right now on o.a., is the glass half full or really half empty? the markets went with full for today, but other signs show more and more cracks in that glass. we are designing an options arc in case there's a small flood. then, one of those cracks is the still burdened consumer william data out next week we will look at one grocery play that could help clean up on aisle four and finally, swing and a miss.

lessons to be learned and maybe a comeback story from last week's dick's sporting goods trade. i'm tyler matheson. welcome, everybody. in for melissa lee tonight. this is "options action" from the nasdaq market site. on the desk tonight, mike khouw, carter worth, and brian stutland. hello. j, good to be with you. stocks finished solidly higher. fed chair powell warned rates could go higher to combat rates sending the market lower you but then the frowns turned upside down. okay, where does that leave us carter worth? make sense of it. >> sure. just as you say, the conclusion was thats after full today, but it was up almost 1%, down 1%, closed well. on the week before we look at

the charts, that's the thing. the dow jones industrial average was down, the transportation ank down on the week, the russell was down on the week. the s&p up, the midcap unch. it's something for bulls and bears. we have a topping formation. let's look at that not only in the s&p and severalin aggregate. first line. minor reversal knowns a head and shoulder. let's look at the next aggregate. this is the next chart. nasdaq 100. you can't tell them apart. let's keep going. you'll see instance after instance, okay, this is the sector, right, that depicts all industrials. xli. it's the same setup. let's keep going. all the the same time frame. this is consumer discretion, xly. it's got amazon and tesla in it.

this is tech. look at the next. we've got housing up here coming up among others. this is the itb. so that's pullty and toll. are we, after such a bigmove in the march low, are we putting in a minor top? does the sell-off that began exactly a month ago, 27th of july, and here we are 27th of august essentially, is there more to go? that's my thinking. >> your thinking is there is more to go? >> yes. >> very good. mike, i'm told you have a chart of your own. >> it's interesting. we saw some early market weakness when we heard that jerome powell's comments that the inflation fight isn't completely over. then he had relatively positive things to say about other economic indicators. let's talk about the inflation issue first. i thought larry summers had an interesting op-ed where he was

saying what he thought jerome powell should say before he said it. and what he was doing was comparing basically the inflation that we've seen over recent years, which we could see here depicted by the blue line versus the period from the late '60s until the early '80s. what you can see is the pattern we have seen for inflation recently has mimicked the one we saw during that early inflationary period, and the declines we saw in inflation more recently, if we mapped that over what we saw that last time didn't necessarily mean the inflation fight was over. there are some other reasons we might think that is the case. for one thing, we're running large fiscal deficits, and those are predicted to be maintained for some period. that is inflationary. we are beginning to see some wage and labor pressure to the upside. that is also inflationary. and with respect to sort of the

positive economic comments, looking at the housing market, we have a lot of people locked in their home. existing home sales declining. we can't look at that part of the housing market. but we have underbuilt for a long time. we have a housing shortage. people are obligated to pay up. i don't necessarily support jerome powell's view that's a positive. all those are reasons we might be concerned here. >> are the oil shocks of the '70s reflected in those charts you just showed us that mr. summers was pointing to? >> yeah, so what we were looking at right there was basically cpi, so, you know, a lot of people will look at inflation and they will pull energy out. in fact, it's very frequent that people say, you know, x food and energy because those commodity prices tend to be a bit more volatile. the thing is, though, we have to bear in mind -- we saw big

increases due to a refinery outage in energy prices today. these things do impact the consumer. we want to take out volatility, but can't ignore they affect consumer spending. >> brian, welcome, good to see you. you're looking at rates. what are you seeing? >> just to tie this together, you do have to look at interest rates. have to look at where the ten-year note was today, was back then. mike's chart ends at what would be this 1975 late half of the year, just after i was born in fact. we saw inflation tick back up. let's tie this back to what carter was talking about, charts rolling over. late 1975, we had the stock market and s&p look like it was going through this head and shoulders top formation and taking to the downside. but what happened was, ten-year interest rates sort of held steady. freaked people out as they ticked up just as we were seeing

the ten-year get become to 4%. freaked people out. but what happened? the market reversed itself. the ten-year hung in there, went sideways. then we got this tremendous 20% rally in the stock market. we're at a cusp where yes, could we get a breakdown below the levels? the charts look not so great. volatility is cheap. i'd be looking to add protection and a hedge in. the vix keeps heading lower. protection is cheap. buying a put is a lot cheaper than it was in october the last time we saw 4% in the ten-year. seem like every time we go above 4% we have a volatility damping effect. to me the charts don't look good. volatility is cheap. it's time to buy protection on a portfolio just because i don't want to step out of this market and see it run 20% to the upside, but i want protection in case those charts look ugly.

>> brian, i don't know whether you knew you were setting up a perfect transition to mike's options play here. you are laying out a protection play, a put spread, mike. >> i was looking at the qs. when we think about those stocks that are most sensitive to the rate picture and high beta area, i think the qs are a good way to take a look at that. you want to by insurance when you can, not when you have to, essentially when prices declined sharply. i was looking out to october, 360/330 put spread. that's nice protection over the next couple op months in the event we see a downdraft and it helps you maintain your equity positions. one interesting thing we rarely talk about, which is the interplay on the value or price of a put option or rates, and what is interesting is that when rates go higher, all else equal, call prices rise, and put prices decline. if we had 1% rates on short-term

money, the at the money puts would be about 25 basis points that expire in 60 days. 20 basis points more expensive. may not sound like much, but over the course of the year it means they have made puts less expensive as well. lower volatility, higher rates, volatile market. buying puts here now, protection, makes a lot of sense. >> brianing your thoughts on that trade? >> i think the put spread makes a lot of sense. cheap way to own the downside protection, and buys a put spread -- where the market has sold off hasn't gone through the short prut strike. sells the downside put, limits the premium, and probably that 330 level in the qs is where we start to find support. i like how the trade structures out. cheap play. gets a hedge to the rest of acquisition. >> carter, final thoughts?

>> the question is, one has to make a judgment. is the sell-off that's now one month in the making a dip to buy here? or is it a dip that's not further dipping to go. i'm in the latter camp, and i would be careful. >> carter, thank you very much. for everything "options action" check out our website, newsletter. there are more "options action" right after this. >> announcer: coming up, two individual names caught in the turbulence of macromarket cross winds. how could it impact their quarterly upcoming results? we'll look at two ways to put on an options windbreaker. plus, calling all "options action" fans. reach into your pocket, grab your phone, and tweet us your question at "options action." if it's nice, we'll answer it on ai wn ptnsctn"r,he"oio aio returns.

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welcome back to "options action," everybody. continuing our critical look at overall market levels while recent head winds pushed the naz back back down to where it started months ago. broad loft. brian, lead us off here. what's your take? >> broad kon's really been a leader because it's starting to do more and more with artificial intelligence and its kchips. 15% of its sales are a.i. chip rel related. over a billion dollars in sales coming from that aspect of the market. and they obviously have their acquisition of vmware. the stock is pretty cheap. on a valuation basis this is

look a value stock not a tech stock. if you're looking to lighten the load if we're going get this rollover in the market, people turned to broadcom as a value play. i think the stock had a successful run. having said that, we saw what happened with nvidia learnings. we saw the play where nvidia was up after hours. everybody was giddy about artificial intelligence. the market started to sell-off, nvidia started to sell-off. i still want to own the stock, but i am looking to sort of add protection to it, and i might do the same thing. basically i'm looking at a put spread the same way i did that mike laid out with the qs. looking to buy a put spread that's protecting against the play coming up here. i could by the 820 put, financing that by selling the 520 put. seems like a lot, but when you

look the an $800 stock, it's not that expensive. range of strikes to the downside. there might be further selling to go here, so i want to stay protected into this earnings event. >> mike, your take on this move? >> so first of all, we own broadcom, so, you know, like brian owns it for his clients. i definitely think it's cheap. 20 times earnings for the qs when nasdaq is trading at 30. well under nvidia, which i should say we also own. it's interesting, this put spread is going to cost about 2.5% of the stock price. this name is also on a heck of a hot streak coming out of earnings. if you take a look at how broadcon performed a week after it's reported, it has been up every one of the last 12 reported quarters. i don't know if it's going to break this time. i'm hoping it doesn't, because

we own it. the you also own it, i think this put spread might be a good way to protect it. actually, if you don't own it, buying a stock which we already own and buying a put spread isn't a bad way to go either, i think. >> carter, your reaction? >> we know on the day of nvidia's great news three months ago, this stock popped as well. my hunch is it's full. but let's look at a chart of semis overall first just to put this in context and how symmetrical it all is. semis peak when the market peaks. basically in the first day of 2022. semis bottom in october and recover to their ultimate high. we'll work to the bottom of the well defined channel. here's the big move in avgo. it's stalled ever since. ultimately i think that that stall foreshadows a give back to the uptrend line in effect since september a year ago. so i would be a seller here.

>> very interesting. very interesting how you draw that out there. very interesting. from semis let's move on to supermarkets. when wall reported it attributed a beat in part to strong grocery sales. can that continue over as continually stretched consumers constantly spend on staples? kroger looking to report in two weeks. if you're looking to throw this name into your cart, mike has a way to play it. hi, mike, what do you got? >> this is an interesting case, right? so, it's very frequent lately on walmart's calls that we hear about what they're dong with groceries, and walmart trades about 30 times earnings. kroger trades about ten. so if grocery is the place to be i wouldn't mind owning at ten times earnings and, in fact we do own it here. that said, this isn't really a growth stock. the one thing that walmart could say for itself which kroger

can't is they're trying to expand into digital direct to consumer types sales as well as expand grocery presence in physical store, and that's not really the case for kroger. this is a company that holds in there. trading at a cheap multiple. it pays a dividend, about 2.5%. this is a stock that's reasonably valued. it doesn't move a lot on earnings, and as you point out, they're going to be reporting in a couple weeks. this is a stock that sets up well for a covered call if you own it or a buy right if you don't. in a buy right, guy stock around 35.$.70 or so. when you look to sell an upside call. important thing when selling upside calls i typically don't like to sell them for less than 1% of the current stock price and i also like to keep relatively short data. i was looking at the october 6th

weekly strike call. that was about 69 cents. if you bought you have about 7% of upside between now and expiration, which is about six weeks away. and it does -- i wouldn't really refer to this as a hedge. some people say selling covered calls, protecting premium is a way to protect your downside. i don't think of it like that. i think of it as a yield play. >> let's get brian's reaction to that. >> i like this. when we invest here i love techs. on the other barbell i like consumer staples. kroger, very cheap. selling a call. if you look at earnings, there's been a couple times the stock popped significantly above 10% but that still puts you up around the $50 mark. it's not like you're going to get called away and feel bad about yourself because it probably won't trade higher than the $50 level after earnings. okay with selling that, taking

premium here. seems like an ideal trade. >> carter, any reaction there? >> sure, kroger lagged costco, walmart. we have a perfect instance of converging lines. we're at the end of the runway. you have to make your bet. i think it get resolved up, not down. >> all right. up next, one of the last week's trades going way out of bounds. so how should you change the strategy at halftime? dick's sporting goods look back is next. and don't miss a cnbc special "taking stock". that is tonight at 6:00 p.m. right teafr "options action." we'll be back in two minutes. you ok, man? the internet is telling me a million different ways i should be trading. look! what's up my trade 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." last week, brian laid out a way to play dick's sporting goods ahead of the results, and we all know how that one played out. dick's down 20% since then.

brian, how are you managing it now? >> yeah, it wasn't a good one at all. when you look at earning, some consumer discretionaries got hit. the earnings picture hasn't been that great. one thing when you look at the trade, by selling the 130 put, the trade doesn't get put to the stock till 130. when i look to put trades on i like to mitigate risk and cut risk in half them cut about a third. that's disappointing. but the stock was down, got down to the 108 level. usually like to a so it bounce off something like that, so when we saw it trade up to 111, this should probably be an area i close the trade, move on, take the lumps on this one loser. when it broke 120, technically a lot of traders got in there and kept selling. this have a support area i thought it would hold. because it didn't i probably just want to be out of this trade. >> carter, quick thought here? >> i concur.

first loss best loss. no good, walk away. >> walk away says carter. up nt,ex answers to your questions and final call. "options action" will be back in two minutes. 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," everybody. time to take some questions. our first fan asks, with the surge in insurance rates, what are your thoughts on a.o.n. october 20th 310 put, 330 call, 3350 call risk reversal? >> buying and financing by selling a put. chart looks similar to charts we talked about at the top of the hour. i would lower that blow 300, because it could get dicey if the market rolls to the downside. >> our next fan, holding october 75 puts on xhb. what level should i take them out? i'm not sure what that is a

question for. carter, it's to you. >> sure, sure. so, home builders are in the crosshairs here. i think you're at a great level. i think you'll be able to trade at two. next one asks for a zero dte option like the qqqs. how do you calculate the time decay during the cay? mike, i feel like my time during the day decays all the time. >> but i it decays much faster towards the end, and that's true for options as well. whatever the price of options it's going to lose all premiums towards the end of the day. understand that value decays most rapidly towards the end of the day. if you're using it as a trading vehicle, it's not that much, but it's going to go fast towards the end. >> final call. carter, you get to go first. >> market's in a proper correction that i don't think is over. keep selling. >> brian, you're next.

>> to that, i like broad con, but i'm going to stay protected with buying a put spread. >> mike, you get to wrap it up, the anchorman. >> broad market portfolio protection. i like qqq put spreads in october. >> very interesting half hour. gentleman, hi, i'm josh brown, and welcome to the arena. let's make sure we get the clock going. we have a lot to cover. >> we have been doing this show since the start of august. we are down 4%.