably mentioned this term -- as there's a flood you find names, fewer and fewer heading to the high ground and investors heading in that direction. eventually the flood overwhelms everybody. this could be based on volatility trends.

when we look at those indexes and how that has trended down. over a year ago, remember, the vix was over 30. the market is basically kind of unchanged over the last year, and the vix has gone all the way down below 20. the reason being is when you have those stocks that tend to just concentrate in a few -- i think i read a piece from sock gen. 70% of the s&p is being led by the volatility of these few names moving higher. what's going on? other stocks trending lower. can't get through the 4,200 mark on the s&p, and the vix starts coiling and compressing lower and lower. now this rubber band is getting stretched and the further it gets stretched to where we're trending along in the can't get out thing, that rubber band is going to snap, snap hard typically, and we may be looking to pop the vix i don't know how much further we can last in this type of

environment that carter laid out earlier that we have this bifurcation in the mark and don't get this volatility snap back. >> makes sense to go there, so let's dig a little deeper on the vix. mike, what's your take >> i have been hearing a lot of these comments why is the vix so low? how come it hasn't gone higher even as things like the debt ceiling crisis,s that comes closer and closer, people are expecting to see the vix sharply higher than its current level of 17, which is below the long-term historical average, which is closer to 20 and with all of these, how come it has been going sideways or even lower there's a couple of rnc i think we should talk about one of them is what carter has been talking about when the market bifurcates, some stocks are rising and others are falling and the index itself isn't going anywhere you can have a lot of volatility in the individual constituent stocks of the index, but the index itself might be relatively quiet. what requires basically to

happen for an increase in that volatility is the for the correlation of those stocks to also increase. really when you think about volatility of an index it's a function of those two things how much are stocks moving around, and how much do they move around together that's what happens when some form of panic sets in. you'll see that correlation rise we certainly saw it during the credit crisis. saw it during the early stages of the pandemic. mea in the meantime we're coming on the back of earnings season. -- associated with a lot of stocks has declined. options premiums will tend to be elevated going into an event like earnings and tends to decline coming back out of it. when you see that sideways action, if the individual volatility of stocks has been coming in, but the index is he'lling off, what you're seeing is the market's expectation that the next thing that's going to happen is an increase in that correlation, and i think that's exactly what brian is talking about. when you get an increase in

correlation that's when sharp moves could happen you can take advantage of the fact that options premiums are not that high. i was looking out to june sby, 30585 put spread i was looking at that would cost $3.50. now, a couple of things i just want people to think about when you hedge. first of all, hedging is a tactical activity. it's not something you can do on your port foal all the time. it would just be too expensive to do that you want to try to basically look for setups where the hedging is less expensive. i think that's true right here, and where you do think there's a chance something's brewing in the market that could cause some kind of a move the other thing is when you do imagine some sort a pullback, don't get all chicken little about and it imagine the market's going to crash. it's easy when you have all of the doomsayers telling you the

send high, as i was saying earlier, that it'sle are going to be a sharp pullback it's probably smarter to tactically look for hedges that are more likely to be successful in this particular case we're looking at a move between 2% and 7% to the downside in 30, 40 days or so a move 2% to the downside, that happens probably on average over a similar period of time about 47% of the time. a move of more than 6% or 7% to the downside is less common. you're looking at a probability of 15% or less that something like that happens. >> brian, what do you make of this trade mike's laying out for us >> i have a similar trade on right now for clients using e-mini future options and protecting to the downside i'm also using splice futures and vix futures to play a volatility pop to mike's point you want to look at opportunistic times to put that on.

you ghet bifurcation, option prices get cheaper even today we saw the vix down sharply to start the day and it propped back up heading into a weekend and closed on change so i think somewhere people are scooping these options up. buying a put spread makes a lot of sense it's relatively cheap. you have time to sell off. blip in the market this, put spread should pay off and go ahead the take it back after that. >> carter, what does the charting tell you when looking at vix >> we have a complacent market this is not being depicted by the vix. at the end of q-1 we're exactly the same level in the s&p. but what we know happened in between is we've got these huge moves up and down, all being masked at the index level. the vix is also quite. we've got two charts you'll see it's generally in the range, lower quadrant, if you will but the day-to-day vix chart is

more interesting, it has all the makings of a minor bottom, at least as annotated by me. >> mike, i'm going to give you the last word here. >> an interesting thing people should know about the vix is it is closely related to the behavior of the s&p itself there's really two reasons for this volatility will tend to rise on declines that we expect also has to do with the shape of options prices, the skew we see in the market. as the s&p declines you're basically shifting towards options premiums that are generally higher that is why the two are directly anti-correlated. when you see the kind of thing that carter is talking about, it's really just another way to look at a similar chart in the s&p. >> for everything "options action" check out our website and newsletter there's more play action pac coming up after this

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welcome back to "options action." another huge week of earnings on deck, and we're honing in on retail ahead of some key reports. target, tjx, walmart, foot

locker and more gearing up to deliver results. the xrt virtually flat, and very much on a weak side our bifurcation discussion from last block. brian, you've got a trade in this group what do you got here >> retailers not so great this year versus everything else in the market xrt basically unchanged after today, and so i think i've got to be careful in looking at some of these names here to the point of, does the market start to roll over and head lower i think retailers are susceptible, especially with all the earnings home depot walmart's hung in there. maybe that helps xrt but some of the other names, home depot looks acceptable to the downside, and when you look at consumer discretionary, they're having a tough time passing profit margin on to the end user in this inflationary market we have had consumer staples have hung in okay, but consumer discretionary

not so much, and they don't have the balance sheet that have been able to participate in the upside, or doesn't have the flexibility of some of these names. i'm looking to buy a put spread. i want to put a short position in my portfolio. i think the xrt has that potential to the downside. similar to make, but i'm in the money. want to own options. i by the june 61 put while elling the 55 put. that's a cost of $1.65, but look at the profit. almost a three to one payout to the downside that's why my put spread is a little more in the money because i'm on more of a short delta, short position in the marketplace. if i'm constructing a portfolio where there's a hedge in place, i think xrt is acceptable to the downside i want to own a hedge. >> mike, what do you make of brian's play >> in some ways i'm hoping

myself the trade doesn't work out, but it makes sense. why? because we own home depot, ross stores, tjx. so with all of, that we have significant exposure going into earnings, and i'm hoping it comes out all right. home depot as well if i didn't mention it it does make a lot of sense, and how he is playing it make sense. he's not really trying to that i can this out of the money approach we have upcoming catalysts we know what they are, when they are. it's all coming up next week that short delta strategy helps you put the pause button on if you have any or many of the stocks that are reporting, and so this is an inexpensive way. you can see what he's laying out, exposure to june. if the market broadly softens this gives you insurance out to that >> carter, what do you make on the retail space right now

>> if we look at the retail consumer discretionary sector, the top three with 50% weight, so the xrt is the better way to capture the theme of retail. that's an equal weighted etf almost 0 names, 2.4 trillion it's sitting at 52-week low, not confirming the strength in the market since the low let's look at a chart or two i think it's just one we have. we're starting to break down that uptrend line is in effect since the low. it's not good action but on a relative basis it's below its covid low to the s&p. >> with the agricultural and commodity sectors experiencing wild swings, let's talk deere. mike's laying out a trade before those results friday mike, how are you playing this one? >> deere,s this another stock

that we own. like most investors we are long stocks on balance, and we are in the case of deere. people that havewatched the network or seen me talk about this company in the past knows i think -- there are times in past years where i describe this as a buy and hold forever type of stock. what's interesting is just what the price action has been over the recent couple of years it's hard to believe, but this company which was founded in the early 1800s, so it's one of the olde companies that you can actually buy stock in, has outperformed since the covid low most of the big tech names we can think of it has significantly outperformed apple, alphabet, microsoft, and amazon during that time frame. since year end 2019, it had seen significant revenue growth of about 40%. eps basically tripled. but what i would like people to think about as we go into earnings is there's been a pretty unique dynamic that has

existed for the company, basically a perfect setup. we have had zero% interest rates and sharply rising commodity prices, soft commodity prisses in particular after a long secular bear market. why is that important? as soft commodity prices increase and interest rates decrease, this is a good set of performers who might be looking to invest in new equipment, and that has set up very, very well for them the thing is, i suspect that that dynamic is coming a bit to an end we obviously have the higher interest rates i think a way you can hedge and this try to mute the cost of doing it if you happen to hold it, or if you're inclined to put on a bearish bet going into earnings, i was looking at a diagonal purchasing june 55 puts and selling the 345s against it. net-net spending about $7.50 to put that on. when you're looking or cal da trends you're looking for a

modest decline it's one of the situations where if the decline is modest you'll probably see profits if it trades sideways you're probably not going to lose anything, and you aren't going to see losses if it bottoms out. hoping that doesn't happen because, as i mentioned, we own the stock. >> fascinating coming up next, metal makeover how to handle last week's silver trade as the slv heads south more "options action" after this

you ok, man? the internet is telling me a million different ways i should 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." last week, mike laid out a pretty impressive sill ver trad, but it's reversed course here. mike, how are you handling it? >> if you follow me on twitter you know we took this off.

trade information coming out of china, i took -- major air bag recall phil joining us with more. >> breaking news coming in for the from the any way highway safety administration. it is issuing a recall of 67 million air bag inflaters. it's a small cartridge, almost looks like an asthma inhaler, that is the cartridge that triggers the air bag there have been questions about the air bag inflaters, the older models, whether or not there is a safety concern now the national highway traffic safety administration is issuing a recall of 67 million of these. the auto makers that have been impacted by this -- a lot of them have initiated their own recalls, bmw, ford, general

noters and volkswagen. if this recall goes through, which most likely it will, it will work with the air bag inflater manufacturer in order to develop a replacement for the dee defective ones it's a massive recall, and at this point we do know according to the filing from the national highway safety administration there is one fatality linked with these air bag inflaters rupturing early. but that's now have along with their investigation the say, look, we sold 67 million of these. and we're talking 2016, 2015 models should be recalled. >> 67 million. that's an awful lot. thank you, phil. we'll continue to follow that long as it dels.evop coming up next, final call thinkorswim® by td ameritrade is more than a trading platform.

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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.

tile now for the final call. carter. >> xrt, sell. >> brian. >> yeah, retailers yuck. buy a put spread. >> mike. >> hedge >> that does it for "options action." we're back next friday at r5:30 p.m. eastern "mad money" with jim cramer starts 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 to cramerica people want to make money. i'm just trying to entertain and teach. so call me at 1-800-743-cnbc or tweet me