And that would not be the weirdest thing that happened this week with tesla mike khouw downshifts on the name and its time to risk less and make more. Options action starts now. Welcome to options action,e wti rallying 25 as investors bet that the worst is over for the energy space our carter worth says hes got the chart to prove it. What are you seeing, carter . Well, a bunch of charts something that happened this week, seven weeks in a row, the Energy Sector is up and thats only happened eight times in the 32year history of the sector and the probability of occurrence of 0. 5 the followthrough is usually pretty big what do we know . We know that the sector bottomed actually before the market we see on the first slide here that the Energy Sector bottomed on the 19th, a thursday, and the market went out and made its low on monday the 23rd we know this ricochet has been huge and were talking about double the market and it dropped 65 and the ricochet is up 70 twice that of the s p up 34 and then this is the interesting thing. The next slide youll see here very clearly, it shows something again thats only happened eight times in history and the sector itself is up seven weeks in a row and what i have there is a brief table of what happens thereafter three months, six month, 12 months and what you see and there is the median and the mean, but the Performance Plus 2. 6 over three months and plus 6 and plus 14. 7 over 12 months and that is very robust and interestingly, the market in those other instances did not do all that well. Anyway, some charts. First, look at the xle and the plain chart and the year to date chart and the plunge in the ricochet and then take a look at the next chart how well it is tracking this little trend line off the low and then the final chart, wa there a gap, a sharp drop in gap on the 6th of march, and the premise here is that we will quickly fill that gap. The xle closed at 38. 78 and its on its way to 42 and i want it to continue to be long and big on the long side thanks, carter. So mik what do you make of that move, those charts and whats the trade . This is an interesting situation that we have here in energy because obviously, in the near term the fundamentals for the sector and for the you know, for north american oil remain exceptionally weak. We obviously havent had a significant uptick in demand yet. So this is really a technical trade that were looking at because its very hard to make that fundamental forecast, but whats interesting is that we have been seeing some activity in the options market, specifically the crude oil futures markets this week that indicated that some institutional participants might be thinking that in the 12 to 18month timeframe there could be a recovery in wti that was the one, of course, that traded negative on the may future earlier and what we were seeing essentially was that there was a bet being made, that the futures could curve, and when the neartraded futures could be more to the longer traded one and thats the exact opposite of what was going on this year and that is a situation that typically arises when you have nearterm demand that outstrips nearterm supply heres the thing people need to remember about the energy space. We had a big and very rapid drop in demand, and supply just simply cant move around as quickly. Think about it trying to turn a super tanker around and thats the way the industry works from a logistical point of view what you get is these pendulum swings where it overshoots to the down side and it may shoot to the upside in 12 to 18 months equity prices will probably price that in before it happens and if youre inclined to make a bullish bet, bear in mind that there will be more fallout from the fundamental point and theres bad credit in the space, an you can use options to make a tactical, upside bet and it might actually be on to something. Specifically, i was looking at the juneseptember diagonal spread specifically the 3821 september calls, buying those and selling the june 4121 strike calls and spending 2. 85 for that. This spread is only 3 wide and the reason it makes sense is because youre buying a longer dated option, and thi will expire more rapidly and were trying to sell the near dated premium which i highly elevated without taking the Downside Risk that the purchasing xle right here might encounter. Tony, how do you like mikes trade . So im not as confident in the long run here because of the fundamentals that mike was referring to, but if you look at the chart on xle, i think its constructive for a shortterm momentum play as carter laid out. You have this tap at 36 and we broke out above that two weeks ago and we retested that at 36 and were starting to move higher you couple that with the recent momentum and relative strength you have a compelling case for xle to reach up back to 42 and reach the gap that carter was talking about. But my preference as far as a moment play to the upside is to focus on the specific name without the xle sector like philips 66 thats relatively strong, and i think it has a higher probability of the stock moving higher and i would use it somewhat as a bull call spread that allows me to take the shortterm momentum play and risk 3 to 4 of the underlying stock price to take this type of thing. Thats exactly where i would go, tony and carter, i asked you this in your view, what is the strongest member of the xle . Well, remember, the xle, interestingly, of course, the whole sector is only 3 of the s p and two stocks, exxon and chevron are essentially half the weight of the sector so if one really wants to be aggressive and play the theme overall then its the oih and the etf that has the most beta and was beaten up the most in terms of the biggest sort of safest name, i like chevron better than exxon. All right lets turn from one beleaguered area of the market to another. That would be corporate debt and we see movement in the space including a brandnew bond offering from United Airlines yesterday. Check out that stock surging today and investors are starting place bets that th worst might be over in terms of the damage done by the shutdown. Could it be in store across the board. What do you think, tony yes so i want to take a look at highyield bonds because weve seen some pretty record inflows over the last five to si weeks into this particular segment of the market. If we look at the chart, if we look at hyg i want to first point to the 80 level which is the 2018 december low that we are just about to retest as resistance it was 78 and thats the base it needs to propel itself above the 80 resistance level and on to 82 and potentially 84 extended target to the upside. When we look at the fundamentals, there are two primary reasons why you will start you will still continue to see inflows into hyg and thats predominantly first of all, because of investors seeking yield. If we look at u. S. Tenyear yields you are looking at an average of 66 basis points on treasuries versus hyg is offering nine times that at 550 basis points so investors seeking yield will look for these types of yields and then you couple that with the fact that the fed is outright going to start buying these highyield etfs. Theyve never done that before thats going to provide investors with a sense of security on these types of funds as well as provide a bit of a floor here on these asset prices so the trade structure that im using to use here for hyg is a risk reversal, is a call spread risk reversal where im going out to july and im selling the 75 puts and collecting about 1. 40 and im using the proceeds to buy the july 80 call option which costs about 1. 75, and i will collect, and netne for this call spread risk reversal im trading it for a netzero cost. So this strategy will be profitable if hyg breaks above the 80 resistance level that im referring to and its profitable all of the way up to 84 where its capped for any gains above 84, but i do think thats a fairly extended target for hyg to the upside. To the downside, if hyg does not break 80 i have no losses between 75 and 80 which gives me a 6 buffer for hyg and this strategy only suffers losses below 75 which gives me a 6 buffer to the downside and thats comfortable given that the fed will start buying these etfs starting perhaps as early as next week mike, i guess two questions do you like tonys trade structure and weve seen a sizeable move in hyg based on the expectations that the fed will be in the market. Where do you think it goes from here i think thats quite interesting. I know that you and karen have spoken about that fairly extensively and just how much the highyield market has basically bounced on the notion that they would do this even before the fed started to engage in these types of purchases. Two things end up happening when you create and this literally becomes a fed put situation here number one, it creates other buying interest that does create a floor and one thing is to compress the elevated volatility in that space and for that reason, making sure that the premium could make sense here and one other thing i would point out is 6 in a lot of stocks given the volatility that weve seen wouldnt seem like much of a buffer and of course, high yield is an index of highyielding bonds and 6 moves to the downside would be a materiel one and i like the structure and the setup and i think this will probably work out nicely actually, we do have breaking news considering the United AirlinesDebt Offering and phil lebeau is on the line and it looks like they pulled it, phil. They have, melissa. This is not a surprise yesterday afternoon it started to percolate around the bond market that there was limited appetite for 2. 25 billion in bonds that united was essentially offering Rick Santelli said yesterday afternoon that it didnt look like there would be a whole on the of appetite and united his pulled that offering and the significance of this is that theres been so much debt that has been brought to the market by the Airline Industry just since march, well over 24 billion. You have to wonder if the debt market is saying weve got enough for now. Phil, thank you phil lebeau with the latest on United Airlines. Mike, ill go back to you. What do you, quickly, it sounds like its an airlinespecific issue. It is an airlinespecific issue and there will be businesses that will be able to hit the reset button and im not sure that that necessarily applies to the airlines. There has to be some evidence that there will basically be a return for levels of air travel thats significantly higher and each if it increased dramatically, weve all seen the statistics to levels that havent been seen since the 19 notice, and of cours were dealing with infrastructure in a very capital intensive business where investors are skeptical about where they recover quickly thats one of the things you need when youre lending to someone. Im not surprised to see what were seeing here, and i think theres a lot more uncertainty to come in that space. It does look like the stock is dropping in the afterhours session down now 3. 3 very quickly, carter, what does this chart look like to you . United . Lets say this its been bankrupt three times in my lifetime that says it all it is dropping as we speak. Down 4. 6 . Check out options action. Cnbc. Com and while there sign up for the newsletter heres whats coming up next up next tesla or tesla . Dont pretend Nothing Happened this week mike khouw will bring some calm to this weeks comedy. Plus, calling all options action fans. Reach into your pocket, grab your phone and tweet us your question at options action. If its nice, well answer it on air when options action returns. It its a thirteenhour flight, tfifteen minutes until we board. Oh yeah, we gotta take off. You downloaded the Td Ameritrade mobile app so you can quickly check the markets . Yeah, actually im taking one last look at my dashboard before we board. Excellent. And you have thinkorswim mobile so i can finish analyzing the risk on this position. You two are all set. Have a great flight. Thanks. Well see ya. Ah, theyre getting so smart. Choose the app that fits your investing style. Weve got even more breaking news and again we go to phil lebeau for it. Phil tesla has just filed an 8k and in the 8k they have opened up basically a revolver with the Industrial Bank of china and it comes out to 565 million that tesla will be able to borrow to fund the expansion of the shanghai gigafactory and thats a gigafactory that they are in the process of expanding its already up and running, but theyre going to be expanding it and again, theyll open up a 565 million revolver with the chinese bank, again, to expand the production facilities in shanghai melissa . All right phil, thank you. Phil lebeau on a busy friday for them lets stick with tesla, the stock gained 16 if youre convinced that now is the time to play this high flyer through options, mike has a plan for you and here is his call to action. Mike we were talking earlier about how the Energy Market is a technical trade. I think the most technical trade that is available in almost any instrument has got to be teslas stock at this point. It is very hard obviously for those taking a look at it to get a grip of the appropriate valuation of the company should be and heres a couple of things kboen about it obviously investor love the company and there are some long term and substantial holders of the Company Including elon musk as well who are not inclined to sell the stock and what ends up happening is you end up squeezing the shorts with this thing and we have high, implied volatility and gee, i really wish id taken the opportunity to buy it when it was almost half the price and only a couple of months ago. So for those of you who are inclined to take that bet, there are a couple of things to take a look at. First of all wye we ought to look at technicals we might presume that there might be some resistance to that level and also there is an unfilled gap right between 650 and 685 so trying to take advantage of the elevated, implied volatility and being mindful of the gap while also trying to collect a little bit of premium and i was looking at with something called the june 685 and 650 won by two put spread in this trade i would buy one of the 685 puts and normally when people are buying put spreads you consider that to be a bearish trade and in a way it is because this would see the highest profits if the stock drifted down to the 650 strike, but actually you will collect 1250 every time you put this trade on so you will make money as long as the stock stays above that level and in fact, it can drift down through that stripe by some substantial amount and you would end up being put the stock close to about the 600 level if youre in this, which is a significant discount to where the stock closed today bear in mind, this is a stock that can move around a lot and it is a modestly bullish bet on the stock and if you really wanted to own it you could and you might, but it would have to drop quite a lot before you purchased the shares carter, whats your take on the stock and mikes trade i think it was set up bullishly and the epic run on 569 and the collapse, the 60 selloff, but day to day action, the week over week action is so steady despite the volatility, i think we will reapproach the highs. Mike, last word yeah. I mean, this is one of those situations where i know the shorts are inclined to go after from a fundamental point of view i would caution anybody who is inclined to do that. I think the only way to play is with options whether youre making a bullish or bearish bet. Implied volatilitys high. You can collect money doing trades like this one one taking off with earnings and well tell you how the traders just cashed in on this move many of lifes moments in thare being put on hold. Are staying at home, at carvana, we understand that, for some, getting a car just cant wait. To help, were giving our customers up to 90 days to make their first payment. Shop online from the comfort of your couch, and get your car with touchless delivery to keep you safe. And for even Greater Peace of mind, all carvana cars come with a sevenday return policy. So, if you need to keep moving, were here for you. At carvana the safer way to buy a car. The biggest week in television is almost here. Starting may 11, enjoy free access to the best shows and movies from favorites like hbo, showtime, starz and, for the first time ever, hulu and peacock catch the show someone on twitter says is omg cray, exclamation mark. Dont look at me. Or the one with the character with the eccentric name. whispers to himself oh, so thats who offred is. Hi. Even the one thats inspired all those memes. There they are everyones got a show to recommend. Get ready to watch the best for free during watchathon week. Take a check on shares of United Airlines that the company is pulling its 2. 25 billion bond offering. We knew that demand was tepid and they were forced potentially to jack up the yield to as much as 11 and they pulled it all together and we are seeing airlines falling in the afterhours in sympathy. Lets take some time and look back at some of our open trades. Last week tony said activision was about to level up on earnings take a listen. We recently broke out above a 63 major resistance level, came back to retest that as support and is now starting to rise higher from that, so this type of relative strength is exactly what i typically look for going into an earnings event and im going out to may and im selling the 64 and 61 put credit spread here. And he was right. Activision soared on its Earnings Report and it is up double digits since the trade. So tony, what are you doing now . So this trade actually exceeded my expectations, but if you sold this put credit spread you would have collected roughly 97, 98 of the credit and its time to take profit and move on. I will say you have one more stock in this particular sector which has yet to report earnings which is Take Two Interactive and i think you could have a similar setup for that stock, as well. Lets move on here. Last week carter predicted paypal would cash in on its earnings results. Look at the authority of this level the stock has approached this and reapproached this and this is a setup for a newsrelated breakout and earnings are coming next week. Instead im trying to look at a trade that maybe not swinging fo the fences and i was looking for a strangle swap and it sounds complicated and its like calendar spreads and in this strategy you would sell the may 8th weekly, 115, 130 strangle so youre selling the put and the call and then buying that exact same structure in june. They were right paypal took its Earnings Report to the bank and the stock is up more than 20 since we put that trade on so, mike, how are you managing this trying to bat a single when the stock hits a home run. Carter made a great call and i think the trade i came up with was too conservative for this. I actually tweeted this out, how i adjusted the trade and by the way, for anybody who is watching you should follow us on twitter. Carter made a great call, my trade structure carter, what do you see next to the stock. Theres only one other time when it was up 20 in a week, and my hunch is to harvest gains and likely to consolidate for a long time and take the money and run. What are your thoughts on this and how mike is managing this trade i think mikes doing the right thing, but we were surprised by a lot of these earnings announcements and such as the activision one that i had, and i think a lot of names are exactly the same thing and take your profits and run. All right nice week, guys. Up next, weve got the final call so what are you working on . Im searching for info on options trading, and look, it feels like im just wasting time. Wasted time is wasted opportunity. Exactly. Thats why Td Ameritrade designed a firstofitskind, personalized education center. See, you just oh, this is easy. Yeah, and thats oh, just what i need. Courses on options trading, webcasts, tutorials. Yeah. Their awardwinning content is tailored to fit your investing goals and interests. And it learns with you, so as you become smarter, so do its recommendations. So its like my streaming service. Well exactly. Well except now, youre binge learning. Oh, i like that. Thank you, i just came up with that. Youre funny. Learn fast with the Td Ameritrade education center. Call 8662967451 or visit tdameritrade. Com learn. Get started today, and for a limited time, get up to 800 when you open and fund an account. Thats 8662967451, or tdameritrade. Com learn. You know when your dog is itching for an outing. Or itching for some cuddle time. But you may not know when hes itching for help. Licking for help. Or rubbing for help. If your dog does these frequently. They may be signs of an allergic skin condition that needs treatment. Dont wait. Talk to your veterinarian and learn more at itchingforhelp. Com. Weve got time for a tweet. One viewer asks how would you play cisco heading into earnings next week . Mike, why dont you take that . Its slightly elevated for a name that moving around 6 on earnings and id take the call here because im not expecting the big pop out of this one that weve seen out of other stocks either calls or puts would work with the money. Carter, how does the chart look going into earnings think its okay a man of few words. I dont know how to take that, carter when you say things are okay does that mean that i mean, youre either in or youre out youre buying or selling i like it. You like it i mean, carter, its like pulling teeth sometimes. Time now for the final call. Sometimes less is more. Carter, less is more. What do you say final call energy, long. Tony . The feds buying hyg. Im going along for the ride and im calling a buy spread risk reversal. Mike khouw. You know, i like tonys hyg trade, and i also like using calendar diagonals in xle if youre inclined to follow what carters talking about. That does it for us have a great weekend dont go anywhere. Cnbcs special report is up next [man] the following program is a paid presentation for the oxypure air purifier brought to you by nuwave, llc. Asthma and allergies are at an all time high, and it seems to get worse every year. Its not your imagination. Allergy season continues to get longer and more intense as temperatures rise, and airborne viruses are becoming an epidemic problem worldwide, with the changing environment, and unseen dangerous air pollution surrounding all of us. You need clean air more than ever. If you suffer from mold, dust, pet dander, smoke, odors, or sleeping problems. Discover the Nuwave Oxypure air purifier