Out of their shells. Finally, our latest deere trade got caught in the headlights but well help you see the forest through the trees and see your way through. On the desk tonight we have mike khouw, carter worth, and brian stutland. Lets get to it. Another slew reporting next week, including macys lowes and their tickers are separated by one different letter. Their price action couldnt be more dissimilar. However, carter worth believes one is going to turn a corner and the other is heading in the same direction. Carter, which is which . Were getting to the end of earnings season. Its retailing big names that bring up the rear. Banks lead, retailers end it. Today were going to look at one name thats been very, very strong, and one name thats been a real laggard and each is an opportunity because of that circumstance. Lets get right to the charts. What were going to see is three identical charts. Kohls first. Its a laggard. We have the makings of a double bottom. And then the second of three, we have a downtrend line and weve moved above the downtrend line in effect for the past 12 months. The arrow is a judgment. Thats my conclusion. I think you want to be long going into earnings. Now, at the opposite end, take a look at dicks. Dks. Its at all time highs. The annotations i think are as follows. First it ration. Call it a cup and handle. What it is is a stock that got to a former high, backed away, and is reproaching it. You can draw the lines this way. Converging trend lines set up for a presumptivive breakout. Any way, the premise is a laggard that has an opportunity as a catchup trade, and dicks as opposed to kohls, a strong stock setting up for a breakout to new highs. Lets trade these names. Mike, youre up first and you want to give us a way to play kohls. First things first, the Options Market is implying a pretty big move here, significantly higher than the 6 or so the company averaged over the last eight reported quarters. Lets take a look at fundamentals here. Companies trading less than 12 times the earnings estimate, which puts it at a slight premium to Retail Stores like nordstroms and macys. But a significant discount to stores like tjx. We talked a lot about retail last week. Tjx, walmart, all holdings of ours, as is lowes. Kohls is partnering with sephora. Ulta is trading 17 times earnings. If they continue to manage earnings well, the Company Might be reasonably cheap. On the downside, over the last couple months they have added some debt, and this is an environment where debt is not cheap, and its not cheap for kohls. Tough situation when you have a flat top line and youre borrowing money at 11 . That said, theres a bit of an opportunity based on the valuation things i mentioned, and if management does manage to execute, walk use a call spread risk reversal to take advantage of these elevated premiums were seeing. Im looking out to the september 22 weeklies. Why . Because the regular regular expiration that has a 2. 50 strike. So thats very nearly 10 of the current stock price. The weekly options on the other hand have much tighter strikes so you can choose your strategy with greater precision. The idea here is i want to get that 10 upside basically, you know, participation and minimize if we get that 10 move to the downside. For that trade you can put on close to everyone with the prices i was looking at. Your mileage is going to differ monday depending where the stock goes. Thats the objective when we set the strategies up. Get that 10 to 12 downside, avoid the 12 downside move if that happens. Brian, whats your take on mikes trade . Interesting because theres similarities between kohls and dicks. I like the risk reversal trade. Theyre applying fairly significant move here after earnings, and we havent seen quite the move that options traders are predicting will happen. So to me its an opportunity to sell what i call wings. You sell the very low downside strike or high upside strike, and thats what hes doing when you buy a call spread and finance that by selling a downside put. We option trader like to call that selling wings. I like the structure of the trade, the play on it. The technicals line up well, and the valuation, its been unfairly beaten for kohls. I think theres upside for this stock. Brian, you teased it, but youre taking on our second name with digs sporting goods. How are you trading this one . Similar circumstances. Both apparel. Obviously dicks more in the sportings goods area. With fall sports coming up, although it seems like sports run year round, if you include travel programs, we know expen sif that gets and how much equipment is purchase. But dicks has been trading near alltime highs. If im going to play consumer discretionary, we see Interest Rates at 10. 25 , so nervousness about how the consumer can hold up. If you look atit, the biggest names and u. S. Centric type names held up pretty well this year, and that fits digs pretty well. I want to go bullish and use a trade similar to what mike laid out. Call spread, finance that by selling a put. If you look here, i basically only outlay a quarter, right . I dont really get hit into owning the stock or put to the stock down until the 135 level, and this is looking out to october expiration. I get to participate above 145 to 155 here. So 10 to the upside. I would lose a quarter in stocks sit still, but willing to risk that. Multiples basically 11 times, 12 times forward p. E. Here. I think its still got some room to run to the upside if the rest of the stock market can hang in on this bumpy road weve seen the last couple weeks. Mike, its your turn to give us a take on brians trade for dicks. He talked about the structure. He said hed lose a quarter on a standstill basis. Its interesting because after the event come out, we typically see some people will call it a basically the options premium are going to drop after the event has come and gone, and when that does, actually, youre not likely to see a loss on a standstill basis because those wing options are going to get hit as hard or harder than the option that you own because youre net short options here. So your short vol is one way an options trader might say that. Interesting thing about dicks looking at the fundamentals is they havent seen top line pressure like other stores, including the one i was talking about. Its had pretty good year on year growth. Thats part of what brian was speaking to. The nature of theirbusiness, in some ways seems like consumer discretionary, but what people are buying, Sports Equipment and stuff its not discretionary. People look at these things as necessities, and they have a higher margin which is an attractive element as well. Mike, you bring up a point that digs executive chairman tells me all the time, this is not discretionary. Your kids grow. You cant force them to squeeze their foot into a cleat from last year. Carter, whats your final point . We know placing a bet before an earnings event is something that is both perspectively very profitable as well as very dangerous. We tried to outline the opportunities here. Again, for me, dicks is a strong stock that to my eye looks set up to get stronger and kohls is a weak stock that has the early suggestion of a bottoming out. The divergence is pretty stark. Thank you very much, gentleman. For everything options action, check out our website and the newsletter. Theres more options action after this. upbeat music awww. Awww. Awww. Nope. Constant Contact delivers the Marketing Tools your Small Business needs to keep up, excel, and grow. Constant contact. Helping the small stand tall. Today, 9 million kids in america are considered food insecure, meaning there may not be a lot of dinner at the dinner table. Help change a kids life. Support your local food bank. The more you know. Welcome back to options action. Well, everyones worried about the magnificent seven. Theres still money to be made, and the ordinary others like death and taxes. Mike, youre still seeing uncertainty in intuit. This week, what are you seeing . Intuit, this is another holding of ours. Interesting situation here in intuit. I suppose youve got two stories really going on. If youre just taking a look at the stocks performance year the date youd say its been pretty positive, up more than 20 year to date, 35 off the interyear lows, so good performance there. But its still probably 30 off of its alltime highs. Interesting thing here, this is a company thats trading 34 times earnings. Whether that is expensive or cheap depends a lot on how they manage to deliver over the course of the coming call it 12 to 18 months. Why is that . Because this is a company that has essentially doubled their eps over the course of the last two years. If you can keep up that growth rate, then it definitely justifies a turn of 34 times. The thing is, most of the street is expect them to hit margins of 28 , and those are companies that have not managed to achieve any other the course of the last ten years. Good growth top line, better eps. The street is looking for big numbers. What is interesting to me, the Options Market is not implying a big move off earnings given the volatility, given the fact thats a higher multiple name, i think that sets up an opportunity for us. Its implying a 4 , 4. 5 move. Out to october, quick thing to think of its a dollar expensive stock. I was looking at the 500 550 call spread. Seems like a lot, but relate that to the share price and realize thats about 3 of the current stock price. Thats the idea. The Options Market implying 4 . Im risking less than that to make a bullish bet to catch momentum and that they deliver on the streets expectations, and margins a lot of people are expecting. Carter when we look at the year to date chart youre the chart master, what do you see . [ no audio ] oh, i dont think we have carters im here. Sorry. I hit my mute button. So here we go. Three identical charts. First chart, no lines, no judgments. Lets put some in. Well defined up and to the right over the past year, and were only in the middle of the channel. Another way to draw them is converging trend lines. Weve just broken out of the apex of that formation. I like it going into earnings. Brian, salesforce is also having a nice run year to date and youre looking to keep your ahead into this cloud, so how are you going to do this one . You think of it as a tech name, maybe similar kind of like intuit. But actually it sits in the top 50 weightings in large cap value, and it has sort of a value play to the tech side of things, and that kind of play has actually work out really well, especially in the mega cap type value names. I want to continue to play this to the upside. Its had a significant pullback. We got news the ceo was selling 3 million shares of stocks. Thats a little concerning hes doing that he had of earnings coming up. Im nervous, but we added to the stock. Its pulled back where its at a level im willing to add. One way is maybe use a call spread on this pullback in the stock in order to get a little additional exposure to the upside. Im trying not to risk a lot. Im looking out, its a weekly option in september. So just after labor day. This would play through the earnings. Buy 200, selling a 220. Similar to mikes play, basically 10 wide call spread here. But im only outlaying 8. 25. The call spread is already in the money. I only need to get to the 208. 40 level or so to break everyone. Then upside to 220, which is significant. Im willing to get called away. And basically just trying to risk a little, add a little to my position, because i think valuations backed off. Stock backed off and might be time to add. Mike, whats your take here . Valuation here again interesting thing. The streets looking for as much asinine bucks. If you look at the year ending it would have this thing trading 2 times earnings tricky thing with salesforce, and theres a couple Companies Like this, upside end up being diluted by Employee Stock compensation, thats been the case in salesforce. If you start getting basically bottom line delivered to shareholders and not just to those on the inside it would represent interesting value. But i, too, many others might be sharing going into the print is worrisome, and that would be the reason to use an options trade like the one brian laid out. Hmm. Carter, what do you see in the charts . I like it. Lets do it again. Three identical carts. Weekly bar charts. First, there are no lines, no conclusions, and my hunch is youre going to see a resolution to the upside. Lets put some in. The first set of lines, we have been in a well defined ascending channel, and this selloff leave us to the penny at the lower bend. Also leaves us, third and final chart, to the penny at the 150day moving average. This is weakness to take advantage of, a selloff that is an opportunity. Okay, well, up next, still chasing deere, shares dropping after earnings this morning. How should you manage your position . Trade da nupteext. Options action is back in two. You ok, man . The internet is telling me a million different ways i should be trading. Look whats up my trade dogs . You should be listening to me. You want to be rich like me . You want to trust me on this one. [inaudible] wow yeah its time to take control of your investing education. Cut through the noise with bestinclass Education Resources that match your preferred style of learning. Learn your way. Not theirs. Td ameritrade. Where smart investors get smarter℠. Welcome back to options action. Time for a trade update. Last week mike laid out a way to play deere before earnings. Shares dropping more than 5 today. Mike, how are you handling it . Yeah, so we own the stock, j unlike the trade we highlighted, which is unfortunate. Options trade, which essentially lost all of its value lost less than the stock did. So for those in the options trade, i dont think theres a lot do here. Its worth about 60 cents. The stock has fallen quite sharply. There was some measure of support i thought around the late june early july levels, those lows, but it looks like we might be violating that. My thinking on the long equity position we hold, which is a longterm winner, ill admit we are considering paring that at this point. Carter, thoughts . Weve seen the down move today, but longer term, what does it look like . Big drop was supposed to be thrust and breakout. Which is to say, your premise, whether its fundamental or technical, event to have a conclusion, and its the exact opposite, walk away. First loss, best loss. Of the 500 stocks in the s p this was 499 today. Not good. Thats rough if youre holding it long. Brian, what are you thinking about deer for the trade . Weird spot. Not quite at the point we consider it value. We dont own it. And not considered growth. You miss numbers, see how the stock gets hit, i agree with carter. Walk away, see if this falls further before we pick up decent value. Fair enough. Coming up next, your questions and the final call. Good luck. Td ameritrade, this is anna. Hi anna, this position is all over the place, help hey professor, subscriptions are down but thats only an estimated 15 of their valuation. Do you think the market is overreacting . Howd you know that . The Company Profile tool, in thinkorswim®. Yes, i love you please ignore that. Td ameritrade. Awardwinning Customer Service that has your back. Welcome back to options action. Its time to take some questions. Our first an asks, nvidia is at a sharp move. How best to play with options premiums . Theyre really our top three nasdaq techie names. I still like the name even though its been whippy. Been near highs. One thats worked well for semiconductors heading into earnings is buying a slightly downside put spread. I buy on the money put, finance that, sell 10 on the money put against it. I get premium and wont be called away if earnings are terrific. Wild move here today for nvidia. Our next fan has a question about the tlt trade saying, quote, are you guys still in the 100 december 15th call . So, i have actually have jan calls myself. I know we talk about the december expiration. One thing hi done when it took a small bump up to 97 and change i sold short dated the ones that expired today, 97. 5 calls to offset the relatively minimal decay. I will say im probably going to roll that call strike down and get into another calendar spread. Okay our last fan has a question for carter. Whats up pfizer, carter . Its nothing but down. Pfizer traditionally was the big heavy of eli littlery, merck, j j. Now its the dog. Yield almost 5 . My hunch is to be contrarian. It is hated and to own it. But so far, that is not working. Its nothing but down and to the right. The stock right now is the same price it was in 1998. Wow, thats pretty surprising. Now time for the final call. Carter, you get to start. Selloff. 5 is nothing. Presumptively more to the downside. Selloff. Brian, youre up. Might be more selling in the general marketing but dicks is the place to be. Selling downside put is smart. Mike, close us out. Call side risk welcome to a very special edition of taking stock. Trying to hold the results by dropping on a summer friday. Hi, i am josh brown, i am so fired up for tonights show. Did they do that to upstage us . Friday night, the stock . This is a stock that had given up quite a bit