To tony zhang has the one name you could play to cash in. Plus, mike khouw has a way to take some protection on the cheap. And do the dog days of summer have your feeling tired, rundown and listless youre not alone the chartmaster is drilling down on the one sector running low on energy how you can play it for a jolt its time to risk less and make more options action starts right now. It is friday. 2 30 out on the west coast lets get to it. It was a record week on wall street and a remarkable week for the Federal Reserve as well. The nasdaq and the s p hitting fresh alltime highs with the dow turning positive for the year all this after the fed made a major policy shift essentially saying theyre going to allow inflation to kind offe run hotte than normal to help the market tony zhang says theres only one stock that could be a big winner from this. Who is it . I want to take a look at Morgan Stanley because of this tick pickup in rates on the long end of the curve its one of the strongest out of the major banks from a relative strength perspective, easily outperforming the sector since the beginning of march if you couple that with the recent triple top here at 53 and the triangle formation we currently have, i think the stock is primed for a breakout above that 53 level th with the Strong Capital ratios they have, the really only major headwind they have here is Interest Rates by looking at the rate curve, the recent uptick and the fed policy this week, thats driven the long end of the curve substantially higher while the fed policy is keeping the short end of the curve basically near zero the trade setup that i have here is a trade structure that number one is trying to capture this potential breakout here above 63 and also taking account the fact that the implied volatility percentile of Morgan Stanley sits at 13 . Im going out to october and buying a 52. 557. 5 vertical spread paying about 2. 70 for the 52. 50. Netnet im paying about 1. 75 debit for this 5 wide debit spread which is only about 3 of the underlying stock price betting for this breakout higher on the steepening rate curve mike, a lot of reasons to like Morgan Stanley. What is your take on the trade theres not a lot of places you can buy companies right now at just over one times tangible book thats about where Morgan Stanley is trading at less than 11 times full year estimated earnings because their Wealth Management is a big part of their strategy and they do have a fairly strong balance sheet, as asset prices increase, i do like Morgan Stanley. Obviously the closer to at the money you get, the higher the probability of profit on the rise i probably would hold off on selling that higher strike call. Right now the market is obviously running exceptionally hot. If you do start to see a big move, you can either roll the position you have or sell some calls against it i like Morgan Stanley a lot. I like the setup i think this is a Good Opportunity. Fundamentally do you like what the Federal Reserve did and what they said what the Federal Reserve said is pretty interesting. Weve been dealing with fed speak since Alan Greenspan we have to try to determine what they mean. He was talking about restraining themselves from taking the foot off of the accelerator pedal thats essentially what theyre doing. As long as they do that theyre essentially encouraging you to buy all risk assets. I dont really feel that the fed or any central bank at this point has much of a choice when they keep talking about policy, what theyre suggesting is that they have a lot of options open to them and theyre trying to choose the best course i actually dont think they have much of a course and were all going to have to live with the consequences of that, but im not surprised by the language theyre using to describe what theyre up to. Carter, your take on either the fed, tonys trade, the financials, the yield curve, all of it. All of the above. Mike was just talking about there is no basis between 62 basis points on the year, 78, 48, 98 rates are basically at zero f yif you will yes, theres been a steepening i think Morgan Stanley is just a better operator in the market. Id compare it to goldman sachs. Year to date morgan up 3. 5 , goldman down 9. 7. Thats its direct comp its the only bank thats up on the year all the other financials that are up are things like black rock, Insurance Companies or moodys. The technicals look great. It is a lot of tension importantly here, though, this is a stock that even if and as it breaks out and gets back to its january high which was at 57. 50, its alltime high is still long ago theres much work to be done for financials in general. Yeah. I mean, we didnt even mention the fact that wells fargo is down 54 in a year, maybe the most important stock out there the fed, of course, is a big piece of the puzzle but its still just a piece of the puzzle by the way, were also just 66 days, 6 hours, 22 minutes and 20 seconds away from the president ial election. The Options Market is pricing in the potential major volatility heading into november. But mike has a way to navigate that in his call to action so you know its interesting. We were just talking about financials usually when we talk about the market, we talk about the s p. Yet, when we talk about stocks, were really talking about the biggest constituents of the years best performancing index, the nasdaq 100 were talking about apple and amazon, microsoft, tesla, netflix. These are the types of names, these represent 50 of that index. The most broadly held stocks are the best performing stocks here we are trading at alltimes high valuations for the nasdaq are trading considerably higher than the average over the last ten years or so. When you look at that situation, but then you combine it with the fact if you sell your stocks right now, youre selling the biggest winners in the economy you would be selling against the feds wishes theyre essentially encouraging us to be long risk assets. Then we have the election coming up its true exactly what you said, when we take a look at the implied volatility, the Options Market is basically predicting a pretty big spike in volatility around the election. In fact, we are seeing some indications there might be some prolonged volatility, into december, maybe into january what you do if you cant sell your stocks, you have big gains in your stock but you know volatility could be coming well, that is the perfect opportunity to ledge i was taking a look at the qqq because thats the etf that represents the nasdaq 100. This is a good instrument to use as a proxy to hedge. Im not saying the market is going to roll over here. What i wanted to have was some protection over a bigger downside move if thats what we get. I was looking out to november so we could alsocapture that election i was looking at the 275250 put spread you could buy those 275 puts for a little over 12. Sell the 250 netnet youre going to end up spending about 6. If you held the qs, thats approximately how much theyre up in just the last three days so youre sacrificing only the most recent gain to buy yourself a little bit of protection in the event that the Options Markets increased volatility comes to pass. Mike just said basically youre just playing with free money if youve been in the market for three days, if qs, youre just playing with found money. Overall what do you think of the trade . During market tops, buying puts are relatively cheap. I do think this is one of the toughest trades to put on because you could have put on any type of hedge like this starting in june and you would have lost that premium when you see these types of stretch valuations, these types of warning signs of markets being exhausted and leadership continuing to narrow, i think its difficult not to seek this type of protection especially since youre only giving up roughly three days worth of gains to pay for it. The only thing i would add is if you own the qs, you could look out to october and maybe sell some upside calls. I was looking out to october selling the 310 calls which still give you another 6 upside over the next three days will collect 5 in premium to pay for almost all of this put spread. Thats another way you can offset some of the premium here for that. Check out our website which is optionsaction. Cnbc. Com. Its a major sign of the times. After nearly 100 years in the dow, exxon is getting the boot and the chartmaster isnt surprised. Why carter worth says big oil could be in big trouble. Plus, calling all options action fans. Reach into your pocket, grab your phone and tweet us your question options action woi felt completely helpless. Hed online. My entire career and business were in jeopardy. I called reputation defender. Vo take control of your online reputation. Get your free reputation report card at reputationdefender. Com. Find out your online reputation today and let the experts help you repair it. Woman they were able to restore my good name. Vo visit reputationdefender. Com or call 18778668555. Welcome back big changes are coming to the big board. After nearly 100 years on the dow, exxonmobil, longest standing dow company, is getting the boot carter says that could just be the start of some big pain from big energy i would say its more pain for big energy because its pretty much been a decade with no investor gains not the start of the pain, no, sir. The pain has been longstanding and theres more to come, nothing to do with starting. Lets look at a few charts and tables this is a comparative chart of the xle, the s p 500 Energy Sector versus crude oil. You can see there they both plunge in march with all equities and they both recover energy, the commodity has continued to recover while Energy Stocks are not. You can see the divergence there. Look at the second comparative chart. Its a fouryear chart look how well these two instruments tracked. The Energy Stocks do well and the commodity is up versus down. Then the divergence. This is the issue. How rare is this circumstance . Take a look at the next slide. We have a threemonth spread between the commodity and the Energy Sector thats greater than 35 that has only happened 13 times on any threemonth period going back to 1990 this is exceedingly rare so what happens . Take a look at the next slide. What happens, one would think if the energy stock is going up, the other would play catchup its the opposite. This shows you the performance of the Energy Sector, one, three, six and 12 months later it does not imply good things for energy next chart this is simply the xle it is again the vehicle to use if one wants to buy or sell energy as a theme, no drawings or annotations by me finally xle chart withdrawings and annotations. We have worked our way into a welldefined wedge and we are breaking down. Energy is not really a sector anymore. In this case exxon and chevron are half the weight of the sector and all of the other stocks only add up to 3 of the s p. Either way, we dont like it thats amazing, all those stats including the three times in 30 some years on that divergence mike, your comment on the information there. Do you see any trade in energy at all well, not on the long side right now. I think it was jim cramer a while back said energy was essentially uninvestable at this point and im inclined to agree with him this is a situation where when were looking at options to try to trade it, one of the things were looking at, of course, is this is a relatively volatile sector now the integrated oil is maybe a little bit less so than some of the other businesses servicing the permium. If were just going to focus on the integrated oil companies, were still seeing options premiums relatively elevated what we want to do is use a put spread i was looking at the october 3530 put spread the 30 strike puts were about 40 cents. 40 cents may not sound like a lot but consider thats more than 1 the value of the etf right there. Those 30 strike puts are considerably out of the money. I think this is a way we can spend about 1. 25 to make that bearish bet. Its hard to short stocks that have been so distressed. You can really only use options if youre trying to press the bearish p isis isish bet. I agree with carters charts but the main theme is really the underperformance of xle not just in the shortterm but in the last few years i dont particularly have a strong view in terms of the directional view of crude prices its currently trading over a 1 over the last few weeks. If you do get a pickup here in volatility i do like mikes trade because youre only investing about 3. 5 of the etfs value to take a bearish bet. Up next, nailed it one of those guys laid out a very bullish Home Improvement trade last week and the stock rallied to alltime highs. What was the trade were going to find out. Send us uryo questions to optionsaction on the twitter. Were going to answer some of them on the air. I have an idea for a trade. Oh yeah, you going to place it . Not until im sure. Why dont you call Td Ameritrade for a strategy gut check . Whats that . You run it by an expert, you talk about the risk and potential profit and loss. Couldve used that before i hired my interior decorator. Voila maybe a couple throw pillows would help. Get a strategy gut check from our trade desk. Come on in, were open. All we do is hand you the bag. Simple. Done. We adapt and we change. You know, you just figure it out. Weve just been finding a way to keep on pushing. Coming to the green flag,g a way tracing at daytona. Theyre off. In the kentucky derby. Rory mcllroy is a two time champion at east lake. He scores stanley cup champions. Touchdown only mahomes. Expect anything different . The big events are back and xfinity is your home for the return of live sports. 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. Welcome back it is time now to look back at some of our open trades. Last week tony zhang said shares of home depot were about to break out. Earnings actually knocked the stock down a little bit towards its 20day moving average which for me is a much better entry point for home depot the trade im going to make is going out to the october 2nd weekly options im selling the 277 1 2, 262 1 2 put vertical chekaollecting abo 5. 90 for this 15 wide credit spread tony, you nailed it home depot is surging to new alltime highs what are you doing with that trade now . So as i said, the pullback to the 20day moving average, the stock has moved nicely off of that however, this is a trade thats still in play. This is going out to the october 2nd expiration Im Still Holding onto this trade looking for home depot to continue to rise here of the next few weeks. All right lets move on. Congrats on that earlier this month mike laid out a bearish retail play heading into that companys earnings. This counter trend move on the bottom panel, this relative outperformance period, every time weve gotten to the trend line it has failed the bet here is its going to fail again as a relative outperformer it will start to falter. 50 strike puts were trading for 1. 85. Im trying to carry through labor day, through september sometimes an uptick in volatility the xrt retail etf actually bouncing higher since that trade. So like, then carter, what now first of all, i will say that we do often see an uptick in volatility in september. For all of the reasons i was highlighting with the put spread im inclined to stay with this we didnt risk a great deal when we bought those puts im going to stay in them. What about you, carter . Are you staying . For sure. Weve had big news out of big names like walmart and target. We dont think theres any ammo to go higher. Good stuff on the xrt up next, your tweets and final call ok, it 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 visitits totally not thearn same without you. Were finally back and cant wait until you are too. Universal orlando resort. Buy now and get two days free at the parks. Restrictions apply. Woi felt completely helpless. Hed online. My entire career and business were in jeopardy. I called reputation defender. Vo take control of your online reputation. Get your free reputation report card at reputationdefender. Com. Find out your online reputation today and let the experts help you repair it. Woman they were able to restore my good name. Vo visit reputationdefender. Com or call 18778668555. Its got all my favorite shows turn oright there. Boom, i wish my Trading Platform worked like that. Well have you tried thinkorswim . This is totally customizable, so you focus only on what you want. Okay, its got screeners and watchlists. And you can even see how your predictions might affect the value of the stocks youre interested in. Now this is what im talking about. Yeah, itll free up more time for your. Uh, true crime shows . British baking competitions. Hm. Didnt peg you for a crumpet guy. Focus on what matters to you with thinkorswim. Lets wrap it up by taking some of your tweets. About a month ago carter pointed out kraft heinz as a tremendous opportunity. While it has shown some signs of life, it has not been that great of a trade is it still a Good Opportunity if so, what isthe options trad to use, carter sure. This is, i think, the greatest Turnaround Opportunity that might exist in the market. Youre talking about 100 that plunged to 20 key is its made this move from 20 to the mid 30s. That often is the foreshadowing of more to come. If your options trade has expired, i would move that to my teammate mike khouw. But id expect very good things to come. Bounced off the lows pretty nicely still a long way to go our next viewer asks this, i bought a march 21st 500 call on apple and im up just 175 im still bullish in general how long before a call exploration into the future should i exit before time decay starts to hurt him you dont have to worry just yesterday. You can sell to offset some of the decay youre currently experiencing. Thanks. Good evening im frank holing jim cramer and mad money are off tonight. Another big week for the bulls on wall street here is the report card. The nasdaq and s p up more than 3 the dow 2. 5 higher. This as we saw a big shakeup for the dow. As of monday, august 31st three stocks come out. Exxon, mobile, honey well and