choice. they call it pruno. >> it's what the inmates actually make in their cells. it's supposed to be quite a kick, but i know that it's not real gourmet. ♪ right now on oa, big box retail stocks can't seem to climb their way out of the box right now, but we have a way for you to build on any future gains with one name, likely to find footing soon then chips, dips and inflation, how they all may come together in a mini rally market appetizer. we'll explain. and finally, they say nothing runs like a deere. could quarterly results trip it up or give it a boost? i'm courtney reagan in for melissa lee, this is "options action" live from the nasdaq

market site. we have mike khouw, carter worth, and brian stutland. a big woke of a earnings on deck big box front and center target 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 do you see and in what names >> sure, you bet let's drill down on home depot while they're all different, it's been a real lagger. in itself it's down 22% from its high, whereas the s&p is down only 7 let's look at three identical charts so, weekly bars, no drawings, no lines, no judgments. put some in. iteration 2, what do we have we have converging trend lines, we have 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, when you want to call that a cup and handle, double bottom, doesn't matter what you call it, it is the element with a definition of a turn my thinking is one wants to be long home depot. and to put this in context, walmart is back at that former high, so is tjx, something like home depot has room to run. >> interesting chart carter, thank you very much. mike, how are you setting up on home depot ahead of tuesday's report it's one of the early ones we get, very early in the morning on tuesday before we hear from the others. >> yeah, i mean, i think we should look at home depot, and maybe a little bit separately than we might look at some of the other big box retailers, couple interesting things about home depot as it stands. it's trading discount to historical valuation, not a huge discount but about 6%, 21 times versus 23 times is probably the average, multiple there are this one. there is something else that's kind of interesting, so the reason we look at home depot and it's often considered more

attractive than lowe's, 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 are up about 38% on the year to date, toll is up about 6%. home depot is up marginally. 40% of their sales come from contractors, i find that interesting, that's significant underperformance and so, to me, looking at a name that probably moves about 6% on average in the month following earnings, i think you want to play that to the upside. now, it has had a little bit of a move off the bottom here that we saw in may, and of course you might feel like you're chasing it a little bit but again it's year to date performance not so great. i think options also fairly reasonably priced here, i was looking outexactly one month after they report to the september expiration, the 343/60

call spread, when i was looking at that earlier today, it was going to cost about $4, one fifth of the distance between the strike 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 map that we're looking for. it opens up a little bit lower, closed over 330 today, that was the reason i was looking at the very next strike, the 340, and looking for a $20 spread, and on monday you might look at 33/350, 355ish is that would be the full extent of the move to the upside one other quick point i want to make ant valuation on home depot. right now actually the street is expecting earnings to decline year on year if that were true, and i'm not saying it is true, because i think they may have better fundamentals as a backdrop than that suggests, the last time we saw that was the gfc the 2009ish time frame, this is

a company that's grown consistently over time. >> very interesting stuff, and home depot has told us it expects a year of moderation brian, what do you make of this trade? >> well, this trade's really interesting because i like it using the call spread. if you're going to get into this stock and the technicals that carter laid out are very compelling, but the stock got upside room and start to gap and move higher, it's been stuck in the mud for the last two years, when you look at home depot, they're one of those names that really got hit by employee compensation, meaning as wages started rising here and this inflationary period, they really start to have their margins compressed so i'm really looking for earnings call to see margin compression, sort of stopping, wage inflation that they're seeing get under control, and if the stock is long you're only risking the cost of the call spread so it's a very cheap way to play to the upside. all we've got to do is get through the break even which is a little bit higher from here and then you're off to the races and making money on this i love using the call spread to play the upside.

>> okay. let's switch gears to semis. applied materials scheduled to deliver quarterly results on thursday the chip stock ripping higher this year, up 43%, and brian's going to lay out a way for us to get in on the run, but with protection brian, how do we do it >> i think a lot of people own aamt, own growth names or tech or the nasdaq. it's one of those names that's starting to see sales decline year over year or stagnate it does play on the consumer discretionary. it's got a lot to do with the internet end of things, communication, even on sort of energy plays and sort of electric cars and chip manufacturing and that area. so there is a bit of consumer discretionary plays but there's some risk that we talked about here, but, the a.i. play obviously to the upside, fantastic with the stock, and their dram chip command is why the stock has performed so well this year. i want to continue to hold this stock. i'm looking for protection the earnings when they've missed or made or whatever you could see a 3, 4% move on earnings to

the downside, and so in that sense i want to stay protected and i want to use a put spread to do that this way i can still kind of stay in the name if the nasdaq is rolling over, growth is starting to roll over, i can use protection, using a september put spread, the 140-125 put spread i'm looking to pay about $5 here this put spread costs $5 max payout is $10 on the trade, and would break even just below that 135 mark here, below there i get protection against my long stock position, and so that basically protects me for basically two-thirds of the downside, if the earnings picture isn't great. this has been a play i've been using for a lot of the chip names on all the way up and into earnings play because it gives me deep protection on the downside and i can still ride it back to the upside in case this has just been a mini correction for growth names out there. >> so we've got the trade. carter, i know you've got a chart for us

what are the technicals telling you. >> the top of the hour, it's down exactly the same as the philadelphia semiconductor, down 9.5% i think we'll get further down to trend, the well-defined trend line there, that's another 5.5, 6% here, i'm thinking lower day-to-day, week over week. >> mike, what do you make of carter's chart here and brian's trade for amat >> the trade makes a lot of sense. so the semis tend to be a little bit more volatile than a lot of other stocks and consequently the options premiums tend to be somewhat more elevated although i would point out if we take a look at the two-year history of options prices, in applied materials, we're actually towards the lower end of the range. if you happen to own the stop it's less expensive to hedge going into earnings right now using one-month options the way that brian is than it has been for most of the past two years if you don't have exposure to the name and you're inclined to make a bullish bet going into earnings but are a little bit

concerned about the choppiness we've seen, bear in mind, it was 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. but i do think if i was going to go into applied material earnings, my inclination would be to do so in a risk-mitigated way and that's a good way to do it if you own the stock, to buy the put spread. >> and amat shares were down about 4% in trade today, we're going to broaden out our conversation here a little bit generally on the tech trade. the nasdaq closing the week down nearly 2%, down back to back weeks for the first time all year brian, you're looking at taking advantage of the volatility that's suddenly come rushing back into the space. what's going on here with this tech trade >> well, you heard mike talk here, the market is swinging back 100 basis points plus or minus every few days and it seems like volatility is picking up, yet, you look at the vix,

and the volatility index on the nasdaq, they're relatively cheap, below averages and so that says option traders, the stock market is a little complacent as to the kind of movement we're seeing here, there's risk of the downside but the fact that volatility is sort of compressed has made buying calls a cheap way to sort of get into this market, mitigate risk because all i'm doing is risking the value of a call option, and so if i'm playing the q's here and i want to play to the upside. i want to buy a call i'm going to be looking at basically only expiration, let's say a month or two out and buying antemoney call, the september expiration is trading for just over $10. that's about, you know, 3% or so of the stock value i know that's a little pricey, but given the amount of movement that we're seeing and the nasdaq being more volatile than the rest of the market, to me this seems like a cheap way to play back to the upside i think the fact that the volatility hasn't exploded, there might be upside room but we're sharing some risk here we've seen how the market fell

off a little bit and look at the 10-year note, pushing back up towards that four.25 mark wee talked about last week if interest rates were to rise. the nasdaq gets hit. we've seen interest rates compress and move lower on the 10-year the nasdaq has been one of those areas of the market that's benefitted greatly from that so we talked about that last week, that maybe the 10-year is not going to go up anywhere from here, if that's the case, i own a call, i get to play to the upside of the nasdaq, it's a huge beneficiary in the fact the 10-year can't get higher than the 4.25 level. >> carter, looking at the technicals, what patterns do you see that help you predict what might be coming? >> sure, so as would be expected, right, the correlation between qqq and smh is exceedingly high at 90%. the pattern is similar if we were to look at the chart of the qqq, same circumstance of a well defined up trend in effect since the low and now after trying to break out we falter, and the presumption is that this current falter, down

9% has room to run and we'll get it down to trend it all gets down to beta in many ways if we know the nasdaq dropped 38%, the peak, the s&p dropped 27%, well on the way back up, since the october low, the qqq is double the performance of the spy. so it's more on the way down, more on the way up, and then in this current dip it's 9 versus 3.5 for the s&p. i think there's day-to-day downside. >> all right, well, for everything "options action" check out our website and our newsletter, there's more "options action" coming up after this we've got more earnings down the road next week, on friday, we're looking for a deer, and our headlights should give -- for this industrial or plowright in we have an options road map next plus, calling all "options action" fans, reach into your pocket, grab your phone, and tweet us your question at

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the name technical setup, carter, what do you think? >> to point out, of course, caterpillar already had its results it's an up thrust in gap, up some 8, 9% in response to its quarterly report. comparative charts first, and then deere on its own. back to 1980 there was a big difference between these two great american icons deere has basically doubled the performance of cat deere in blue, cat in orange. 18 months, it's reversed deere is the laggard because cat just recently broke out. what happened in cat, you now play for that to happen in deere. two john deere charts. cat set up just like this and it broke out to new highs let's put in some lines and what i think you'll see here is the prospective setup for a similar cat type move. so deere, the real long-term

winner having doubled the performance of cat going back to 1980 but recently a laggard, it has news pending, cat had news already out, cat broke out, let's play deere for a similar response. >> mike, what's the trade? do you agree with this poised for a breakout, and if so, how are we going to play it? >> people who have been watching the show know i've liked deere for a long time, it's one of our holdings on the equity side. it's obviously had quite a strong move recently and i think that makes it difficult to chase for a lot of people given the fact we've seen an uptick in volatility and a sharp move since the tail end of may i think it's a little bit difficult to chase it here for that reason, but the fundamentals here remain strong. the company is trading around 14 times, now, i should say that one of the reasons we've seen this significant outperformance in deere is just consider how the company has performed over the course of the last five years. their revenues are up about 50% over that time frame but their earnings per share are up threefold.

200% increase in etp over that period of time and a lot of that has to do with this super cycle on the ag front and deere has more exposure to ag than caterpillar does than construction in mining account pillar is basically their core strength. deere has exposure, but not as much in much 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've seen, are not really that high, i think that the play here, once again, is to use a call spread. you'll notice that we often sort of get into these themes of options trades that exist, and that's really just because that's what the options market is giving us once again, looking at september, the 444/80 call spread, $40 wide call spread costs about $10, 3 to 1 payoff getting an upside move, and risking 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 it on

the long side going into a catalyst like this. >> okay, well, coming up next, fashion faux pas, ralph lauren trending lower this week, not what we were expecting how should you manage the trade now? the luxury lookback ahead, "options action" is back in two. i need it cool at night. you trying to ice me out of the bed? baby, only on game nights.

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welcome back to "options action," luxury lookback, last week, ahead of earnings, the retailer is down 8%, and putting this one in the red. getting to a teaching moment how to manage the trade, let's dig into the technicals on the price action carter, what do you see here, what happened? >> right, so we'll look at a chart. but the main thing when you put on a trade is you have a premise, whether it's based on fundamentals or technicals or quantitative, looking for an inflection point instead of breaking out, it did the exact opposite, complete disaster, dropped 7.8% so if the premise for being in the trade, breaking above that down trend line has come and gone, then 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 very good point there, the first thing you have to do is evaluate the reason you're in the trade to begin with so let's just 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, and, of course, we had big news in the space this week as well, with tapestries purchase of capri, there's obviously some demand. the difficult part is that ralph lauren is trading at a slight premium to its peers this is one of 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 that you can 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 essentially worthless after earnings, bought that back for a nickel and then sold the 140s and been in a calendar spread and also taken in some additional premium offsetting the, you know, less than $4 or so 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 then also work your way 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 to where it was trading before earnings those are some things you could potentially look to do i am not selling any downside puts in this or anything else for that matter right now. >> okay, well interesting take, of course and we know that there was big news that many of us were not expecting in the market for luxury and high-end goods around the time of those earnings as well coming up next, your tweets and the final call

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that match your preferred style of learning. learn your way. not theirs. td ameritrade. where smart investors get smarter℠. welcome back to "options action," it's time to take some tweets our first one asks cardinal health sold support above 90, how can i profit off the stock being stock between 90 and 95? brian, what do you think >> like mike mentioned before the break, i'm not that interested in selling puts anywhere but cardinal health is one i've been very successful selling a put below 90 makes sense, taking some premium not a ton of risk to the downside of the stock. >> next fan asks now that disney has broken up, reclaiming 100, how do you view the 95 calls from mark's 2024 take this one for us, mike. >> we own disney in our event fun. we liked it going into earnings. i don't like the way it traded today, though, i like the fact

that you're looking at calls to make your bullish bet and giving yourself a lot of time bullish play here, that's the way i would do it. >> time for one more tweet this one says carvana has been acting volatile lately, to say the least. where do you see this one going, carter >> big winter that's now down 30%. i would buy the dip here, fill in an important gap, my hunch is higher. >> that chart is pretty nuts it is now already time for our final call carter, we're going to start with you. >> sure, you have shorts, press them, if you don't have any, get some. >> brian >> yeah, markets -- >> okay, you broke up there a little bit i'm sorry, mike, how about you >> things are breaking up so own puts and put spreads if you're making bullish, call spreads for the same reason. things are cracking up. >> cracking up

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