right now on oa, counting down to the biggest week of earnings season. we'll check out the action ahead of the results plus, industrial surge the trader lay a game plan for how to hand it will big move we've seen in that sector. and later, a look back and ahead at the china challenge is now the time to bet on beijing or bail?

good afternoon, everybody. "time" tyler math son in for melissa lee. this is "options action" live in the nasdaq market site, and on the desk tonight, mike khouw, carter worth, brian stutland, and me i'm the only one on the desk you guys get to work remotely tonight. let's get to it. tech a big focus of next week's earnings the xlk up carter, after a run like that, can the technology of leadership be fading? >> what do we know dominant in terms of weight be the big names, the concentration we have had with us, and it's always with us let's make this point, it's important. when people say the top names are too concentrated, if you lock back the last 45 years the top ten years average about 20% concentration. we're 30% now. app and microsoft made new highs. the sector itself, xlk, one way to measure it, is now just back to and slightly above its highs

before the bear market began, january 4, 2022. you can look at this and them consider, are there laggards to play is it a double top at a minimum before you can typically exceed a high, you back and fill at the high or back away. i'm thinking of opportunities to find something like a google, and so look at this relative two lines. we we're looking at one thing compared to another. with the sector back to its high, google is 25% below its high people can say, google is not in the tech sector, it's communications that's not the point it's a big tech name here's the google chart itself it has all the elements of an important reversal with, again, trading some 20% below its former highs you like google on the long side. >> say that again, you like google >> on the long side. >> on the long side, okay. mike, what is your thought here? >> i am inclined to agree with

that it's difficult having seen how far technology has come this year to be thinking about buying anything in the space. i can admit to that but the thing is, alphabet is still reasonably priced. if we actually take a look at it relative to free cash flow, relative to earnings, it's about the same price as the market, probably in the case of its free cash flow yield it's significantly cheaper. yet it's growing e.p.s. and free cash flow at a much faster rate. if you compare it to -- let's just take microsoft and meta, two other companies that have done better this year -- since 2018, these are companies that have probably grown the top line at comparable amounts i would say alphabet has been growing their free cash flow and e.p.s. better and trades cheaper. so i rather like it going into earnings if you're looking for something that's arguably more of a value play in the space, this is it.

>> yeah, and there aren't many value plays in the space brian, what do you think about what we're talking about >> i think it's interesting. when i look to replicate the s&p 500, there's two places, slk and consumer staples, a barbell approach but carter's right it's run tremendously to the upside, and google's a stock we're overweight because i think he's got some valuation that is compelling fit stays above this 119 level, maybe i expect it to make some consolidation of higher lows, lower highs. this is a stock i really love. >> all right, let's turn to another group now with a bunch of names that report next week consumer discretionary you've got coke, chipotle, the golden arches themselves in mcdonald's, which is climbed more than 12% this year.

that's nothing compared to stocks in the tech sector buck that's pretty good mike is allowing out a trade that you think these gains could mcdouble, mike. >> i don't know if they're going to double. i'll make the following observation, which is that when you take a look at any area of consumer discretionary spending -- restaurants -- obviously it seem like we are seeing services hold up a little bit. it has had a good run. my only anxiety going into earnings when i look at the name is the fact that it is trading at a relatively high multiple. we were just talking about alphabet this is closer to 27 what is interesting is while the stock might be relatively expensive, the options on this one are not. and so if one is inclined to make a bullish bet, i think that sets our opportunity up. i was taking a look, and options traders -- options prices have rarely been cheaper. pretty much right around the bottom of the barrel in terms of

options premiums going back seven years. i was looking at the 300 calls you can buy those for a little over five bucks. you're risking low percentage of the stock price, getting two months until expiration, and near upside participation if it does continue higher through earnings if you don't get that or you see the market roll over and get this with it, you aren't taking a great deal of risk. >> brian, what do you think of mike's trade there >> i think he makes a great point. options premiums at low levels here relative to the last few years. buying a call to play to the upside seems like a very cheap play we talked about consumer discretionary, sort of this shift. if the automobile industry started shifting on the upward trajection that starts to bleed into the consumer discretionary. mcdonald's might be one of them. here's a stock in the discretionary space i do like

owning a call. >> carter, you have a chart on this one. >> yeah. what we know is it's a defensive restaurant restaurants are much more cyclical, mcdonald's operates a business that's in perpetuity, if you will. the chart reached all-time highs in the first days of may, and here we are three months later at the exact same level. that is a good setup in principle for a breakout does it have to break out? no, but that is my judgment. >> that it will. interesting call there thank you, folks let's switch gears to autos. there's been a lot of talk about tesla and rivan. let's not forget about legacy auto names brian, you're taking a look at one of those. >> gm was in the news, we heard innovation sold a bunch of shares in gm to buy taiwan semis semiconductor and the stock sold off.

the stock i'm bullish on we talked about -- or doing some reversal in rivan. i'm not going to get long all autos. i think there's something towards cathy woods, although i'd like to take long on her calls because i think he's more wrong than right although that's a different story. gm is presenting the options in term of selling options premium. looking at a call spread out to august this is their earnings picture coming up in the next few days when earnings come out -- only 6%, only a couple times in the last five years. i'm going to sell a call spread here looking at the 39/43 call sell the 39, buy the 43, collect a lit over a buck. i think that's a decent amount of premium if i'm wrong on this, trades on rivan, tesla, those go higher. that's a trade against the big

names that have been the high flier, take option premium in here, which is elevated into the earnings that's coming up. >> carter, how would you look at general motors, the options trade he just laid out, or more broadly, the autos >> the options trade is the way to do this, because as an equity, first of all, we know what happened to general motors the first time around, or many times around it went under. this is the new general motors ipo'd in 2010. what i'm hoping to annotate on this chart is that you have that plunge, covid, and you have the surge post covid, but really where is it? back to where it was the stock is trading at the exact same price of its ipo in 2010, that being new shares from a bankrupt company originally. i don't see the way forward as an interesting investment. >> mike, what do you think >> first thing i would like to say is i like this as a trade

structure generally. implied volatility, the price of options quite low on a lot of the names. a lot of names we talked about today and the proceeding couple weeks have been long premium trades nice thing about a trade like this is thee things can happen -- stock can go higher, saidways or lower. in two instances this is going to be a profitable trade this is not a stock that move a whole lot on earnings. this has a high probability -- payout if it wins. in general, we like to sell premium when we get the opportunity, and in general motors the implied volatility is higher than it's been realized and hasn't moved a lot on earnings trade structure is one i like. >> brian, what do you think of what your colleagues said? >> the reason i picked those strikes to sell is you saw carter's chart $40 on the upside has been the upside cap on the stock.

that's sort of the break even point on selling this call spread i picked that for this reason. the technicals line up when i sell call spreads i want to look at technical levels and pick my strikes accordingly. that's what i've done here. >> we're going to take a quick break. for everything "options action," check out our newsletter there is more "options action" right after this >> announcer: till to come, industrials are on the rise, but not all are built equally. find out how we're setting up to swap power management for post-its. plus, calling all "options action" fans pe reach into your pocket, grab your phone, and tweet us your question @options action if it's ceweni, 'll answer it on air when "options action" returns.

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welcome back to "options action," everybody brace yourselves, because we are inching closer and closer to the busiest woke of earnings season, and now we're going to hone in on a group that's been a heavy lifter of late industrials up nearly 5% over the past month outperforming the broader market we're going to dig into two names be the chart master is here to help us set the table ahead of a huge week take it away, carter. >> sure. so obviously an important economically sensitive area of the market, and what we have of course is industrials as constructed by standard and poor's, the sector is making new all-time highs now but it's not all areas of the sector, so let's look at a couple charts. this is the etf xli.

just moved to new highs. compare this, though, to the next chart this is a sub industry group, and it is also making new highs, and what's interesting about this circumstance is the third this is road and rail. the first one was machinery. things like cater pillar, road and rail are lagging the opportunity is to play this for a catchup. but two names in particular, one is so good it's bad and one is so bad it's good 3m, everyone hates it. not a single buyer rating on the street, has all sorts of problems in the fundamentals, which are real and true. how much of that is priced in? it's trading at its 2007 peak before the financial crisis crash. i think you play for a bounce. >> okay. >> on the other hand -- eaten. >> go ahead. >> too much, too expensive full sell. >> all right

mike, you are trading 3m ahead of next week's report. i think that's in the category of so bad it's good according to carter >> yeah. i mean, i think that earnings obviously are -- generally speaking, which is when stocks move, when you get earnings. in the case of 3m, i think the news is the liability. we did get recent bumps when it -- we started to hear conversations about a potential settlement with these chemicals. those are the forever chemicals and the liability for those with the companies that are playing in that space, which includes 3m, names like dupont, is really quite tremendous i don't know that that $10 billion number that was float is really where their liability is going to end. if it did, that would be remarkable for the company when you consider it's trading at a huge discount to prior valuations catching a falling knife is difficult to do, but we did see

any news on the front could create a pop, and we got transparency out of earnings way to play this in a risk mitigated way would be a call spread i was lookingt september 15 call spread those who follow the show will know when i'm looking at these debit call spreads i'm looking to spend about a quarter of the distance between the call spreads or less. higher distance is probably justified given not only we have the earnings but the liability, and i think that justifies higher call earnings here. >> brian, your reaction to that trade. >> >> yeah it's right. 3m, so bad it's good using a call spread, limit risk, continue the play to the upside. the chemical area of the industrials has sort of been beaten down. i think it's a sector and area in 3m that can continue to push to the upside, so i think it's

an interesting play. >> let's move on to the other industrial name we're going to look at in this segment. that would be eaton corps. that stock up more than 30% this year like carter, brian is not sure this one can keep grinding higher brian? >> well, yeah, as a major that i have in chemical engineering, this is get out of chemicals and 3m into heat and transfer. eaton, they have had a lot of big play on that not just trying to manufacture more in the united states but other countries coming into the u.s. looking for manufacturers couple that with their cooling system, a big play on a.i. centers we see why the stock has done so well but this seems overdone to the upside, and it's time for pullback maybe that earnings, sell the news once it comes out and look to the downside. lyme looking a put spread, limit exposure, play to the downside i'd pay over $2, and this payout

is almost $8, so you're looking at almost a 4 to 1 payout. i think the risk reward is there to take a shot not risking a lot of capital $2 is basically the stock. if earnings come out, sell the news, move to the downside, profit taking happens, there's a high probability of success. going out to september to give myself time to play on this trade. >> mike, what do you think >> i think if you happen to own the stock this is a way you could consider potentially hedging your exposure going into earnings this is not a name that's moved materially to the downside following earnings really over the past several years you're probably looking at pullbacks somewhere in the 3% to 5%ish probably in the max. that's what this put spread brian outline secod is basically trying to cover. this is not a crash protection s this a good company that's had a big run. maybe it could take a step back or pause, and this is a way you can protect yourself if you

happen to own the stock. >> carter, i think we put up here eaton chart a minute ago. what do you think on this? >> yeah, so, again, sometimes if you just ascribe to the concept of sequencing, a thing gets so overdone to the downside you get a countertrend move. that's the 3m premise. eaton is the reciprocal. it's overdone to the downside, and all great trends with countered by declines, dips. it's due for one of those. >> all right, carter, thank you very much. succinctly put. up next, a china check-in. how brian is managing his fxi n'goe from last month. dot anywhere. we have more "options action" coming your way in two minutes

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welcome back to "options action," everybody about a month ago, brian laid out a trade on the fxi china large cap trade etf. a week from expiration, how are you managing the trade >> yeah, i think when we look at fxi, we talked a lot about the weakening dollar the last couple weeks. when i look at that, i look at the -- see how they respond to a weakening dollar should go up chin has not looks like it's stuck in the mud. maybe sticks around here any bullish bet i put on a merging market, i'd probably close this out i don't think it's participating the right way. i'd use the same call spread or call to the upside, indy etf, to play the upside, play a merging markets in other areas >> all right, close this one out. brian, thanks very much. we're going to te aka quick break. up next, your tweets and the

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award-winning customer service that has your back. welcome back to "options action." time to take some tweets our first fan asks, what do you think about dr. pepper with earnings coming up brian, that's a question for you. >> i want to play to the upside. similar to the mcdonald's trade. looks like maybe it's bottoming and there's some upside person. >> our next fan asks, how do we feel about the october $60 calls on twlo. i'm not sure the name of it. this recent pullback provided a nice buying point around $60 area. >> that's the strike you choose and how much the premium is. i really like it you're giving yourself time, slightly in the money. thing is options premiums are high consider selling the august 70

calls against the 60. >> time for one more tweet this one asks, can i buy leaps on alibaba carter, what do you think? >> i think it's nice june 24 hundreds are going for about $13. last time the stock was at 113, that was the beginning of the year you got a whole year to get there. >> already w, we got a minute to play time for final kaurl carter, you get to go first. >> sometimes uptrends are overdone eaton is that. sometimes downtrends are overdone 3m is judged to be that. >> let's move on to brian. you're next. >> tyler, thanks for working hard at the desk there tonight but 3m, dead money sell a call spread, make money. >> i miss you guys i wish you were here with me i'm all alone. except for the hundreds of people behind me mike, your turn. >> yeah, i like mcdonald's i think the options are cheap.

buy a call going into earnings, and i also like google good value play. >> interesting weak ahead. we've got the fed, a lot of earnings as we have been talking about and a lot of action and "options action" will be back next week at this very same time that does it for welcome to a special friday addition of tech check. today, tech has cooled off and just out of the mega cap earnings you have google, a soft , meta. the magic bullet may be artificial intelligence but since we've mentioned ai a few times on your