happened to them -- everything. they're the ones that's been fined. they're the ones that's losing everything they've got. so, you know, it's a double-edged sword, and it cuts both ways, and now it's cutting double-edged sword, and it cuts both ways, and now it's cutting their way. ♪ right now on "o.a.," 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 the stoc charging higher by more than 11%. can musk keep the mojo we will debate that coming up, and 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 stutland. the markets with a much better than expected employment data. the nasdaq leading the way notching its sixth straight winning week the dow sharply reversed what looked like a losing week, but 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 fliers 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 catch-up, but the reading would have now seen only during the financial crisis, and at at 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. 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 just 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. actually, 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 under performance 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 125 calls. those were less than 2 bucks so a very small percentage of current level rsp to make a bullish bet. you know, i think it's important for people to think about, you know, the top quartile of the s&p 500. you know, we've seen significant out performance over the bottom quartile. these are the bigger stocks. if you look at an average, that's deceptive, right? you're dealing with a couple trillion dollar companies. the top quartile is 33 billion versus 22 billion. for the bottom quartile, and there's a spread in terms of performance of about 35% year to date, basically up versus down, and i really think that's a spread that's 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 als 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 pullback 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 what does this mean? 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

as a trader trying to take a position. the market tends to run and if we get this reversal like carter's talking about, let's say rs ps some catch-up, w 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, but, again, i think it's more general than it is specific to materials, but let's look at the xlb, and what we know is, of course, 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, and 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 the 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 financials, 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. although if you're in rsp you're

going to get exposure to all of them. here, too, i think the options look cheaper than they normally do. 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 as the rsp trade and same for 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 they should be. these companies are more economically sensitive and they tend to have higher volatility higher leverage. >> brian, this is sort of part and parcel the thing we laid out before, a mean reversion so if you had to choose, which would be 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 plays 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 and so if we get this equal weight move with maybe russell value, value kind of names, i think materials would then move higher as well because 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. but i think rsp is the right way to play this and play the mean reversion carter talked about. >> 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 look the like the market agreed, and carter said now is a good time to by 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, or nvidia, or 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 iteration an notates it with, whether you call it a cup or 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 has a material advantage you've got ford is talking about adopting tesla's charging network but they're also talking about their business model in terms of whether or not they want to sell through dealers, 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 sort of taking a look at the lower part of those cuouple 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. i mean we've talked about consumer discretionaries sort of lagging the market, bu

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 sort of so if there is a stock to play, i think tesla is one, and options are 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 mow should you play apple? 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 basic lip -- basically the leaders here. 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. if we run a little bit higher from here, 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 right now. if you make a new high for the catalyst event, that's where i might start to buy. it's had such a tremendous run. >> carter, it seems like there's a magnet to that fresh all-time high what do you see in the charts? >> right so 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 it was the high for apple. we're within a fraction of that. in principle, when you mov quickly right to a former high, before you can exceed it you contend with it, which is to see and say 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? >> yeah. i mean, 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 this 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 about that certainly higher than realizing, but i think a stock replacement strategy is a way to retain upside exposure but reduce your downside exposure right now would make a lot of sense.

>> 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 set now with our very real "options smarts." plus, calling all "options action" fans reach into your pocket, tweet us your question @optionsaction if it's night, we'll answer it on-air when "options action" returns.

welcome back to "options action." it may be considered old tech but oracle has been making new and substantial moves higher this year. could it ride the ai hype train to even higher gains brian, how do you feel about oracle >> if it rides that hype train, it will move significantly after earnings. if you look at the last few quarters of earnings, the average move is about 5% after earnings, bu look at the last five to eight there's a couple where we've seen the stock move over 10% to the up side. so if they sort of dive higher the same way nvidia did 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 this equity strategy, obviously, but when i can do that and own a stock like that that's going toing 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 lower that cost selling 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 minus the put spread and 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. i thin there's some room in valuation to grow, whether you want to play it as a value, a growth tech stock, whatever i'm going to protect against the earnings event coming up and i

believe that's june 13th earnings that come out, so 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. >> hmm 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 trading 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 own the stock and continue to 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. >> announcer: "options action" sponsored by -- 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 layed out a way to play downward-facing lululemon stocks. like a cobra pose, the stock picked its head up and did just that mike, how do you flex now? >> yeah. so, i mean, 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 tak

more money out of this trade than you initially put in. you would be locking in some posts, but you would still hav 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. if i own it and i caught this pop, i think i'd reduce my exposure. up next, tweets and the "final trade." e dogs? you should be listening to me. you want to be rich like me? you want to trust me on this one. [inaudible] wow!

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

indicates bullish until mid-month and bearish into mid-july. brian, what do you say >> yeah, bonaduce, 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. very bullish for me. maybe buy a put come july i look ot to september. a little further out 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 trade." "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

>> brie be -- brian stutland >> 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 calls in rsp. >> that does it for us we'll see you back here next week meanwhile, "mad money" with jim cramer starts right now. (upbeat music) - hi everyone, and welcome to legal help center. this is where we have professionals standing by to answer your questions regarding personal injury. so if you've been injured in an accident that was not your fault, like a car accident or a slip and fall, we can help. as a matter of fact, we are here to help. so take that first step and call the number on your screen right now. we have legal professionals standing by to answer your questions. they'll tell you if you have a case