♪ right 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 assess more of retails quarterly results on deck. cross roads of conflicting indicators, hedging home tee poe. soft commodities swinging around lately and we're taking a swing at deere, also slated to

report next week i'm courtney reagan in this week for melissa lee. on the desk tonight, mike khouw, carter worth, and brian stutland from one perspective, the market looks resilient, enduring hit after hit. but from a different perspective it could also be on life support, holding on rather than holding firm there's a bifurcation within the market and both sides are telling very different stories about the economy. so, which is more likely correct? what does similar history support, carter worth lays it out for us. >> bifurcation is a circumstance, not about concentration of market big cap names, it's stocks on steep up trends independent attack, mcdonald's or lily or hershey new six month highs of 15 and 20%. and exact opposite u.s. steel, city bank, 3 m at 6 month lows all down 15 and 0%.

3,000 basis points of spread independent attack what it represents is people clustering into fewer and fewer names as others continue to get worse, and one can say so what, that's why the market's unchanged, some winning, some losing but at some point the steep and uncorrected stocks are full, rich, expensive while the weak stocks are telling a message about the economy. ford motor, 52-week low, u.s. steel, goes on and on. that's a very different picture of the market. the market looks quiet, but it's not. we have a few s&p charts sequencing since the high. there's a chart with no annotations. next iteration shows we've had these very distinct rallies, and each rally has faltered at some point. ultimately this one is starting to falter, too, the rally off of the lows both from october, but from more recently just march. >> very interesting stuff. mike, what do you make of this >> yeah, i mean, one of the

things i would say, of course, is that at any moment in time, you know, we can always look around and find some things that are likely to make investors skittish if you preruse the internet you've seen pop-up ads with doomsayers saying the end is high i will say what's interesting more fi as an investor, i have gone out and tried to pick up some of these pieces 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 and paramount and 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 principal reason 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 really tough to see how a name like that can extend a whole lot further from where it is right now, trading well over average market multiple to market itself, if we are going into a recession, probably shouldn't be trading at its average market multiple, either, and it is. so when you put all of those things together, it is pretty easy to understand why you might have some concern that we could falter here. >> brian, do you see the same concern as you look at the bifurcation trend? >> i do, to some degree. carter ease probably mentioned this term, as there's a flood, you find names fewer and fewer heading to high grounds, and investors heading in that direction. the flood overwhelming everybody. and this can be a lot indicated based on volatility trends i don't think we cannot talk about this on an options trading show and not mention the vix and volatility relative to the s&p 500 or spikes and volatility relative to spy.

when you look at those indexes and how that is trended down, over a year ago, remember, the vix was above 30, the market is basically kind of unchanged over the last year, and the vix has gone below 20. the reason being is when you have these stocks that tend to just concentrate in a few i think i read a piece on -- from stock gen, 70% of the volatility is being led by the volatility, the few names moving higher. what's going on? the other stocks are moving lower. sort of get this trend where we're stuck, we can't get through that 4200 mark on the s&p, and the vix starts coiling and compressing lower and lower. this rubber band is getting stretched. and the further that volatility band gets stretched so where we're just kind of trending along in this sort of can't break out kind of thing that rubber band is going to snap and snap hard. typically, and we may get a pop in the vix i'd be looking to hedge positions right here, because i don't know how much further we can last in this type of market environment that carter laid out

earlier that we had this bifurcation in the market and we don't get this volatility snapped back that occurs. >> it makes sense to go there. let's dig a little deeper on the vix. mike, what's your take here? >> yeah, i've been hearing a lot of these comments. why is the vix so low or how come it hasn't gone higher even as things like the debt ceiling crisis, as that comes closer and closer, people are expecting to see the vix sharply higher than its current level of about 17, which is actually below the long-term historical average, which is closer to 20. with all of these how come it is actually been going sideways or even lower there's a couple of reasons 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 falls. the index itself isn't going anywhere you can have a lot of volatility in the individual constituent stocks of an index but the index itself might be relatively quiet. what requires basically to

happen for an increase in that volatility is for the correlation of those stocks to also increase. 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 and that's exactly what happens when some form of panic sets in. you will see that correlation rise we certainly saw it during the credit crisis, we certainly saw it in the early stages of the pandemic and in the meantime we're coming onto the back end of earnings season and so the individual options premiums associated with a lot of stocks has declined as earnings has come and gone as we all know options premiums tend to be elevated into an event like earnings and it declines coming back out of it what we're dealing with right now, when you see that sideways action, if the individual volatility of stocks has been coming in but the index itself is leveling off, what you're seeing is the market's expectation the next thing that's going to happen is probably an increase in that correlation, and i think that's exactly what brian is talking about. because when you get that increase in correlation and an increase in volatility, that's

when really sharp moves can start to happen. i think you can actually take advantage of the fact that options premiums are not that high right now buying a put spread, up so run and spy, the 405.3, that would cost $3.50 nice payoff. a couple of things i want people to think about when you hedge, first of all, hedging is really a tactical activity. it's not something that you can do on your portfolio all the time it would just be too expensive to do that so, you really 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 that there is a chance that something is brewing in the market, that could cause some kind of a move. and the other thing is that when you do imagine some sort of a pullback, don't get all chicken little about it and imagine that the market is going to crash it's very easy when you have all of the doomsayers telling you that the end is nigh, as i was

saying earlier, that it's really going to be a sharp pullback it's probably smarter to tactically look for hedges that are more likely to be successful so, in this particular case we're looking at a move of somewhere between two and 7% to the downside, in 30 to 40 days or so. and, you know, a move of 2% to the downside, you know, that happens probably on average over a similar period of time, about 47% of the time, you could get a move of that magnitude a move of more than 6 or 077% to the downside on the other hand is quite uncommon. probability of 15% or less over a 35-day window that something like that happens. >> brian, what do you make of this trade that mike's laying out for us >> i actually have a very similar trade out right now for clients using future options and protecting to the downside, in that fashion, i'm also using spikes futures and vix futures to play a volatility pop to mike's point, you want to look at times to put this on that's one of them get this bifurcation

option prices get cheaper. even today we saw the vix down sharply to start the day and it sort of propped back up, even heading into a weekend, and basically kind of closed unchanged. so, i think somewhere people are scooping these options up, buying a put spread makes a lot of sense here. it's relatively cheap. you have enough time for this to pay off, and we get a sell in may, go away, sort of, you know, blip in the market this put spread should pay off and then go ahead and take it off after that. >> carter, what is the charting tell you when you're looking at the vix charts >> sure. what we have is, again, a complacent market that's not really being depicted by the vix. at the end of q1, right, almost eight weeks ago we are exactly the same level in the s&p. what we know is happening in between you've got huge moves up and down all being maxed at the index level. the vix is also very quiet we've got two charts, one isan all all-data chart of vix, it's generally in the range, lower, sort of quadrant, if you will, but the day-to-day vix chart i think is more interesting, the final chart, it has all the

makings of a minor bottom, at least as annotated by me. >> mike, give you the last word here. >> yeah, i mean, an interesting thing that people should know about the vix, of course, is that it is very closely relate to the behavior of the s&p itself, and there's really two reasons for this volatility will tend to rise on declines in general, that we expect, but it also has to do with the shape of options prices the kew that we see in the market as the s&p declines you're basically shifting towards a strip of options premiums generally higher that's why the two are pretty directly anti-correlated and, so, you know, 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. >> well, for everything "options action," check out our website, and our newsletter, there's more "options action" coming up after this >> announcer: calling all "options action" fans, reach into your pocket, grab your

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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. it's been a rough year so far for retail 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, consumer discretion for that matter, not so great this year versus everything else in the market. xrt basically unchanged afteoone 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 in terms of, you know, etf moving higher. 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 on their margin and their profit margin on to this end user in this inflationary environment we've 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, that hasn't really occurred 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. look at this june put spread, very similar to mike, but i'm going more in the money. i want to own options. i by the june 61 put while selling the $55 put for about 50 cents. that's a cost of $1.65, but look at the profit. 4.35 that's 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 susceptible to the downside i want to own a put spread should the market go lower >> 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 when we have this situation, how he's plying it also makes sense. he's not really trying to take 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 if earnings turn out badly it gives you insurance against that as well. >> carter, what do you make on the retail space right now >> if we look at the retail consumer discretionary sector,

780 stocks, top three are 50% weight so the xrt is the better way to capture the theme of retail. 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. wp what what you have is w to break down. that uptrend line is in effect since the covid low. wep we arewe are basically since the covid low. wep we arewe are breachinp trend. it's not good action both absolute of course. 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. tp thathat stockmike's la r of p ofof those resu friday of next week. mip mikmike, how are you s one? >> deere, this is another stock

that we own. like most investors we are long stocks on balance, and we are in the case of deere. people that have watched 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 here though p is what the price action s bbeen in this company over th rec rerecent couple of s ip it'it's hard to believs comcompany, which was founded tthe early 1800s. it's outperformed since the covid low, most of the big tech names that we can think of it is significantly outffrmed apple, alphabet, microsoft and amazon during that time frame. and since year-end 2019 it has seen significant revenue growth. revenue growth of about 40%. eps has basically tripled. what i would like people to think about as we go into earnings there's been a pretty unique dynamic that's existed for the company, basically a perfect setup if you will.

we've had 0% interest rates, and sharply rising commodity prices, soft prices in particular after a long bear market for softs of course a soft commodity prices increase, and interest rates decrease, this is a good set up for farmers who might be looking to invest in new equipment. 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 so i think a way that you can hedge this, and try to mute the cost of doing it, if you happen to hold it or if you're inclined to just putt on a bearish bet going into earnings, i was looking at a diagonal put spread, purchasing the june 3.55 puts for $9.80 and selling the 345s against it. net net spending $7.50 to trade. when you put on calendar spreads you're looking for a modest decline, not a sharp decline when you use a diagonal spread like this it's one of those situations where if the decline is modest you will 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 really bottoms out. i'm hoping that doesn't happen as i mentioned, we own the stock. >> wow, fascinating, interesting points there about deere versus big tech names. coming up next, metal makeover had a handle on last week's silver trade as the slv heads south. more options action after this ♪ 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.

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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. welcome back to "options action." last week, mike laid out a pretty impressive silver trade, but it's reversed course here. mike, how are you handling it? >> if you follow me on twitter you know we already took this off. trade information coming out of china, i took -- first loss best loss i took it off straight away. major news on a recall phil lebeau joins us now >> breaking news coming in for the from the any way highway safety administration. it is issuing a recall of 67 million air bag inflaters.

not to get too wonky on this, but this is the -- the inflater is a small cartridge, what you would see for an asthma inhaler. that is the cartridge that triggers the air bag during a collision there has been some discussion for a number of years about whether or not as these air bag inflaters, the older models, whether or not there is a safety concern. well, now, the national highway traffic safety administration is urging the recall of 67 million of these the auto makers that are impacted by this, and a number of them have already initiated their own recalls, are bmw, ford, general motors and volkswagen, what they will do now, if this recall goes through, which most likely it will, is that they will then work with the air bag inflater manufacturer in order to develop a replacement for the defective ones, or what ntsa is calling defective air bag inflators,

it's a massive recall and at this point we do know, according to the filing from the national highway traffic safety administration there is one fatality linked with these air bag inflate fors rupturing early. but that's enough, along with their investigation for them to say, look, we think 67 # million of these, talking about 2016, 2015 models should be recalled. >> wow, 67 million that's an awful lot. thank you for bringing that to us, phil, we will continue to follow that along as it develops. coming up next, final call calling an "options action" fans, reach into your pocket, grab your phone and tweet us your question @optionsaction, if it's nice, we'll answer it on air when "options action" returns. 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.

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time final call, carter.

>> xrt sell. >> brian. >> buy a put spread, retailers. >> mike. >> hedge. >> that does it for "options action." we're back next friday at 5:30 p.m. eastern "mad money" with jim cramer starts now >> announcer: this is a paid advertisement for csn. >> you know, usually by this time in the silver eagle cycle, which is just right at the very end here of our pre-sale, if you will, i have a pretty good idea what is going on, what was going on. but what i can tell you is, is 2023 has surprised us unlike anything i've seen in years and years and years. we assume this would, of course, be a good year.