Finally tiny tim once crooned tiptoe through the tulips with me but mike khouws tune is about tiptoeing through tips. Try to harmonize with that one yeah it is trial to risk less and take more. Options action begins now. Lets begin with the Material World that we are living in. Materials making a big comeback in the past few months that has carter eyeing an even bigger rally for the group carter, what are you looking at . Well, in the sense that if one wants to really talk about the whole notion of value growth and what is working and what isnt working, what we do know of course is of the four highly cyclical sectors, materials, energy, industrials and financials, its actually materials that have done the best the first chart is simply looking at those four from the march low, from the markets low. What we see here is that materials are leading the way. Its a small sector, but its an important sector nonetheless look at the second slide what about year to date . Not from the march low, since we began the year everyone is down. While materials are down, albeit barely take a look at a oneyear basis. Again, all the sectors are down. Materials up 5 . Even on the twoyear basis show how long this has been the only of the four cyclical sectors that is green on a twoyear basis is materials. Youre seeing important moves in certain stocks finally lets look at a chart. The first is xlb, very liquid and you can trade. There are no judgments on this chart by me. If you look at the next and final chart, this is what my eye sees, meaning we are toying with the prospects of an important breakout type move to a new high that is not the case for financials or industry they are not in this position. Certain key stocks like ecolab has broken out Sherwin Williams is doing it apd and so forth youre going to get some of the laggards to catch up long on materials because theyre a coiled spring but also because theyre doing the best if you really want to go into cyclicals and value growth conversation. Mike, whats the trade based off of these charts . Certainly carter was just talking about a couple of things that i would actually take a look at. Lind which is the largest constituent of this is at alltime highs we have new mont in there. We have ecolab newmont, a lot of people are playing in the mining space. These are stocks that are all doing remarkably well. A lot of trends when you get to these levels, the stocks, the top three actually represent 35 of this particular group of stocks and they already have broken out to new highs. Karen kind of alluded to this at the tail end of fast money when she was talking about the vix. The vix is at historically elevated levels, but when you think about where weve been in just recent history and the fact that were not through all of the uncertainty that would have created that elevated volatility to begin with, i actually think maybe for the first time in a while maybe we shouldnt be looking too much at spreads. Even though options prices might be higher than they have been historically, i think justifiably so given the continued uncertainty we have. When youre looking at trying to play for new breakouts in the index itself, you can keep the trade really simple. I was looking out to the september 62 calls they were about 2. 25. When we think about that, thats a relatively small percentage of how much xlb costs at this point. And that is the key here you will have more of an opportunity if you keep the trade simple right now and we do see a spike in volatility to trade around that position, whether you want to spread it, whether you want to adjust it. Frankly doing things like sell ing puts as this juncture and i think thats a risky proposition and im not really inclined to do it. Were probably about 75 net long, but we are net long volume volatility now. Tony, do you like this trade . I like this trade from the longterm view carter has of the breakout above 62. I like the constituents everyone has mentioned here theyre looking very strong. One concern i do have which mike brought up about the risk of selling a put here is that this etf is up 13 over the last three weeks. Its trading just against that 62 level you see a bit of negative convergence on the recent moves higher i have a concern you have a 35 pullback of the next few trading periods. I like to be a little bit more conservative on these types of trades mikes trade is only risking 4 of the underlying etf value. I think you could get a pullback into that 58 or 60 level i would be looking to go long in that area. Mike, do you want to respond . I think thats actually specifically why here we are, we have this binary situation. Its either going to break out or do what tony was suggesting which is fail to break out in the near term. If we pull up that chart of how a call profits, what youre going to see is that asymmetry youre limiting your Downside Risk but you get upside participation. Its because weve had that run. Its because of the risk it could pull back but its because it is also potentially poised to break out. Overall, carter, do you think that value and cyclicals are the place to be in the market . Again, these are just trading chips. They dont have enduring prospects. The question is, yes, if youre going to go for the gusto, beta is one area to do it and beta is associated with often deep cyclical type names. The point here xlb or xlf, xli here, youre going to get torque out of this area of the market more so than the other. Tmobile gaining ground in the last few months more recently on report this is week that it is unifying the telecommunication giant sprint under the tmobile brand tony, what are you looking to do i really like tmobile. Ive liked this for quite some time i really see this as a bit of a drug destructor in the wireless carrier space as we stair down 35 million Unemployed People in this country, the this is something that tmobile is not shy about, going after both at t and verizon customers and competing on them based on price alone. If we look at the chart, youve had a very constructive chart, a breakout above that 100 level i think the Earnings Announcement next week is the catalyst you need to continue higher its the only wireless carrier outperforming the sector itself. While at t and verizon are severely underperforming this stock is not only beating its peers, but also the sector earnings were strong but the Options Market currently is not implying a big move here, only about a 2. 7 move compared to the average of about 4. 8 weve seen over the past four quarters i wanted to take advantage of that bullish view here on tmobile stock the trade structure im looking to use is a call diagonal. Im going out to the august 7th, september 105, 110 call diagonal buying september 1 calls for about 5 and selling for about 1. 92 netnet im paying 4. 23 the outlook i have here is that tmobile might move a little higher on earnings but not a whole lot. Im looking for those august 7th 110 calls to roll off, collect 1. 92 and then ill have those september 105 calls. This trade is only risking roughly 4 of the underlying stocks value to take this mildly bullish but longterm bullish view here into earnings. Mike, whats your take on this i mean, i like it tony laid out very specifically and in quite an articulate way why you want to use a strategy like this. The nice thing about this diagonal is if it does rally, theres no circumstance where the stock can exceed the modest increase hes expecting and for you to see losses. Buying the september at the money call, two primary mistakes that most options traders who are buying calls will make is theyre buy calls that are too far out of the money or they pick an expiration that is just too short. You need to give some time for your thesis to play out and you cant really start reaching too much for these ones that are so cheap that theyre really kind of long odds that the stock is going to achieve the strike. Finally i would also point out, look how much hes collecting for the call that expires relatively soon. A third of the preemus we do like selling premium when you have an identifiable catalyst especially if you dont think its likely to exceed those strikes. That is the premium that tends to get crushed precipitously when the catalyst comes and goes i think this is a good trade structure in this particular situation. Carter, what do you think of tmobile this is an important stock. There was such an outperformer, then of course it merged with sprint on april 1st. When that move was announced in february, tmobile was at the point in time outperforming the market, one, two, three, four, five years its continuing to do that, meaning, yes, its got its bigger competitors, verizon and at t this is really the horse to bet on i love the chart and i love the way forward. Love the chart and loves the way forward. Thats a striking endorsement from carter worth. Check out our website optionsaction. Com. Sign up for our newsletter here is what is coming up next coming up, is the market at a Tipping Point . Professor khouw shows you how to balance out risk and reward around a market fulcrum that the home gamer rarely gets a chance to weigh into. Plus, calling all options action fans. Reach into your pockets and tweet us your questions optionsaction if its nice, well answer it on air. When options action returns. Simon pagenaud takes the lead at the indy 500 coming to the green flag, racing at daytona. Theyre off. In the kentucky derby. Rory mcllroy is a two time champion at east lake. Touchdown only mahomes. The big events are back and xfinity is your home for the return of live sports. Welcome back to options action. Check out treasury getting trounced today when theres a rate, there could be a breakout brewing. If youre looking for the best way to play it youre in look because mike khouw is here mike i think the first thing we should think about is clearly from a fundamental standpoint it would seem that we are in a low rate environment and maybe even that rates would go lower. Yet kind of what you were alluding to here, one of the things we saw this week was we saw a lot of institutional participants selling longer dated treasuries and betting of near term rates to fall. We think that rates are going lower yet you start to see the long end of the curve go up a little bit whats going on here is actually inflation. Its real rates that we are concerned about. Thats why were going to talk about tips, treasury inflation protected securities implied volatility in all of these instruments is higher than it has been, but this is still a relatively cheap place to make a bet. Buy the sent 1 clot 25 calls less than 1 of what the etf is currently trading at if we continue to see this divergence which is a play on lower real rates but the potential for inflation is a way you can go out and buy tips which is seeing a significant rally in the last several months. Carter, your thoughts we have one chart here that we can just examine together this is the tips essentially this, were not only in a low rate environment, there is every prospect that rates are going to zero. In fact that, sort of mantra rates to zero, gold to infinity is not so unreasonable what we know is real rates on the fiveyear may be at record lows today literally at negative 1 despite all of those socalled hope and the growth and the coming out of the pandemic and all the things that one wants to consider to look at, rates are mired and going lower. Here, if you will, is the channel. Ive tried to draw the channel as if the entire covid move sort of didnt happen you look in that sense and we are just ticking higher. So this is, again, i like the way forward. Mike, do you like taking a look at the tip etf . Carter mentioned gold to infinity there are two sides to play this sort of same thesis. Would you also do the flip side of this . Well, you know, i think both carter and i have been, i dont know how many times ive repeated my long gold view going back at least 18 months. We actually spoke in a conference at vegas about it i want people to be aware its not the only way to play it. Of course whether you elect to play it using Something Like this or gld or whether you elect to decide to go out and buy the miners or the junior miners or pick a specific one or buy silver which should pick up as well i think any of these, in fact all of these are probably good ways to play this exact same thesis. Tony, what do you think this is a theme weve been talking about for quite some time this is how at least i am positioned in my portfolio, long gold, short rates. I completely agree with the trade itself i had the same challenge with mike as far as the trade goes as far as finding strike prices and collecting enough premiums to sell anything. One of the things i like about mikes trade is its really cheap. The one thing that i could potentially add to this trade which is something that i did with my hyg trade, which is sell an august 123 put. In that put youll collect about 50 cents selling that is going to offset a little bit more than 40 of the cost of that long call that is one way to negate some of the time premium you have to pay on this trade. What do you think mike . For the reasons i talked about earlier, im just not comfortable selling a lot of puts this thing traded down to about 109 or so. Because of that vulnerability, im not really looking to sell a lot of premium in our own portfolios were not short premium here i think now is the time we can begin to start acquiring optionality instead of trading it up next, Morgan Stanley, well reveal what to do next more options action up next. 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. Walk to end alzheimers alzheis everywhere. Tion all of us are raising funds for one goal a World Without alzheimers and all other dementia. Because this disease isnt waiting, neither are you. Go to alz dot org slash walk. That selling carsarvana, 100 online wouldnt work. But we went to work. Building an experience that lets you shop over 17,000 cars from home. Creating a coast to Coast Network to deliver your car as soon as tomorrow. Recruiting an army of customer advocates to make your experience incredible. And putting you in control of the whole thing with powerful technology. Thats why weve become the nations Fastest Growing retailer. Because our customers love it. See for yourself, at carvana. Com. Walk to end alzheimers alzheis everywhere. Tion all of us are raising funds for one goal a World Without alzheimers and all other dementia. Because this disease isnt waiting, neither are you. Go to alz dot org slash walk. This piece is talking yeah . So what do you see . I see an unbelievable opportunity. I see bestinclass platforms and education. I see awardwinning service, and a trade desk full of experts, available to answer your toughest questions. And i see it with zero commissions on online trades. I like what youre seeing. Its beautiful, isnt it . Yeah. Td ameritrade now offers zero commissions on online trades. Welcome back to options action. Last week carter said Morgan Stanley was your best big bank bet. The key here is Morgan Stanleys relative performance to its sector. It is not at an alltime high, yet relative performance has already broken out and is particularly strong over the past several trading sessions and past several weeks. I was looking at the July September 50 call calendar it obviously closed at a relatively good level on the day. Its going to cost about 1. 85 for that spread. The first leg of that trade expired today in the green what do you do now, mike this is a situation please be sure to follow options action on twitter and follow us. There was some give and take between us and the viewers on this i recommended rolling the short side out and up. Some of you adjusted your strikes to the 52. Well done on that. Be nimble when you wake on monday and if the prices are different, you should adjust accordingly. Carter . It was a big week the btx was down i think there is more to go. All right elsewhere, tony said one farmer name was about to book some healthy returns. On a relative basis compared to the health care and pharma space, its underperforming. If you look at the revisions going into earnings, theyre particularly strong. I actually see the recent decline in this underlying stock as an opportunity to get into a long position going into earnings next week im looking to buy the 143150 call spread spending about 3. 15 to buy that july 143 call and collecting about 90 cents for that 150 call. The trade jumped into the green this week. Tony, how are you managing this one . When you trade a vertical spread like this and the stock just reaches that upper strike, its time to take profits. Earlier today this trade was up about 95 . I think its time to take profits and close out the trade. Up next we have your tweets and the final call feels like im just wasting time. Thats why Td Ameritrade designed a firstofitskind, personalized education center. Oh. 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 except now youre binge learning. See how you can become a smarter investor with a personalized education from Td Ameritrade. Visit tdameritrade. Com learn what do you look for whenearn i want free access to research. Yep, Td Ameritrades got that. Free access to every platform. Mhm, 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. Now offering zero commissions on online trades. We charge you less so you have more to invest. Time to take your tweets our first viewer asks should i hold my august 14th, 210 call on microsoft. Carter its a binary thing you have earnings of course next wednesday after the close. The stock closed slightly below that level my hunch is if its going to be of the big tech names a winner, microsoft is probably it id hold them. Mike, what would you say . Yeah, i like microsoft. Im long on the stock. Tony, your thoughts i have a short put credit spread here on microsoft, so im not expecting such a strong here on microsoft i think its going to be more of a muted move just like last quarter. The thing going into this earnings season is were seeing this rotation out of technology into value names mike, i wonder how you think that factors into some of these reports were going to be getting . Yeah. This is going to be a really interesting earnings season in general, i think, not just for microsoft but for a lot of different stocks, because of course the last earnings season really didnt tell us too much about what the impact would be now were going to have a much better sense of that microsoft is interesting because it plays off the themes of work from home and all of that. I like a lot of their products even though zoom, slack and some others have gotten some attention for it im just long on the stock i dont have to have an options position, but i do like it. Time for final call. Carter braxton worth materials here and select fund xlb is the way to do it long. Tony . Tmobile, disrupting the wireless carrier space, long a call calendar going into earnings next week. Professor khouw long calls in xlb and the tips 11 years ago today my son tommy was born on another options action friday. Happy birthday. Happy birthday, tommy that does it see you back here next friday. 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