The roof on the Home Improvement trade. Thats simply nailing it its time to risk less and make more options action starts right now. Lets get to it. It is going to soon be time to put away the sun block, break out the sweaters the weather could put a chill on travel stocks. Theyve had a hot run so far this year, but the chart maste says he is starting to have reservations carter worth is over at the plasma to break it down. Take it away. It is more about the consumer, right . Is the consumer in good shape or isnt it theres so many ways to make the case either way. But i thought we would focus on something we havent done in a while which is hotels, resorts and cruises. This is actually s p 500 group and these are the five names and Everybody Knows those names, right . Big hotels, and then the three cruise liners. Now, lets look at some charts and try to pull together the thesis what we have over the past decade is a pretty nice fit between this sub Industry Group, hotels, resorts, cruises, and the entire Consumer Discretionary sector yet what you can see here of late is that the boats, the hotels have stalled. Thats the blue line rolled over lets zero in on this and take it closer. Now this is the picture thats a bit bothersome we know that these peaked quite sometime ago, and while the market has made these slight new highs it is not the case for this particular sub Industry Group within the s p that rolling over, that deterioration is an issue. In fact, i would show it to you a couple of ways we know, for instance, were nowhere near these lows absolute, right . Were nowhere near, and yet we are right back to relative lows. So basically a place where money has gone to die and produce negative alpha, if you will. Something is wrong a couple of charts to put in context. Now, marriott, the big heavy player, the biggest of that group, you know, you can draw the line so many ways. But one way, and its not a judgment of opinion. Sort of a structural fact. Thats a double top. Now, if i pull it back and try to figure out where on the trend line this could go going, i mean just were we to check back, check back, check back to trend, yes, that implies quite a bit lower from here. Thats my thinking, that weve put in an important top. Now, look at this longterm its one of the biggest winners, and yet what a bad setup so then the here and now marriott just the daytoday chart, we know everything has tried to bounce since the august low and waffled at least, but theres not even any waffling here this thing has been unable to bounce what we know and lets end with this its a well defind trend, and its a break in trend. This is a problem. I think one wants to be very cautious on marriott all right so, carter, come back over mike, whats the trade here on marriott yes, so i think the key thing to think about here, number one, we are talking about a discretionary sector if you take a look at previous, you know, basically economic downturns, these are stocks that could be highly sensitive to that this company also is increasingly seeing revenues coming internationally we are, of course, right now in a relatively strong dollar that is not going to help them there are some currency headwinds there as well. If you take a look at how much the revenues have pulled back in some of these circumstances, you know, weve seen maybe 15 , 16 pullbacks back in the credit crisis im not saying thats going to happen here. You couple it with a relatively high valuation, trading around 28 times earnings, its hard for me to figure out how you can balance the risk reward. There is possibly maybe 10 upside in the stock potentially, but theres substantially more downside so i think given the fact that although options prices are elevated a little bit, they really arent as high as i think they ought to be given the risk factors and given how much equities have been moving around lately i was looking out to october, the 125 115 put spread you could spend 2. 65 for that thats a little more than the quarter we typically like to spend, and oftentimes when we structure these trades, carter and i try to look together, looking at the 60 and 90 daytime frames they dont have a november expiration, thats the reason im looking to october i think were in a situation where many of the stocks dont have that much upside but they do have potential room to the downside for sharp moves thats what we should be keeping our eyes on. Dan, what do you think of this trade i like it lets start with the chart i think theres two charts in this market right now. There are stocks that are above the up trends from the december lows and theyre the ones like you just showed that are below that marriott is below. The whole space is rolling over. So if im thinking about sentiment and im thinking about just how these setup, theyre broken charts. I love carters setup. The way mikes doing it, the only way to do it, you just have to pick a spot and hes picking 115 to the downside. He said he likes to get usually a quarter of a spread, a directional put spread, a vertical like that and youre not getting it theres a lot of uncertainty and youre not getting it. The fundamental seems its rolling over a bit, especially with the dollar making twoyear highs today. If you look at mikes trade, i like the risk reward he is risking one to make three. You could look at them. You could look up host you could look up hyatt. None acts well it is highly discretionary it is the most discretionary thing there is, not to mention this, trip doesnt act well, bookings doesnt act well, the online sites for travel. So many things, crosscurrency, not a good place to be yes all right. Lets move on to tech. If you caught last nights fast money, you will know dan brought along what he calls one of the bestlooking charts in the market take a listen. Microsoft stands out not just because of the size of it, but look at that consolidation it has made above 130 since beginning of june. It held the up trend from december, and it really feels like it wants to break out so clearly dan likes the chart. Whats the trade then . Its a really interesting setup. I mean, i think that was just the technical setup here, and that one fits on the right side of the up trend from december. I like the consolidation above 130 where it broke out in early june, but lets think about the fundamentals here. What is interesting about this Company Relative to the last time that we might have had a global recession is their model. It is just different the recurring nature of so much of their revenue, new businesses in the cloud, that probably insulates them a little bit if we do have some sort of Enterprise Spending recession a little bit so i think about this company. It is expected to have in this fiscal year 10 earnings growth, 10 sales growth it is trading about 26 times thats getting kind of expensive, but really not against some of its other fastgrowing tech peers. I say to myself im trying to be constructive and look into the fall and pick some stocks i think could break out, microsoft has to be at the top of that list that chart right there, thats implied volatility, the price of options in motorcycles theyre just relatively low. If you are thinking like im thinking that the whole macro situation is really murky, this thing has held up really well, definitely relative to the broad market thats up 36 , two times that of the s p 500 and much better than amazon, google, and apple, which are all about 10 from their highs this thing is only about 2 . So to me i say lets be constructive lets try to do a defined risk, bullish trade into the fall, because if theres any good news anywhere, this is one of the ones that will drag the market up so today when the stock was trading at 137, you could look to october expiration, you could very simply buy the october 140 150 call spread, paying about 2. 65 for that, buying one of the october 140 calls for 3. 20, selling one of the october 150 calls at 55 cents. It costs 2. 65, breaks even at 1. 42 you are risking 2 of the stock price to have a nearthemoney bet that this thing has been consolidating and showing good relative strength. I know carter has different views on that. I think thats the way to play it with defined risk if you are looking to be constructive on mega cap tech. So everything dan said is correct. And as a technique, right, you do want to stay with whats safe and microsoft, over the course of time, one or two stocks will take on almost like a cult status ibm did it exxon has been in that category. Ge, walmart. Considered unto itself, has no competition, and microsoft is the most widely owned thing there is while it is good, at some point it is Musical Chairs what we are seeing under the surface is stalling and rolling over in things like zen desk, twillo, paypal, workday, and crn. Im just wondering whether at the end of the day, isnt it a final thing. Theres the adage, they get the generals last. Literally the generals hang out in the back so they shoot the people in the front of the line. They go after the big ones last, and this is the ultimate big one. So the question is can it continue just to be its own thing . Until it cant. So theres a lot, mike, i want to get your take on first of all, whose side are you on in terms of the direction of microsoft . And how do you think dans trade is structured . You know, i dont feel like the equities generally are behaving in a healthy manner here, and im pretty anxious about it, i have to say. Of course, if thats the case and you are inclined to make a bullish bet despite that, this is a good way to do it and actually its setting up in a way thats a little bit unusual. Generally speaking, when you take a look at a very close call spread like the one dans identified here in microsoft, its not uncommon to see these things trading 30 , 35 , even 40 of the distance between the strikes. Hes getting it for substantially less than that usually when we go to put spreds, we are looking for onefourth of the distance between the strikes. On call spreads it is usually hard to get that kind of math and here he is getting it. If you are inclined to make a bullish bet, this is the way to do it. The thing is im not inclined to make a bullish bet on microsoft or anything else. No, and i think you guys make a good point i mean, i think regular viewers of the program know im not particularly constructive about the setup of the market, but i feel if we were to get good news and the s p is above 3,000, this stock is definitely above 140. Probably close to my breakeven on the trade, and mike makes a great point in june when really the trade worries were at the heightened period of this whole year, this stock was 120. So 138 right now. So when you think about it, it has come a long way here, but another 10 in six weeks if we have incrementally better news, macro wise it will not be that hard in my opinion because the same reason why it is so crowded, theres no reason that should not continue but the point about a source of funds is a very important one. It is the only market cap with over a trillion dollars on the entire planet right now publicly traded and theres a lot of positive sentiment if the news were to go south but thats why youre risking 2 of the stock price for this spread check out options action. While you are there checking out super cool newsletter. Here is what is coming up next investors have been deep diving into junk bonds as trade tensions threaten to take down the market, one of our traders is laying out a cheap way to make bank on a breakdown. Plus calling all options action fans reach into your pockets, grab your phone, and tweet us your question twt optionsaction if its nice, well answer on air when options action returns. Yeah, that too. Options action is sponsored by thinkorswim by Td Ameritrade ow 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. I need your attention for a minute. What are you looking for . Is it inspiration . Because shes changing the world. Every post out there is like dream big but when it comes time to take action girl scouts are making a change. Were the risk takers. Athletes. Leaders. Im not saying you cant be part trendsetter, but i am saying you need to be all girl scout. Hey i live on my own now ive got xfinity, because i like to live life in the fast lane. Unlike my parents. You rambling about xfinity again . Youre so cute when you get excited. Anyways. Ive got their app right here, i can troubleshoot. I can schedule a time for them to call me back, its great you have our number programmed in . Ya i dont even know your phone anymore. Excuse me . what . I dont know your phone number. Aw well. He doesnt know our phone number you have our fax number, obviously. Todays xfinity service. Simple. Easy. Awesome. Ill pass. Welcome back to options action. We just closed the door on one rollercoaster month for the market, but the wild ride might not be over. September is historically one of the worst months for stocks. If you are betting on more pain ahead, dan nathan has a way to play it on the cheap hes at the plasma. Dan. In this time of market volatility a lot of traders are looking for opportunities to play for volatility, for cheap options that have the potential to pay out a lot if they get unexpected movement. And, you know, we talk about the s p 500 all day long its only down 3 from the alltime highs some might say it acts relatively well. Theres some other pockets of opportunity, though, in th Options Market to make money if things kind of go haywire again. It could be away from equities one area that could be interesting is highyield debt and one of the reasons why we spend a lot of time talking about the yieldcurve inversion treasuries highyield debt is levered to companies that basically, you know, have a harder time borrowing, they have worse credits. Then if we have some sort of earnings recession, these are companies that might struggle to pay back that debt and in those scenarios, youre going to see highyield indices turn lower we have seen that time and time again over the last ten, fifteen years or so. Lets talk about the hyg, the highshares, highyield etf that tracks a basket of highyield debt here. One of the reasons you might want to buy a put spread in the hyg as we look into the fall if you are expecting greater market volatility is that what are small calls telling us right now . Lets just think about the russell 2000 in particular its about 15 from the highs, in an earnings recession the last two quarters, it seen yearoveryear declines in the russell 2000 so it is something to keep an eye on because we know a lot of the issuance in the debt market is in the highyield market. The other point is oftentimes if you look back when we see the stock market go down precipitously, you see correlations of a lot of risk assets go to one theres really no place to high. Even Something Like hyg which held up pretty well may go down fast with equities too the last point about hyg is options are really cheap i will show you a few other charts to demonstrate why thats the case here. Lets think about this this is the oneyear chart of the hyg. This looks like nice consolidation. It is important to remember there was a 10 peaktotrough decline when the stock market went down 20 in q4. Thats telling you that obviously it can be very correlated to sharp drops in the equity market. The other point i want to make is this is large caps, the s p 500 versus the russell 2000. The small caps, you see this the s p is down about 3 from its alltime highs from last month. The russell 2000 has not made a new high since last year, down about 15 . I think that is reflective o investors fear about the earnings recession thats going on with small caps okay now lets move over to that last point i made about option prices being really cheap. This is the price of volatility. This is a 6 volume, implying less than a 1 move on a daily basis here you see though what happened to option prices last fall when the stock market started going down. Hyg more than doubled, it almost tripled the price of options there. That is telling the directional option trade can be very cheap in this name here is the other point i want to make. When things started to get dicey in the last couple of months, this is gld, the price of options, look how they shot up and, okay, and they shot up to at least 100 above where they were trading because traders were reaching for gold as a hedge against the market volatility the last one, tlt, this is the 20year treasury etf we know what has been happening there. Yields have been going lower, bonds have been going higher, traders have been buying lots of options. The price of options has gone up materially again, option prices were really cheap before that spike. So heres the trade in the hyg i think you want to look out to november expiration. I think option prices are so cheap if you are looking for risk assets that could go berserk in a market thats gone haywire, this is one of them so today when the hyg was trading what are we doing here were buying a put spread at 87. You look at november expiration, 86. 0 it costs about 80 cents, about 1 of the stock price breaks even down to 85. 20 about 2 from where the etf was trading today and can make up to 5. 20, between 85. 20 and 80. Why did i choose 80 to down side thats not a great puttosell down there, but it was the low from last december its a level where it may find some support, but to me very simply risking 80 for about 2 1 2 months to possibly make 5. 20 if the hyg goes to the lows it was at in december. Carter. Its a great kind of trad to have on in a market like this where you can have a rapid, quick payout thats handsome it is what hedging is all about. I would say this for those of us who are not believers and who are bearish, it is annoying how well the hyg and jnk have held up all right dan, thanks for that come on over up next, check out shares of home depot hitting a fresh alltime high today. We will tell you why it is great news for one of our traders. Live at the market site, much more options action right after this see thats funny, i thought you traded options. Im not really a wall street guy. 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. Time to take a look back at a couple of our open trades. A couple of weeks ago mike said home depot could be building up to a breakout. Of course, its all about alpha. During the selloff, this 9 , 10 top, the stock has been going, of course, straight up relative to the s p. I think its a good place to be as a defensive name and to some extent as an offensive name. This is a duopoly basically with lowes. They are the better of the two companies. I was looking at the september january 210 call spread you could spend 5 for that. Depot hit an alltime high today. Carter first, how does the chart look right now to some extent the opportunity while not all gone has come and gone. While playing for an event and a breakout at this point, i would pull ones horns in. Mike, are your horns being pulled in . Well, actually they sort of are automatically. I mean this stock actually rallied through the 210 september options, which were short. Time is on our side, if we hold onto this position once those decay away you can look at the 210 puts for that and roll the 210 puts short out to october and keep the 210 on also earlier this month, dan laid out a way to play salesforce earnings if you look at the oneyear it has tremendous overhead resistance between 160 and 170 it is really under performing the nasdaq, which is up 19 of the year it is only up 5 a collar strategy is something where when you own a stock and potentially you are into a volatile event like earnings in a potentially volatile period we are in right now, it makes sense sometimes to put a collar strategy on where you are protecting your stock. You can buy the october 130 160 collar, paying 70 cents for that. Salesforce soaring on the back of the report of nearly 10 since the call dan, what do you do now . This is basically youre over writing your long stock. The stock was around 140 at the time, it went up as high at 158 after the report and you were using the 160 call so here is the situation you have until october expiration the stock closed at 156 today. You are short the 160 call if you want this stock to remain intact, then you do not want to be short that call if the stock is over 160. If you want to keep the stock position intact, youd cover the short 160 call youd sell the 130 put because its lost most of the value. It has done what it was supposed to do for the earnings event i have to tell you the guidance was pretty good. It is another stocky would expect to make new highs above 160 if the market were to find footing because, again, you want to marry good fundamentals with poor sentiment and it did have poor sentiment heading into the print me, i would take the collar off. Just for fun, would you rather microsoft or crm . Oh, carter. I think microsoft because it has better valuation support here, and i think that crm salesforce has been a bit more volatile. Certainly safer, but crm has ruled. Up next, final call. Announcer options action is sponsored by thinkorswim by Td Ameritrade. 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 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. Final call time. Carter you know, i think one should be concerned if one falls and im a seller mike. You want to put spreads, marriott. Dan. Puts are cheap to me, making a bearish bet into the fall. That does it for us see you next friday at 5 30. Have a great long labor day weekend. Dont go anywhere. Mad money with jim cramer starts right now [narrator] the following program is a paid advertisement for the nuwave bravo xl sponsored by nuwave, live well for less. Is all the clutter in your kitchen starting to look like an old junkyard . Sick of spending hours cooking, only to serve mediocre meals lacking in flavor . Wish your family would spend less time whining and more time dining . 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