right now on oa tech riding a winning streak dating back to before the pandemic. the s&p at levels not seen before last august the dow posting the biggest one-day gain since november. the options trades to get in on these moves straight ahead. plus, tesla posting another revved up week charging higher by more than 11%. can musk keep the mojo we will update that later. lulu bounce and oracle's record-breaking run. i'm melissa lee. this is "options action.

on the desk, mike khouw, carter worth and brian stetland the markets with a much better than expected employment data. the nasdaq leading the way notching its sixth straight winning week it wasn't just the megacaps this week the russell 2000 logged the best day of the year closing above the 200 day moving average for the first time since march, but an internal indicator we'll talk more about in a moment, the vix, hitting its lowest level since july of 2021 carter, you were taking a look at this market through the lens of weightings. explain. >> right so we have with the ongoing strength of the largest cap names versus the average stock, we have a spread now that it was only seeing basically during the financial crisis and at the covid low. so the way to think of it is this, either the high flyers, the market in general is going

to sink and the high flyers are going to sink more or the market keeps advancing, in which case the laggards start to play catchup. but the reading would he have now seen only during the financial crisis and at the covid low, either we're that bad, i don't think we are, or we are literally facing a very severe recession so let's look at the charts and try to parse this out. the first chart is a ratio chart. it's simply one thing divided by another, and what that tells us is relative performance. you're looking at the rsp, that's the equal weight s&p versus the spy and of course you can see how it's collapsed and that straight down line, let's look at the next chart going back to the '09 low. now is there a similar period? look at the next chart this is virtually identical to exactly how we looked during the financial crisis and be at the covid low. the other two times when we got this reading, of course what

happened the average stock starts to outperform the big cap weighted spy. so the bet here is, guess what happened here, final chart you play the up arrow. it can only be one thing either this message is that severe, like those periods, and we are about to come apart, or we're not, the market keeps advancing, in which case the laggards start to play catchup and what happened today was that, massive moves out of huge laggards. >> mike, you're taking a look at a catch up play in the rsp lay it out please. >> yeah. we're sort of trying to take advantage of the fact that we do have this lower level of implied volatility so options premiums are reduced. rsp is something that i actually picked up in the pa today. we played some other catch up trades in our long only strategy this week as well. i think you try to take advantage of the dynamic that's setting up here in those two ways

one, the fact that you've seen the significant underperformance and the low options premium by doing something relatively simple, you can go out and buy a call i was looking out to the july 141 callings those were less than 2 bucks very small percentage of current level rsp to make a bullish bet. i think it's important for people to think about the top quartile of the s&p 500, you know, we've seen significant outperformance over the bottom quartile these are the bigger stocks. if you lookdeceptive, right? you're dealing with a couple trillion dollar companies. the top quartile is 33 billion versus 22 billion. there's a spread in terms of performance of about 35% year to date, up versus down i really think that's a spread that is likely to narrow one other thing to think about, valuation. that top quartile is trading an average of about 42 times earnings the bottom, about 16 times

so doing a trade like this is not just looking for certain stocks to play catch up just on price action but it's also basically looking to purchase the cheaper stocks in the index as well. >> yeah. brian, what do you think >> well, i think we can look at the trade. i really like it one thing i could possibly look at is if there is any pull back in the rsps, sell a down side put to reduce the cost and leg into a risk reversal certainly volatility is cheap enough when you looked at the vix, mel, you mentioned that at the top of the show, that's below 15. spikes below spy, 15 these are relatively low options prices are relatively cheap historically that's made for a trade to play and buy calls and play the calls to the up side because the call payoff maybe doesn't realize necessarily in terms of a gamma trader or what market makers use it for the market tends to run and if we get this reversal like

carter's talking about, let's say rsp plays some catchup, we can use some sort of leverage around that to play the up side. >> let's shift gears materials rebounding this week on stronger demand from asia is it enough to help the sector recover from a year to date slump. carter, what's your answer >> well, so the thing about materials, this is value, right? this is the perspective catch up area again, i think it's more general than it is specific to materials. but let's look at the xlb and what we know, of course, is that, yes, you can catch a trade here that's a well-defined trend line connecting the covid low with the lows of about six months ago. so i think you can catch a bounce look at the second iteration of this chart we're kind of stuck. a pair of 2s for me, but it will catch a bid with the general theme of laggards outperforming

the market >> mike, how are you trading this sector materials? >> yeah. we picked up some xlb around the middle of the week this is a little bit of a beta conversation as well consider the underperforming stocks year to date. i mean, a lot of these sectors or industries are really going to be familiar to everybody who's watching i mean, today you guys were talking on "fast money" about the telecoms obviously that's one of the hardest hit areas. real estate obviously one of the hardest hit areas. there's a big preponderance of those stocks and the underperforming quartile of the s&p. core stocks, regional performers, insurers, things like that. here's the thing, if we are going to somehow emerge from this and we are going into a recession and you're looking for a way to play that and you're looking for cheap stocks as the mechanism, as the vehicle, that would be a reason to look at materials as opposed to some of those other areas. if you're in rsv your' going to get exposure to all of them.

here too the options look cheaper. materials is a more volatile sector it's not going to be as cheap as equal weight rsp july 78 calls also about 2 bucks a contract to get some up side exposure there same amount of time to expiration and same amount of contract but you'll notice this is about the instrument. the underlying instrument is about half the price as a percentage obviously these options are more expensive these companies are more economically sensitive and they tend to have higher volatility and leverage. >> brian, this is sort of part and parcel the thing we laid out before, a mean reversion if you had to choose, which would you rather put on, reversion of the rsp higher or materials? >> you know, i think i'd lean more the rsp moving higher here, simply because i think there's a component of materials within that that plays into that and i think it kind of all goes together the rsp is really moved more in a value kind of play

if you look at the russell 1000 value, that has lagged the market i think it's still down on the year right now if we get this equal weight move with maybe russell value, value kind of names, i think materials would then move higher as well there's a lot of a commodity play here in the materials sector although linda makes up 20%, by the way, of the etf. that's a stock you can play outright as well if you wanted to play xlb or individual stocks in that etf. xlp is the way to play this and play the mean reversion. let's go to an individual stock here tesla, another weekly winner last week mike said he thought the charging partnership between ford and tesla would make more of a difference from tesla than ford carter said now is a good time to buy shares of this ev maker carter, let's start off with you on tesla what do you see now? >> sure. i would play the momentum here to some extent, well, tesla, hard to think of it as a

laggard, it has been a real laggard compared to apple, nvidia, microsoft. let's look at two charts, the same chart just with different annotations. we have a clear down trend and we have moved above the down trend. the second annotation it with whether you call it a cup and handle, doesn't matter it has all of the elements of a reversal i like tesla and to a great extent it is a catch up trade. >> how do you think about putting a trade on tesla, mike, whether you don't own the stock currently or you own the stock right now? >> yeah. you know, we faded this one going into earnings. it performed fairly weakly coming out of that then when it got down to close to 165 or so, it had a vicious bounce off of that i was thinking it might be an attractive time because when, you know, we looked back several years. this was a very expensive company. now not so much, certainly not relative to their growth as you look ahead and think about how this is all going to play out for the automakers,

who's got a material advantage ford is talking about adopting tesla's charging network but they're talking about adopting their business model in terms of whether or not they want to sell through dealers, whether or not they want to have fixed pricing. it definitely feels like tesla has the momentum from a business standpoint i think calls for risk reversals would be the way to play it. i was taking a look at the lower part of those couple of handles and thinking maybe that would be the put i would sell to finance an up side call spread >> brian, how about you? >> i was going to say that mike and i are thinking the same way. when you get that cup and handle formation, one trade i do like doing is putting a risk reversal call spread on, waiting before i sell the further out of the money call tesla seems like that's one. we've talked about consumer discretionary lagging the market tesla is one of the leaders there. if this is a stock that broke in trend, it's probably going to be

the first one to move higher, whereas, maybe the rest of the sector, autos and whatnot, lag behind if there is a stock to play, tesla is one it's one of the most heavily traded equity options out there. apple's worldwide developer's conference gets underway next week the vr headset rides high. how should you play apple ahead of wdc brian, what are your thoughts here >> yeah. i think apple's an interesting play because it's such a big market cap it's been such a big market mover why the s&p 500 has been up so much apple, microsoft, google, nvidia we're sitting here near year highs. we have to be careful how aggressive you want to be playing apple here this is probably a time, we talked about buying calls to play the up side this is probably a time where i start to replace some of my stock, buy a call or buy a put,

use some sort of protection here in case this thing starts to lag. i tend to like stocks when they make new all-time highs, that's the time to buy right and sell a call i need to wait for some of this catalyst event to pass i'm not going to sell a call if you make a new high for the catalyst event, that's where i might start to buy. >> carter, it seems like there's a magnet to that fresh all-time high what do you see in the charts? >> that all-time high was the all-time high for the market we have an apple chart it was 4 january 2021. that was the high for the market that was the high for apple. we're within a fraction of that. the in principle, when you move quickly right to a former high, before you can exceed it you contend with it, which is to see you back and fill or back away if you are long, i would sell calls. >> mike, how do you think about apple and where it's trading at right now? do you think wwdc is going to be any sort of catalyst

or does that not matter seeing what the chart wants the stock to do at this point? >> as the money flows, ultimately they're going to end up dictating where this thing sits i think i would be pretty derelict to go out and buy the stock given what we've seen in the market, given the run of what we've seen in tig and given the fact we're getting back to the all-time high. it makes good sense it's going to contend if you own the stock, particularly if you don't have any tax exposure and you think, i want to take some profits, i would normally just say buy some outride calls because in many cases they're cheap. not quite as much with apple it's trading at 25% volatility i think a stock replacement strategy helps you reduce your down side exposure right now would make a lot. >> all right for everything "options action", check out our website and newsletter there's much more "options

action" right after this break. >> announcer: coming up, is older tech riding a new wave thanks to artificial intelligence oracle is on deck to report earnings in two weeks but we're getting started now with a very real options smarts. plus, calling all "options action" fans reach into your pocket, tweet us yo qsturueion @optionsaction

welcome back to "options action." it may be considered old tech but oracle has been making new

news could it ride the ai hype train to higher gains. brian, how do you feel about oracle >> if it rides that hype train, it will be after earnings. if you look at the last few quarters of earnings, the average move is about 5% after earnings look at the last five to eight there's a couple where we've seen the stock move over 10% to the up side. if they sort of dive higher in terms of nvidia in terms of revenue growth, we may see the stock pop. it's trading at an all-time high it moved quickly from the 90 level through 100. i'm going to use the same kind of playbook that i used with nvidia we own the equity strategy obviously, but when i can do that and i own a stock that's going to be my core holding, i like to buy a put spread options are fairly priced. i can buy the june 16th expiring option, the 103 put. i want to be a buyer

i'll sell the 99 put against it. the net cost here basically is just a buck. less than 1% i get some protection to the down side. if the stock moves after earnings downward 5%,you're talking 101, 100 on the stock, i can kind of stay protected into that 103 to 99 area versus the cost of the put spread then i don't give calls away if their earnings are good, i get to continue to play to the up side. this is the stock whose forward pe is sitting just under 20. there's some room in valuation to play whether you want to play it as a value, grow, tech stock. i'm going to protect against the earnings event coming up and i believe that's june 13th this will keep me protected through that. >> carter, what do you make of brian's levels >> this is analogous to the apple setup. look at the chart. we can discuss it. the point is oracle closed down today. everything was up. why? it got right to its former high.

literally that high within ten cents, as soon as it touched above it, it started backing away why would that be? it's because people sell who have their stock returned to the level they bought it when they first got in they're breaking even. this is what contending with the former high is all about i would sell calls if i were long. >> mike, your thoughts >> we own oracle in our long only strategy so i am hoping the earnings strategy numbers come out good looking at the forward earnings, i think this thing is still at their projected growth rate a very reasonable value. the thing is, there are some pretty ambitious targets in terms of that growth if we look at it on a trailing basis, it's trailing around 33 times trailing that is actually a 10-year high. there's a lot of news baked into the steak about what we expect to happen. obviously we expect to happen, that's why we own the stock. i think the put spread makes a lot of sense because we're contending with a difficult

level. many may want to hold it and are concerned and this is a good way to ensure against news not being as good as we hope when it comes. up next, arms out to the side twist at your core bring your head around and look back at us on our lululemon trade from last week more "options action" back in two.

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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 layed out a way to play downward lululemon stocks like a cobra pose, the stock picked its head up and did just that mike, how do you flex now? >> yeah. the there's a couple things one could do if you wanted to take profits, that's an understandable response you could sell out of the call spread that we discussed another thing you could consider doing is actually adjusting it if you actually rolled from the 350 calls up to the 370s, what you would do actually is take more money out of this trade than you initially put in.

you would be locking in some profits but you would have another potential 20 bucks worth of up side that is another way you could play if you want to continue to bet on the long side here. >> carter, how does the chart look to you after this big move higher >> right so we had sold off dramatically to the 150 day moving average. stock bounced in response to earnings i think you've set a high here for a bit or goalposts of sorts. what we know is lulu closed on the absolute low of the day. yes, it was up a lot, of course, but it didn't hold its strength. so i think today's high will stand for a while. i i caught this pop, i think would reduce my exposure. up next, tweets and the final call thinkorswim® by td ameritrade is more than a trading platform. it's an entire trading experience. with innovation that lets you customize interfaces, charts and orders to your style of trading. personalized education to expand your perspective.

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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. welcome back to "options action." time to take some tweets first fan asks seasonality

indicate bullish until mid month then bearish into mid july brian, what do you say >> yeah, i like the play i'm long june end of the month expiring options on the s&p 500 index option i'm buying calls to the up side. i think maybe come july maybe it is time then to take it off. it seems like the rally is going to continue. the last couple of days have been very bullish. maybe as i'm going to buy a put, i look out to september. in case we have the summerally. the arkk innovation is moving up. what do you think, carter? >> it is percing up. it is a beta trade and i would play it. >> all right time for the final call. back to you, carter. kick us off. >> really want to focus on the average stock versus the stock market rsp on the long side >> brian >> yeah.

i like catching my oracle position with the long put spread just after the earnings, play a little hedge and take the risk off of that. >> mike khouw? >> rsp is the average stock but their options prices are below average so i would buy clsn al i rsp. >> that does my mission is simple, to make you money. i am here to level the playing field for all investors. there's always a bull market somewhere. i promise to help you find it. mad money starts now. >> hey, i am kramer. welcome to "mad money.". my job is not just to entertain, so call me or tweet