♪ right now on oa, big box retail stocks can't climb their way out of the box right now, but we have way for you to build on any future gains with one name chips, dips, and inflation how they all may come together in a mini rally market aptideser. we'll explain. and nothing runs like a deere. but could quarterly results trip it up or give it a boost i'm courtney reagan in for melissa lee.

this is "options action. on the desk, mike, carter, and brian. we are going to start a big week of earnings on deck with big box retail front and center, home depot, target, tjx and walmart some of the big stocks ready to report all of these names have underperformed the broader market, but could there be a retail revival for one of them the chart master is looking at the technicals carter, what are you seeing and what name? >> sure, bit let's drill down on home depot just to put this in context, walmart is making a 52-week high they are all different, has been a laggard. it's down 22% from its high. the s&p is down only seven let's look at three identical charts so weekly bars, no drawings, no lines, no judgments. let's put some in. it'sration two what do we have? converging trend lines, strength that is enough to move up and out of the apex of that

formation. another way to annotate it, third and final chart, would be as follows whether you want to call it a cup and handle, double bottom, doesn't matter, it is the element or the definition of a turn so my thinking here is one wants to be long home depot and again to put this in context, walmart is back at that former high. so is tjx. something like home depot, i think, has room to run. >> that's an interesting chart thank you. mike, how are you setting up on home depot ahead of tuesday's report it's one of the early ones we get, sort of very early in the morning on tuesday before we hear from the others. >> yeah. i mean, i think we should look at home depot maybe a little bit separately than some of the other big box retailers. a couple interesting things about home depot right now first of all, trading at a discount to the historical valuation. not huge, but about 6% 21 times versus 23 times is probably the average multiple for this one there is something else that's kind of interesting.

so the reason why we look at home depot and it's often considered more attractive than lowe's is because of their professional customers so about 40% of their sales come from professional customers like contractors. why that's interesting to me is that if we take a look at home builders, the first two of up about 38% on the year to date home depot is up only marginally year to date yet 40% of their sales come from contractors. i find that rather interesting and that's significant underperformance and so to me looking at a name that probably moves about 6% on average in month following earnings, i think you want to play that to the upside. a little bit of a move off the bottom here that we saw in may, and of course so you might feel like you are chasing it a little bit. but again it's year-to-date performance, not so great. i think options also are fairly reasonably priced here looking out one month after they

report to the september expiration, the 343-60 call spread, that was going to cost four bucks, one-fifth of the distance now, quick point the strikes are about $10 apart in home depot. depending where the stock opens up on monday, if you're looking to put this trade on, you know, this is kind of the math that we are looking for. it was close to over 330 today that's the reason i was looking at the next strike, 340s if it comes in a little bit on monday, look at a 330, 350 i think 350, 355ish would be the full extent of the move to the upside another quick point about valuation on home depot. right now, actually, the street is expecting earnings to decline year on year if that were true, and i am not saying it is true because i think they may have better fundamentals, the last time we saw that was the gfc

we are looking at the 2009-ish timeframe. they have grown pretty consistently over time. >> very interesting stuff. home depot has told us it expects a year of moderation brian, what do you make of this trade? >> it's interesting because i like it using the call spread factor if you get into the stock and certainly the technicals that carter laid out are compelling, that the stock has upside room and maybe start to gap and start to move higher here. it's been kind of stuck in the mud the last two years home depot, they are one of those names that really got hit by employee compensation, meaning as wages were rising here in the inflationary period, they start to, you know, had their margins compressed margin compression, sort of stopping, sort of wage inflation that they are seeing get under control, and if the stock is wrong, you are only risking the cost of the call spread. it's a cheap way to play to the upside we got to get to break even, a little bit higher from here, and you are off to the races and

making money i love using the call spread to play the upside. >> okay. let's switch to semis. applied materials scheduled to deliver results on thursday. the chip stock higher this year, 43%. brian's going to lay out a way to get in on the run, but with protection brian, how do we do it >> i think a lot of people own it growth names, tech, the nasdaq and whatnot. it's one of those names here that is starting to see sales sort of decline year over year, or start to stagnate it does play on the consumer discretionary in the sense that it has a lot to do with the internet of things, communication, even sort of energy plays and sort of electric cars and chip informing manufacturing in that area so there comes some risk that we talked about here. the a.i. play to the upside has been fantastic for the stock and their dram ship deep manned, obviously, the reason the stock

performed well this year i want to hold this stock. but the earnings, hwhen they miss, a 3, 4% to the downside. so in that sense, i want to stay protected and i want to use a put spread to do that. so this way i can kind of stay in the name and sort of -- starting to roll over, growth is starting to roll over here, we have seen the last couple of weeks, use protection, using a september put spread, 140, 125 put spread looking to pay $5. cost $5. max payout is about $10 on the trade and with break even below that 135 mark here, below there i get protection against my long stock position so that protects me for two-thirds of the downside if the earnings picture isn't great, this has been a play i have been using for the chip names all the way up and into earnings gives me decent protection on the downside and i can ride back to the upside in case this is a mini correction. >> okay. so we have got the trade carter, i know you have chart for us

what are the technicals telling you for amat. >> similar to the top of the hour, the smh, we have one chart of amat. it is down the same as the philadelphia semiconductor, 9.5% i think we will get further down to trend when you can see the well defined trend line there. that's another 5.5, 6% to i am thinking lower day-to-day, week-over-week. >> mike, what do you make of carter's chart and brian's trade for amat >> yeah, the trade makes a lot of sense so the semis send to be a little bit more volatile than a lot of other stocks consequently, the options premiums tend to be more elevated i point out if we take look at two-year history of options prices in applied materials, we are towards the lower end of the range. if you own the stock, it's less expensive to hedge going into earnings now using one-month options the way that brian is nan for most of the past two years. if you don't exposure to the

name and you are inclined to make a bullish bet but are concerned about the choppiness, only yesterday we saw the s&p rise 135 basis points before falling 150 basis points things are really moving around here you know, a call spread similarly is relatively inexpensive. if i was going to go into applied material earnings, my inclination would be to do so in a risk mitigated way that's a good way to do it if you own the stock, buy this put spread. >> amat shares down 4% today we will broaden out the conversation on the tech trade the nasdaq closing the week down 2% this is for the first time all year brian, you are looking at taking advantage of the volatility suddenly come rushing back into the space. what's going on here with the tech trade >> well, i mean, you heard mike talking. the market is swinging back 100 basis points plus or minus every few days here. it seems like volatility is picking up

yet, we look at like the vix, look at the volatility if index on the nasdaq, those are relatively cheap they are historically below averages and so to me that says option traders maybe the stock market's a little complacent towards what the kind of movement we are seeing here, and there is definitely risk to the downside. but the fact that volatility is sort of compressed, made buying calls a cheap way to sort of get into this market, mitigate risk because all i am doing is risking the value of a call option if i play the qs and want to play the upset, i want to buy a call, look at basically -- let's say a month or two out and buy at the call. the september expiration is trading over $10 that's about 3% or so of of the stock value. i know that's a little pricey. but given the amount of movement that we are seeing and the nasdaq more volatile than the rest of the market, to me this seems like a cheap way to play back to the upside i thie fact that the volatility hasn't exploded there might be

upside room. we are sharing some risk here. we see how the market sells off a little bit and look at the ten-year note. pushing towards that 4.25 mark we talked about last week. if interest rates rise here, the nasdaq gets hit. when we have seen sort of interest rates move lower, the nasdaq has been one of those areas of the market that benefitted greatly from that we talked about that last week, that maybe the ten-year is not going up anywhere from here. if that's the case, i own a call and play to the nasdaq to the upside because the nasdaq has been a huge beneficiary of the fact that the ten-year cannot get higher than that 4.25 level. >> carter, when looking at the technicals, what patterns help you predict what might be coming >> sure. as would be expected the correlation between qqq and smh is high at 90 plus percent if we look at a chart of the qqq, it's the same circumstance of a well defined uptrend in effect since the low, and now after trying to break out, we've

faltered and the presumption is that this current falter, down 9%, plus/minus, has room to run. but it all gets down to beta in many ways. if we know that the nasdaq dropped 38%, the peak, the s&p dropped 27%, on the way back up, since the october low, the qqq's doubled the performance of the spy. so it's more on the way down, more on the way up then in this current dip, it's nine versus three and a half for the s&p. i think there is day-to-day downside >> all right well, for everything "options action," check out our website and newsletter more coming up after this. friday, we are looking for a deere in our headlights. should you brake for this industrial or plow in? an options roadmap next. plus, calling all "options

action"s fan reach into your pocket, grab your phone and tweet @"options action." if it's nice, we'll answer it on air. when "options action" returns.

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welcome back to @optionsaction it's not just pig box retailers. deere is gearing up to deliver results. the stock is virtually flat for the year which way. be you trading start with the technical setup carter what do you see >> sure, to point out of course c caterpillar had its results.

it was a big heavy vine upthrust and gap up some 8, 9% in response to the quarterly report i want to look at comparative charts first and then we will look at deere on its own going back to 1980, there was a big difference between these two great american icons deere has basically doubled the performance of cat during blue, cat and orange over the past 18 months, it's reversed, right. deere is the laggard to some extent because cat recently broke out. so i think you play for what happened in cat now to happen in deere. so let's look at two john deere charts cat was set up like this, and it broke out to new highs so let's put in some lines and what i think you will see here is the prospect of setup for a similar cat-type move. deere, the real long-term winner, having doubled the performance of cat going back to 1980, recently a laggard, news pending.

cat had news already out cat broke out. let's play deere for a similar response >> mike? >> i have liked deere for a long time it's one of our holdings on the equity side. it had quite a strong move recently, and i think that makes it, obviously, difficult to chase for a lot of people given the fact we have seen this uptick in volatility and given the fact we had a hsharp move since tail end of may, it's a little bit difficult to chase it here for that reason but the fundamentals here remain strong the company is trading 14 times. i should say one of the reasons we have seen a significant out performance in deere is consider how the company performed the last five years. their revenues up 50% over that timeframe, but the earnings per share are up threefold 200% increase in eps over that time a lot of that has to do with the super cycle on the ag front and

deere has more exposure to ago than cat biller relative to construction and mining, which is sort of caterpillar's core strength deere has exposure, but not as much in of the same way for a lot of these names going into earnings and trying to take advantage of the fact that options premiums given the volatility we have seen are not really that high, i think that the play here, one against, is to use a call spread we often get into these themes of options trades that exist, and that's really just because that's what the options market is giving us looking at september, the $40 call spread, costs ten bucks three to one payoff. a relatively small percentage of the stock price if it doesn't turn out given the move, if you don't already own the stock, this is probably the way to play on the long side going into a catalyst like this. >> okay. coming up next, fashion faux

pas. ralph lauren trending lower this week so how should you manage that trade now? we have the luxury look back ahead. "options action" is back in two. 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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welcome back to "options action." time for a luxury lookback last week a trade on ralph lauren the retailer is town down 8%. before a teaching moment on how to manage the trade, dig into the technicals on the price action carter, what do you see here what happened? >> right so we will leak at a chart but the main thing when you put on a trade is you have a premise, whether it's base-ed on fundamentals or technicals or quantitative looking for an inflection point. instead of breaking out, it dropped 7.8% so if the premise for being in in the trade, breaking above

that down trend line, came and gone, there is no reason for the trade any longer i would walk away, take my limp home, move on to the next. >> all right fair enough. so, mike, how then are you managing this trade? >> yeah, so i think, first of all, carter makes a good point there. the first thing you have to do is evaluate the reason you are in the trade to begin with let's take a look at earnings. they came out, the earnings numbers were actually fairly decent they continue to have some pressure in north america, but asia is looking good pretty good in europe. dtc business seems reasonably strong of course, we had big news in the space this week as well a tapestry's purchase of capri so, you know, there is, obviously, some demand the difficult part is that ralph lauren is trading at a slight premium to its peers now, this is also one the reasons we used options to begin with folks who were watching will

remember we put on a diagonal. one of the things you can do is cover, of course, the short side if you want to stay in the trade, or even roll that short side down and out. so that 145 call was worthless after earnings, you could have bought that back for a nickel and been in calendar spread and also taken in some additional premium offsetting the less than four bucks or so that we spent another thing you can do is, once you get to a level of support, if you are still interested in owning the name, is also work into a risk reversal essentially, you can offset the premium that you spent when you first got into the trade worst case, you end up owning the stock at a significant discount discount where it of trading before earnings. those are some of the things you could look to do of i, however, am not selling downside puts in this or anything else in for now. >> interesting take. we know there was big news t

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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." time to take some tweets cardinal health has society support above 90, how can i profit off the stock being stuck between 90 and 95? brian? >> i'm not that interested in selling puts anywhere. cardinal health is one i have been successful selling puts when it pulls back below 90 makes a lot of sense, taking some premium. i don't think there is a ton of risk to the downside in a stock like this. >> the next fan asks, now that disney has broken up after earnings, do we see it reclaiming 100 how do you view the 95 calls for march 2024 take this one, mike. >> we own disney in our event

fund we liked it going into earnings. i don't like the way it traded today though i do like the fact that you are looking at calls to make the bullish bet and giving yourself a lot of time. if i was going to make a bullish play, that's the way i do it. >> this one says, carvana has been acting very volatile lately, to say the least where do you see this one going? carter >> indeed, talk about a big winner that's down 30% i would buy the dip, fill an important gap. >> that chart is pretty nuts it is time for our final call. carter, starting with you. >> you have shorts, press them if you don't have any, get some. >> okay. brian? >> yeah -- >> okay. you broke up there a little bit. sorry. make, how about you for a final trade. >> he is saying things are breaking up, so you need to own puts or put spreads.

call call spreads for the same reason things are cracking up. >> all right that does it for "options action." we are back next friday at 5:30 p.m. eastern time. a cnbc special taking stock starts right now welcome to a very special edition of taking stock. i promise we will not talk about musk tonight. >> i am josh brown and i promise we will. i will find a way to do that. >> not in rome. >> no, rome, new york. >> for the next hour josh and i are going to talk about all the topics investors are talking about. maybe even argue, a judge assuming josh is right about