Khouw says theres one name that could be about to take a hit hell tell you the name and how to dodge the selloff. Its time to risk less and make mo more the action begins now. And we start off with the semis getting crushed today after broadcom lowered its guidance, citing demand and trade worries. The sma semiconductor etf sinking nearly 3 as the key players in the space fall deeper into a bear market so, will the semi smackdown continue lets get straight to the chartmaster, carter worth. Carter its a big old mess in the sense that semis were so strong and drew in so much capital and it was one of the greatest head fakes of all time, a classic trap, a breakout lets start with that. This is a threefouryear chart of the semiconductor index, and you can see the breakout lets put the line on there. When you draw out a lot of money and it ends up being wrong, that money that pushed it higher becomes an accelerant on the way out as people have to reverse their positions. So not a good setup. Now, most importantly, how do we know that it was always going to be a trap . Its all about relevant performance, meaning the cyclical trade if you look here, even though semis broke out, their relative performance to the tech sector never was working. So again, put the lines in here and youll see this. Basically, theres your breakout, but it was never confirm confirmed, meaning you werent actually outperforming as a tech or tmt Portfolio Manager because picks here were still doing worse than other things one could have chosen within ones benchmark or index then from there, lets look at this thats the dotcom high thats literally march of 2000 what do we know . It was also a trap in this sense it, quote, broke out just above the dotcom bubble only to fall back and fail, and this is a horrible kind of setup longer term. So, here is the etf smh. So many ways to draw the lines, but one of several ways would be this, a classic trend and a break in trend another way to draw the lines, of course, with this which is, its a fairly welldefined headandshoulders top with the neckline right in play and a break of this, which is the presumption, would give you something in the midtolow 90s to close at 102 and change today. Not good, sell. Thank you, carter usually its khouw and carter, but today its nathan and carter dan, whats your semi trade . I couldnt resist he wants to sell the semis, i want to be with him. The charts are interesting, set up well here whats interesting, if you think over the last couple months since the selloff market and that quick recovery, the nasdaq composite sold off peaktotrough about 10 , the s p about 7. 5 , the semis about 20 , and they havent made a whole heck of a lot of it back then i look at the funnimentals, as carter calls them, you look at the guidance they gave and i think thats the start of something well see when we get into q2 earnings season i think to me its simple. He thinks he sees a retracement back to the mid to low 90s ill just target 90. 80 was the low back on christmas or so, and i think a break below 100, you find yourself in the low 90s over the next couple months id look out to august expiration when the etf was trading at 103. This afternoon you could buy the august 190 put spread paying 2. 50 for that, buying one of the august 100 puts for 3. 60, selling one of the august 90 puts at 1. 10. It costs you 2. 50 that is your match risk, you could make up to 7. 50 between 97. 50 and 100. Above that, you lose that 2. 50. Youre risking 2. 5 of the stock price to possibly make 3x your money. You are pressing a short this is controversial. This is also a name where if there was some magical relief to this trade war, this group is going to rocket back pretty quickly, but im just not playing for that i think were going to have this pushed out over the course of the summer, coupled with some bad earnings guidance. In terms of before like the structure of the trade i mean, that might be the case if trade sort of gets resolved, but there are also cycle peaks in semis and its not a surprise they stopped cold in that dotcom high. With the pricing of cyclical stocks, its interesting, you often will see stocks look cheapest at the top and look most expensive at bottom, and thats because basically youre looking at your trailing earnings this is a situation, if you look at where broadcom is trading on a valuation business, its more expensive in terms of forward valuation today than before we saw this decline thats how much further they have dropped with respect to the structure, it makes sense, too. We talk about put spreads a lot and usually we like to use them when you have a situation there, its either a catalyst coming up that raises implied volatilities heres a situation where you have a basket of stocks, oftentimes volatility is less. Its not actually here actually, as i look at it now, the implied volatility in smh is close to 30. Thats very high for a basket of stocks for some form of an index, even though its just a sector here. So it makes a lot of sense to try to mitigate the higher cost of the options in this environment by using a put spread and that ratio makes a lot of sense to me. And we like to look at darlings leading groups like this, and nvidia was a darling for years and when it broke, it broke hard and its down its been cut in half basically and is banging along the bottom, 15 from the recent lows i think if you have a darling like this really break, then its kind of lights out for the group. And one last point, because everybodys like, point to a d well, a d has a fraction of the sales of some of its biggest competitors. Its got a third of the market cap is in nvidia id rather take my cues off of the bigger guys, than one out of the park name like amd from a semi smackdown to the battle for streaming supremacy, wall street bets big on disney stock ahead of the disney plus debut this fall. Shares are up since march. Netflix shares have sunken to a bear market. Mike says the disney dominance will continue. What are you seeing . Lets just talk about disney as a company, first of all its a much more stable and kind of a play to make i think than netflix. Netflix, obviously, weve for a long time been seeing that its an expanding space, but this is not a company thats been generating significant Free Cash Flow disney, on the other hand, is a proven player in the space obviously, they seem to be moving their business in the correct direction. They have a couple winners as well avengers end game i think is an interesting situation. The stock has been performing well and the valuation is not unreasonable its trading around 21 times earnings weve seen some good stuff coming out of espn for me, from a fundamental standpoint, almost everything looks good we obviously are going to have some earnings coming up. The only thing that concerns me here is that the stock has, indeed, been as strong as it has. Weve had a huge move up, so what do you do if you dont own the stock, you want to, but youre concerned about the fact that you had that appreciation and you want to get long, but you are a little bit worried about that sort of upwards gaffe . I think the way you can look to play Something Like this is using a call spread risk reversal were trying to deal with the fact that options prices around that event might be slightly elevated, but also were trying to give ourselves a way to participate to the near up side without having to participate to the near down side in the event that it might give some of that back the trade i was looking at was the august 130, 145, 155 call spread spend 1. 45 and sell them for 1. 60 and the 130 puts for 1. 85 to help finance it the idea is that youre going to get participation above, you know, 1. 46 and change, essentially. Those wing options are actually going to decay a little bit faster than the atthemoney option will. So even though you are laying out a bit of premium, i dont think the decays going to be that bad worst case, the stock is going to fall, put to you at 130, a little bit more than that, but youll basically offset the chance, if theres a gap back down, that you participate there. So youre going to get long, just a little bit higher than where it was before it broke out. So, the entire subject all is defined by the gap, right . So, disney was in a fiveyear range, it was stuck 120, 120 and rather than trading 2 to 4 million shares, it gaps up and its effectively an ipo, meaning its a new security. Price doesnt matter its not steep its not overbought. I think it has more room to run and its the kind of thing you want to be involved with one way or another. Wow. So, mike said a couple things interesting about the trade structure really interesting he said the wings are going to decay faster thats the out of the money put and the out of the money call and hes short both of them by design, because he really wants this trade structure to give him a little room on slippage, and hes also saying that the worstcase scenario, im basically putting an order in, and the stock, to buy it down at 130 to carters point about that gap, thats where it gaps straight to when it went there i think its going to have a lot of support there so, if margins not an issue in your trading account, this is a great way to finance an upside call spread in a name that has really positive sentiment and a couple identifiable i think one of the reasons its trading like a new security, a new stock, is because of new businesses, and it actually is the streaming business if you look at the valuation thrown on other businesses like netflix, you would say that disney looks enormously cheap by comparison and i think it does. And i think this is a way that you can participate without being concerned that youre getting in a little too late. And interestingly, of course, netflix, which is the sort of other side of this, netflix is dormant. Its literally stopped trading its in a very tight range equilibrium persists but doesnt last forever something will come along to break it out or break it down, and the truth is, here and now its a pair of 2s. Its a nontrade. Its a nonhand. For everything options action, check out our website and check out our supercool newsletter it is the best thing since sliced bread, really heres whats coming up next activewear activewear is hot, but mike khouw says theres one name in the space making him more like an active bear he will tell you the name and how to play it plus, calling all options action fans reach into your pocket, grab your phone and tweet us your question optionsaction. If its nice, well answer it on air, when options action returns. The first survivor of ais out there. Sease and the Alzheimers Association is going to make it happen. But we wont get there without you. Visit alz. Org to join the fight. Be go[ laughing ] gone. Woo hoo. Welcome to my house mmm, mmm, mmmmm. Ball. Ball. Ball. Awww, whos a good boy . Its me. Me, me, me. Yuck, thats gross. You got to get that under control. [ dogs howling ] seriously . Embrace the mischief. Say get pets tickets into your x1 voice remote to see it in theaters. Im not really a, i thought wall street guy. Ns. Whats the hesitation . Eh, it just feels too complicated, you know . Well sure, at first, but jj can help you with that. Jj, will you break it down for this gentleman . Hey, ian. You know, at Td Ameritrade, we can walk you through your options trades step by step until youre comfortable. I could be up for that. Thats taking options trading from wall st. To main st. Hey guys, wanna play some pool . Eh, im not really a pool guy. Whats the hesitation . Its just complicated. Stepbystep options trading support from Td Ameritrade welcome back to options action. After sprinting out of the gate to alltime highs earlier this year, nike shares have taken a tumble the stock falling more than 7 from its april record, underperforming rivals under armour and lululemon and with earnings later this month, mike says it might be time to bench the stock. Hes at the plaza with a call to action. Lets look at nike. Theyll be reporting earnings on the 27th, so a little less than two weeks away what are the things that concern me here . Certainly, the first is the valuation. Nike is trading at quite a high valuation. We have a chart to give you a sense of where there is. Obviously, we have an upcoming catalyst is the stock going to go materially higher or materially lower . Is it just going to stick around here well look at that as well and specifically, one of the things that ive noticed is that over the course of the last two years, once theyve reported earnings, they actually havent performing all that well coming out of it. So, lets take a look. Step one, were going it take a look at the trailing earnings. And well see if we can clear these little checkmarks just to get a sense of this. Right now it is trading about 32 times trailing earnings. This peak right here, just to put things in perspective, is less than 35 times so, were just off of the alltime high valuations that weve seen going back ten years. So, thats certainly one area of concern. Whats another area of concern well, we can take a look here. Over the last eight quarters, looking a month from when they reported, hows the stock done well, the best it has done is up 1. 9 the worst its done is down almost 6 . And on average, its down about 1. 3 so, putting in all of those things together, combined with that valuation number, its hard to see how the stock can go materially higher coming out of their earnings on the 27th here we can take a look at the stock chart. So, what im trying to do here is figure out, essentially, what level im looking to target. Im looking right back at this level that we just came from here thats about 77. 50 bucks what is the trade structure . Im looking at a calendar spread we talk about these a lot because we want to sell the elevated options premiums going into an event and own the longer dated options that will decay a little less. I can buy the 77. 50 puts that expire in saturday for 2 bucks and i can sell the ones that expire in july for 1. Netnet, im going to spend 1 to put this spread on. This chart is actually a little bit deceiving. Why is that . Because actually, if the stock does this, just comes down to this level right here after earnings, this put is going to increase in value, but this one may well expire worthless. So, you can still see profits in this region after earnings as that option decays away and this one could appreciate in this region and obviously, the sweet spots going to be right around 78. 50, at july separation thank you dan, what do you think like the trade structure and i like the idea, because when you think about it, go back to midmarch when the Company Reported last, the stock got hit 6. 5 the next day, and it was coming off a high from not too far before that. And one of the main reasons was decelerating sales growth in north america, obviously a very important region for them. Then they guided lower to low singledigit sales growth for the current quarter. So you may say to yourself, maybe they have low enough guidance that they can beat when they report in a couple weeks, but it also may be the case that this is the sort of name that may be faced with the same sort of headwinds were seeing by others in this kind of Global Supply chain and this tariff situation may be hurting them. So i like mikes fundamental view and the trade structure. Carter . And you know, theres just an oldtime tenant that the stocks not doing well people understand in sports, when a pitchers not doing good, you get him out of there so this is a stock showing all the things that would suggest distribution theres heavy volume selling, its on light volume then its on heavy volume selling, it makes incremental new level. It looks to me like its going to the low 70s. Another interesting thing to me is we often talk about beta if youre worried about the market rolling over, you want to be in lowerbeta names, obviously, because youd be mitigating your risk heres something kind of interesting. This has a beta of about 0. 83, think its lower risk. Look at how it performed last year peaktotrough, it declined 25 . The market overall was 23 it has to do with High Expectations high valuations. When you put these things together, the down side can have a lot of air in it that concerns me. I would make one point about the trade structure. Mike went into the calendar aspect of it if you are really bearish and lets say you agree with carter, it doesnt act well and you look at the charts and say this could be back at 75 where it was a month ago. You know, mikes trade structure, its okay, youll make some money, but if youre really convicted on the fundamentals, youre going to miss and guide down again and you dont like the whole trade situation and you dont like, you know, the chart setup, then you do want to actually target maybe a put spread, right, where youre risking what you would basically be, you know, possibly making if the stock were to go down towards your short strike at 77. 50. And that short strike may stay the same, so thats a good point. If youre getting more bang for your buck, but you need more things to go your way to make that bet. Thats right. Thats the thing. What does the market do generally over any 30day stretch . Almost twothirds of the time its actually higher so those make those lowprobability bets in this case, though, i do think theres more danger to the down side than there is a risk that its going to pop on you. All right. Up next, gold hitting its highest level in more than a year, but the chartmaster says theres another metal traders should be looking at ahead of the fed next week. Hell explain. Plus, hey, options fans, got a question for one of the traders . I know you do. Dig deep into those pockets, pull out your phone, send us a tweet to optionsaction. We will try to answer the question later in the show we are live from the nasdaq in new york city. Much more options action straight ahead indistinguishable muttering that was awful. Why are you so good at this . Had a coach in high school. Really helped me up my game. I had a coach. Math. Ooh. So, why dont traders have coaches . Who says they dont . Coach mcadoo you know, at Td Ameritrade, we offer free access to coaches and a full education curriculum just to help you improve your skills. Boom mad skills. Education to take your trading to the next level. Only with Td Ameritrade. What do you look for i want free access to research. Yep, Td Ameritrades got that. Free access to every platform. Yeah, that too. I dont want any trade minimums. Yeah, i totally agree, they dont have any of those. I want to know what im paying upfront. Yes, absolutely. Do you just say yes to everything . Hm. Well i say no to kale. Mm. Yeah, they say if you blanch it its better, but that seems like a lot of work. No hidden fees. No platform fees. No trade minimums. And yes, its all at one low price. Td ameritrade. Welcome back to options action. Time to take a look back at a couple of our open trades. Last week, khouw and carter predicted golds rally would shine on. We are making new relative highs right now. It has bounced perfectly off of this relative line over and over and over, and it did it again. And now let me put in the top line we are just now you can see it here we just moved above that high. Im looking out to august the 127 133 call spread, you could buy the 127 calls, which were essentially at the money when i was looking at this earlier today, 2. 65, sell the 133 call for 1 against it. Well, gold just capped off its fourth straight week of gains, so mike, what are you doing now . You know, this actually demonstrates why we use spreads like this sometimes. The calls that we bought were 265, theyre 230 right now, 35 cents worth of decay the ones we sold for 1 are now 80, 20 cents decay. So much of this was mitigated with a call spread instead of calls out right. I think were well positioned, 60 days to expiration. Gold hit 15 bucks an ounce off the high, but bullish weak and in principle a bullish setup. Then there is, of course, silver, which the ratio to gold is a 26year low its the ultimate beta trade, if one is hoping or thinking theres more to come the spillover effect in silver, when it does happen, can be massive. All right back in may, dan said ford was gearing up to hit the gas. Trump has told us that hes going to meet with president xi at the g20 on the weekend of june 28th in japan. In japan. And i think that if we start getting some building sentiment that we have a trade deal, a stock like ford could really benefit. You could buy the june 28th 10. 50 calls, paying 30 cents for those. Those break even at 10. 80 basically your match risk is 3 of the stock price the breakevens up about 4 . Ford lost steam since then, down about 4 . What do you do now first things first, i was playing hurt and nobody acknowledged that back then. I dont think i was there. That was probably hard on the ears sorry about that, people heres the thing, like you said, mel, the stocks down 4 it does not look like were going to have a trade deal at that time, they had pushed out tariffs on autos and i thought that if you had the onetwo punch of a deal with china, then this starts to rally. But heres the thing, that 10. 50 june 28th weekly call cost about 30 cents back then. Now its worth about 5. You dont sell it. Its a lotto ticket. Wait and see what happens. Maybe we get some sort of announcement, maybe autos rally. And at this point, you have a lowpremium bet that that would happen. What do you think of ford, carter ooh. That says it all. In case you missed it, he smirked and rolled his eyes, so what does that mean, verbally . Yeah, exactly just that, what a roll of the eyes and a smirk might imply verbally i mean, obviously, well, the valuation to me just looks so cheap that any kind of good news, it does have some up side. But obviously, the market doesnt like it and theres good reason for that. All right. Up next, your tweets and the final call i dont know whats going on. Ive done all sorts of research, read earnings reports, looked at chart patterns. Ive even built my own historic trading model. And youre still not sure if you want to make the trade . Exactly. Sounds like a case of analysis paralysis. Is there a cure . Td ameritrades trade desk. They can help gut check your strategies and answer all your toughest questions. Sounds perfect. See, your stress level was here and i got you down to here, ive done my job. Call for a strategy gut check with Td Ameritrade. Weve got time for a tweet jim asks when youre selling a covered call and the stock price keeps rising, when do you roll the call out and up . Dan . Great question. A lot of inputs and scenarios. I think the most important thing is if youre long a stock that you want to stay long, youd better make sure you roll it up and out prior to expiration or you will get called away if the stock is above that short strike. Time for the final call from the options pit carter sell semiconductors, buy gold, buy silver. Special guest trader tonight, sam khouw. Sam . Buy nike shoes, not nike stock. Happy fathers day couldnt have said it any better myself, but you want to use calendar spreads in nike to make that bet. Hes excellent on tv. Thats one sharp kid right there. Chip off the old block. Dan so listen, semis, sell them on rallies i like carters technical take, but i think the put strikes over the summer look great. And happy fathers day to all of the oa fans out there. Thats it for options action. See you next friday. Happy fathers day to all the fathers out there. Dont go anywhere. Mad money starts right now the following program is a paid commercial presentation for total gym fitness. [music] everybody work out. Feel the energy. Build a better body. The best you can be. Another body easy as 123. Oh. Ahh. Better body as easy as 123 with total gym. I feel fabulous and when you
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