Retail sector. Mike khouw looks for the sequel to the movie next week it is time to risk less and make more. The action begins now. Lets get right to it it was the rate shock heard around the world, the tenyear treasury yield falling below the twoyear yield since 07 it sent stocks spiraling this week the dow saw the worst day of the year. Our chart master carter worth says fear not, the yield break down could spark a breakout for one stock heading into earnings next week. Hes at the plasma to break it down for us. Carter. Going to focus on home depot the actual builders have done nothing for three weeks but it is called out performance compared to the market and it is probably because of rates, by all accounts because of rates. Home depot, earnings next week think you can draw the line as follows. One way to draw the line, you have selloffs, right . This is a very precise selloff in terms of days down, 11 , and this is 9 what is really important about those two selloffs is that they both came to rest at this trend line im going to make the bet that were going to come to life again off that trend line. Lets look at another series of numbers. The lows, the highs of three weeks ago, a 63 move. 21 down, thats a ratio, a third. We have come down. Again, we are right down to this line i think that all sets up for something quite constructive and then, finally, of course it is all about alpha during the selloff, this 9 , 10 selloff, the stock has been going of course straight up relative to the s p. I think it is a good place to be as a defensive name and to some extent an offensive name. Okay. Come on back over. Mike is going to give us the trade in the meantime. Yes so, you know, home depot, obviously it is a duopoly with lowes, theyre the better of the two companies. They significantly outperformed on sales per square foot for a long period of time. They have a better mix in terms of how much contractor or professional sales they do as well one thing i would point out, trading roughly 20 times earnings, that actually is a reasonable multiple in this market when you consider how the stock has grown eps over the last several years now, one other thing i would quickly point out, right now while the stock isnt immensely expensive, the neardated options are. Right now it is implying more than a 4 move off earnings. For some stocks that might not seem like much, but consider over the last eight quarters the stocks moved the days after earnings 2. 65 so this implied move is larger than anything we have seen over the course of the last couple of years. One of the reasons it might be true might not only be related to earnings but what we saw in the marketplace this week. Obviously we had significant volatility, the stock actually significantly lower than it was. I think we want to take advantage of the fact that the neardated options are elevated. I was looking at the septemberjanuary 2, 10 call spread you can spend 5 for that. Selling september at 325, buying the januarys at 825 you are hoping that home depot recovers to the 210 level. With september expiration, thats where the we dont think earnings would do it thats essentially where the stock was trading last week, so it is not a whole lot. Then, of course, were on the longer dated call. Why not buy the stock . I think this week gives us the answer to that i wouldnt want to run out and buy stocks at this point thinking the worst is over because i dont think in the long run it is yet. Everybody hes trying to be constructive here and saying the worst is not over here. He is saying shortdated option prices into the earnings print are very elevated. He wants to take advantage of that by selling shorterdated premium and using the proceeds to buy longerdated premiums mike would love the stock to go to 209. 99 and close right there and end up owning the longer dated 210 call i like this trade. We will talk about my cisco trade from last week, it was very similar you try to do these sorts of trades around earnings events because you get the setup. But to me it is a constructive trade, but, you know, we have to thread the needle here a little bit. 210 is an important level. No, i think thats exactly right. It is one of the situations where we actually have, like i was saying before, we have a couple of things working in tandem when the market itself is also getting significantly more volatile, you are going to see that volatilities of the individual stocks rising then you add to that the potential for an additional catalyst, which could increase volatility even more, and thats one of the reasons why you see this consider that the option we are selling at 325 expires only about a month from now, the one we are buying at 825 is into early 2020 so theres a significant difference in how much time these have to expiration, but the 5 difference in price is not quite as great and the setup in that we have given back 10 , that ameliorates some of the risk we are not chasing something at the high we are down to a level of support. It all sets up for what could be a very good trade. All right from home sales to salesforce, the Software Giant also gearing up to report earnings next week the stock rallying today as the markets rebounded from a rough week, but the stock is still down 9 in the last month as trader turmoil trade turmoil takes its toll on tech can you say that ten times sure. You know, this one is really interesting. When they report next week the Options Market is implying about a 5. 5 move in either direction. It is a little rich to the 4. 5 move the stock has moved on average over the last four quarters but what is interesting about this name is obviously it is a highvaluation name, a great story, but it is not really that adversely affect by what is going on exactly with china. Obviously if there was a slowdown in Global Enterprise spending it would hurt these guys, but this stock has stalled out. Theres the chart right there. If you look at the one year, it has tremendous overd resistance between 160 and 170. It has underperformed the nasdaq, it is only up 5 then you have peers like adobe are up 20 on the year, service now up 40 , workday up 20 . Something is going on here the company made a bid for Tableau Software for 15. 7 billion. That value is more than all of the 28 acquisitions this company has made to date so people are starting to think, wait a minute, this acceleration in revenue growth, are they trying to jump start a little bit that growth. But i think it is one of the issues that some investors have right now. That chart right there, thats the fiveyear. Just from a purely technical level, i think it is really important to let carter speak to all of it, but if you look at the intersection of the up trend through 2016 and you look at where the recent support has been, it is sitting right on that level at 140. I think a guide down and you have the stock going lower, but i do see overhead resistance at 160. Here is the trade into the print. This is really an important strategy i think for long holders. It is a widely held stock. A lot of our viewers love this story. But when you own a stock and you are into potentially a volatile event like earnings in a potentially volatile period like we are in now, you protect your stock and you have losses protected below a certain point. Here is a strategy if you are worried about extreme upside excuse me, extreme down side than extreme upside over the next couple of months, the stock is 144 today, you could look to october expiration and buy the october 1, 30 160 collar for that you are selling the 160 calls at 2 you are buying one of the october130 puts for 2. 70. That costs you 0. 70 it works out like this if the stock goes up to 160 you have gains in the stock up to that you have calls away from that. If you are short a call that would be paired up you could always cover that call and keep the long position intact the stock is 160 or higher on october expiration now, you have losses to the down side, down to that long put strike, down to 130, but you are protected below that again, the structure costs 0. 70 in premium so it is basically out the window no matter what happens, but this is a really interesting strategy in volatile times, into volatile event for positions that you want to hold on to but you are worried about extreme down side. You hit the critical piece in a trade like this, whether you are talking about a inthemoney call spread, put spread or a collar like this you created a situation where the risk and the reward are essentially symmetric, however we dont believe that the risk or reward in the stock are symmetric. We think theyre asymmetric. The high on the stock was 167 but it was last march. I could see why you would see 160 might be a nearterm high. The low was 120, and we are obviously in a volatile market period and we have seen lower highs. Obviously it is your territory, not mine, but im sitting there thinking it is a coin toss when im buying the stock, thats the tradeoff you want to make. This is a darling, it has basically gone to 170 and this darling has stalled. Nvidia was a darling until the whole thing all of socalled bob at 0. 10, all of that stuff, it is all ruins on the floor the point is this has stalled. It is rolled over. Its relative performance is terrible and it has distinct patterns of distribution they all suggest a great champion is faltering. I want to make one last point. A lot of viewers out there use ap options to hedge long positions to define your risk in something you want to hold on to this strategy lessens the premium outlay you would have. If you were hedging your portfolio or individual stocks, it is a huge drag. You will hear mike talk about this all the time. What im doing here is selling a call and using the proceeds to help buy a put for minimal premium outlay i think it is an important strategy investors should think about in periods like this you dont want to buy puts all over the place for stocks you own. For everything options action, check out our website options action. Cnbc. Com. While youre there check out our newsletter here is what is next a number of big retailers are on deck to report earnings next week. Mike khouw has one name that could really hit the mark when it reports hell show you how to play it. Plus, calling all options action fans reach into your pocket grab your phone and tweet us your questions optionsaction. If it is nice well answer it on air when options action returns. Options action is sponsored by 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. Check out the xrt retail atf, down more than 10 in the past month amid a slew of disappointing Earnings Results there is one bright spot amid the retail wreckage. Walmart surged after it reported results yesterday. Mike khouw says theres one other name in the space that could be targeting an earnings breakout of its own. He is at the plasma with his call to action what are you seeing . So walmart, the result did catch me a little bit by surprise i have to say in a very tough week walmart obviously performed exceptionally well im looking at target here, which to my eye at least, the valuation looks much more attractive than walmart. We are talking about 15 times earnings versus 21, 22 times earnings one thing about this stock also we have to keep an eye on the price of options as well like many other stocks we were talking about, we have an above average implied move, nearly 7 . That is probably a function both of how the stock has reported the last eight quarters where we have seen slightly higher volatility and how the market is behaving right now of course, theres the other issue in a market like this, how do we want to get into stocks we like on a valuation perspective but the overall market might be making us a little bit nervous now i will take a look here at what i was talking about before. You will notice that target and walmart you often will see that these two, the gap in theyre pe ratios widens and then narrows you would see it widen if there was a reason why you might think that the Income Growth in target couldnt keep pace with walmart, but that actually isnt the case we have actually seen pretty consistent income trends in both names. Walmart obviously has been making a move to food sales. I think target is trying to follow suit. It seems theyre navigating a lot of the retail wreckage pretty well. How do we do this . Very simply we will take a look out to october and take a look how the stock has behaved in comparable ranges. We can see if we go back here, we can see we were back down here around the 70 level, and right up here, you know, maybe just shy of 90 so the trade i was looking at with the october 85, 92. 5 call spread, when i was looking at this earlier today it was close to at the money. This spread would cost about 2. 50. It is a 7. 50 widespread that represents a third of the distance between the strikes thats a little bit more than we typically would look to spend on vertical spreads, but i think it is justified in a market like this one where we have seen such sharp moves in individual stocks this stock has actually moved fairly considerably on its own earnings as well this is a way where we could get some upside exposure we have defined our risk to 2. 50 to the down side given the stock is trading around 85. It is a relatively small percentage between now and october expiration. You have a question for him you know, he mentioned walmart here you know, these are two very different companies. We talked about it earlier on the other show you know, walmart has more of a staple feel with the grocery sales. Target feels more like one of these kind of Department Stores that are getting slayed, you know what i mean to me in this environment i would expect this one doesnt break out on results that arent anything other than spectacular. I mean it is often a coin toss, we know that we have great victories when we bet ahead of earnings and great defeat this one will be volatile, thats obvious the last quarter was a beat, and that usually suggests you get another beat you get beats or misses. A winner. 27 yeartodate. Thats right. A darling stock. And we have set it up well in terms of the way to do it rather than just buying the stocks. I think you are right to get long and do it through options. Mike . You know, i mean the point that dan is making, theyre reasonable ones, but remember this target actually can follow the walmart model here if they want to get more into food sales, and theyve been endeavoring to do that, you are buying the stock at considerably lower valuation. The online sales are starting to make traction there. This is a smaller, more Nimble Company than walmart is. We are getting into a situation where a lot of the retail wreckage, if there will be winners i think likely this and walmart could be the two that come out on top. All right up next, it was a cisco inferno this week with shares of the tech stock falling more than 10 off the Earnings Results we will tell you how to trade that carnage plus, it is friday you know what that means we are taking your tweets. Shoot us your berurning questios ptnstion theres more options actions right after this options action is sponsored by 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 look back at open trades last week dan said cisco could surge by september i say to myself, all right, i just heard chuck robins say how well his team executed on shifting the supply chain to avert some issues they might have with tariffs. Now we know theres another 10 supposedly covering on september 1st, i think theyve been given cover to give some conservative guidance for the current quarter. We get to a situation with september 1st where who knows whether the tariffs will be put in place you could buy the august expiration, september 55 call calendar paying 0. 65 for that. Well, you know by now it took a pretty big hit off the earnings you know what listen, i got a lot of things right in that clip week over week, right . They took the mulligan they did guide down and the tariffs were pulled. The problem is that the guidance was so bad and it was so unexpected that the stock went down too much. Here is the important thing about the trade and this is what i got wrong. The stock now is so far below the strikes we had chosen, the August September 55 call trike theyre both worthless, the trade is worthless, but i only risked 1 . I had a thesis and i wanted to put something to work and thats what i did and defined my risk at the end of the day it is knocked down some and i risked one 1 of the stock price. To me sometimes a lose is a win. Isnt that what were trying to do . Risk less, make more. There you go. You got a comment on that no, i think thats really the point. We will move on last week mike said he broke down a protection play in the s p 500 etf. We cansee obviously right back here we are down around 2800, and obviously at the beginning of the year we were substantially lower. What most people are probably concerned about, will we get a swoon where we might see Something Like a 10 decline how do you give myself a little bit of protection against that kind of an event this is a tight put spread i was looking at, october 2, 75 270 put sprieead, only 5 wide. It closed 1 lower so what do you do now you dont do anything with this trade you keep it on we actually saw this week a little bit how Something Like this can work. Spend about 0. 80 and change, went up to about 1. 30, but it is not what you bought it for. You bought it because it has a handsome payoff in a disaster situation. If you have this on as protection you spent a small percentage of your portfolio to have it. You need to keep it on. N okay. Upext, your tweets and the final call options action is sponsored by 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. 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 were back on options action. Time to take your tweets one options fan asks, what are your thoughts on tlt calls bought some 148 strikes that expire september 6 Carter Braxton worth well, theres quite a bit of time actually you are in the money, it was 148. 60 yesterday on the spike. The tactical issue is do you have more to go, i would say yes. Structurally why couldnt you say raise to zero and go to infinity. We should look at risk reward on those calls theyre 1. 50 right now a month ago tlt was is 15 lower. The question you ought to ask yourself, if you had gotten that kind of loneverage, talking tentoone, theres no reason to take it any other way. If you are doing it now, like mike said it was 130 a month ago and now 146, and you buy the 148, you have to be patient here rates are not going to zero tomorrow, you know what i mean, if thats your thesis. So i think tlt is always really cheap ball and good way to play it uup, the dollar of the etf to track that, you guys had a great call on that that was a couple of weeks ago thats also cheap options in dollar terms and implied volatility terms i think these are two things that you want to buy on pull backs. What happened to the dollar this week was a great example it was overbought. It came in and how did it close this week . It was a good trade. Reload on pull backs. Lets do this we have time for the final call. Lets go with carter first to start us off tonight. Sure. Home depot on the long side. Again, walmart didnt work out so well, got a better result with home depot. A sell off to support. Buy the dip. Going to be an interesting week home depot, lowes and a number of retailers. Of the two, depot is the better operator than lowes. Im with carter. Use calendar spreads for it. The other thing is with the disaster protection trades like that, take them off when you get a swoon like you had this week you dont get rid of your Car Insurance after you collect one time on a dented door. You have to keep the insurance on it. Is that your final trade . Thats it. Okay. Yeah, and i would say this so next week salesforce is reporting. It is a great opportunity where theres not a lot of Companies Reporting earnings to take get a sense for what theyre feeling in the you know, as far as. Retailers next week. You have that, i think it is a Good Opportunity to think about that if you are long and you want to protect it, think about it. Good stuff. Great weekend, everybody that does it for us on options action. Back next friday at 5 30. M p. Eastern. Dont go my mission is simple to headacmake you money. Im here to level the Playing Field for all investors. There is always a bull market somewhere and i promise to help you find it. Mad money starts now. Hey, im cramer welcome to mad money. Welcome to cramerica my job is not just to entertain but teach and educate socall me at 1800743cnbc or tweet me jimcramer. Tonight i want to share accumulated wisdom believe me, ive been doing this for a long time because there are so m