We start tonight with a move in the financials because while tech stocks took it on the chin today, the banks actually surged the xlf rallying 2 , posting its best week since early december, this as bank of america, wells fargo, jpmorgan and citigroup were all up 2 or more the rally on the heels of a dodd frank rollback ahead of the key fed meeting next week. So, is the bank trade on track or should you fade this move dan . Listen, you mentioned the two events, theyre pretty well known. Its important to mention this week we know that the fed is going to raise 25 basis points next week. What happens to the 2. 10 spread . It really didnt move this week. Also last week, what did we get from a lot of these banks . We got commentary from management that q2 is not shaping up particularly great. You know, yeah, they need a little volatility. They dont need the sort of volatility that we saw in todays action in the nasdaq personally i dont think they do so when i look out to the 3. 5 that the xlf, the etf attracts, the bank stocks here, i think it sets up as a really Good Opportunity to once again take some profits or short and shoot against that 23 support level thats really been in place since middecember. I think what was very interesting today is, and we were talking about this before we even came on, is the fact that of course the market has not been very volatile, but i think its been fragile and evidence of that merge we saw that in amazon and the tech sector generally and thats something people need to be aware of you shouldnt be complacent because theres simply been very little volatility or because something continues to go up, this is not a reason to get long the sectors that happen to outperform on a pretty dismal day for tech. Right, and you dont always have to have the packed cliche of rotation. Just because it comes out of tech sometimes theres net selling in general in the equity market so we know that rates didnt move, just as dan said, especially at the long end, and the banks are just coming off sixmonth lows so what, they bounced. It doesnt really mean a thing and i think you do fade. I have two quick charts, can we run them . Sure. I have a twoyear chart its interesting to look at that 23 level. It held it like a boss as they like to say at the charts. Never said that. Okay. Under any circumstance, but go ahead. That is a level and look at this one back to 2010 to me, i think this is a target to the down side its the intersection from that up trend that had been in place from the european sovereign debt crisis low, and then the breakout level in november so so, whats your trade get to the trade. Its simple here. Because option premiums are relatively low right now, price of options, you really dont want to do spreads you want to look out and place your bets and define your risk i want to look out to september, catch q2 earnings and q3 guidance it will be a pretty volatile political environment over the course of the next few months, so when the stock was trading today at 24. 25, you could buy the september 24 puts paying 75 cents for those. Thats about 3 of the stock price, breaks even down at 23. 25, right above that big support level. And to me, if we were to get a bit of a giveback of some of this weeks gains, then i would look to spread by selling possibly the september 21 puts again. What do you think of the trade . Well, i mean, its fairly clear, given the fact that options premiums have been depressed for quite some time now that i think being long premium, especially in the inth crease and in the sector groups like the xlf and the xle, is the best way to play these things, certainly. And today i think just was all the evidence you need that thats the case. What would you really say about that chart that dan had . Right, lets go to the first one, because first of all, there are a couple of things first, they didnt hold their gain secondly, dan just did a trade short goldman, very efficacious, and is now after this bounce in financials, making the bet that the bounce will end. But if you look at that first chart and there it is that has all the makesings of headandshoulders top its very well formed and nothing has changed with this little bit. Holding like a chap. Like a boss. Like a boss. Efficacious is more his speed. All right, lets move on because everyones been focused on the move in the nasdaq. Quietly, small caps are surging. The russell 2000 up more than 3 in june, outperforming every other major index so far this month. Its also managed to eke out a gain today, setting a record intraday high. Chartmaster says this could be the ultimate trade what do you see, carter . Theres no excess here. It might just be that this rotation has some legs to it, so i have some charts lets look at them together. The first setup is we know that over time and this is the point of this first chart small caps outperform large caps its because new, innovative things outperform big, clunky things like ibm and proctor and gamble now, those numbers are the numbers and you can see quite clearly what kind of dispersion were talking about. Now, lets keep going. I want to point out the setup maybe that makes this all possible this is a twopanel chart. The top is the russell 2000 at the end of 2015. And the bottom is relative performance to the s p so, whats important here is while this is nowhere near its low absolute, the actual relative performance was at the financial crisis low i mean, so bad was the performance of small cap to large that we were back to where we were in 09 and then what happened, of course, is this. Fastforward a massive catchup and then a little bit of a giveback so, the issue is, can we ultimately get back to relative highs to the s p, even as weve made new absolute items . I think thats presumptively in the cards. So, lets take a look. Here is the tight range of the russell 2000, and its about six months in the making its only happened one other time in the history of the index, this tight, a 7 range. And the last time it was resolved by a huge explosion to the up side. In any event, you could draw the lines that way, and you can make the bet that this standoff and weve just peaked above it today you could draw the line this way, which is in technical parlance and the tring langular wedge, but i think you have a better bet here than in the extended supercap names and i think you want to be long iwm. When you see this action in the small caps, carter, and you have this expectation for it to go higher, does that necessarily mean anything for the rest of the market or other sectors within the market . Now, to be fair, easy pushback to this is to say if the markets in trouble, generally, small caps typically underperform, because then you get into the big, heavy utilities and things like proctor and safe, steady names so, that is something that has to be sort of known, but i think for now, were not in any kind of crash shape for the market. Id rather be here than s p. All right so, you heard the man. Mike, whats your trade . You know, we were talking about this earlier, options premiums are low looking to september, you can buy the 1. 43 calls for 3, less than 3 where its currently trading. I want everybody to ask themselves a question, which is, do you think that the Small Cap Index could move 3 one way or the other between now and september . And i think the clear answer anybody would provide is it could easily move that much. Its very likely to move that much and this is effectively equivalent, if you owned this in your portfolio, to insuring it with a put, but you dont need to you could commit a relatively small amount of capital. And of course, if it does make that move, then youre going to have an opportunity to spread or take profits. Just a quick again, sort of theres always the other side one thing we know is that financials are a very large component of small cap, much larger than they are the s p so that argues against, we were just saying you play the financials, yet how do you get long theres always that circumstance in the market. There are various sides of an argument and so, you could say which is more important, the financial weighting, which is oversized, or the fact that the russell maybe catches up because the supercap its a little bit of both, but thats what judgments are about, making a bet. I cant disagree with the charts thats a constructive looking consolidation. I think the trade idea makes perfect sense. Options premiums are low, youre not risking a whole lot. If you get the breakout, youre going to be break even very soon my thought is similar to the bank stocks. Over the year, weve seen the trump trades come undone looking at the dollar, treasury yields, commodities, oil stocks, and then you look at banks since march 1st. To me, this fits right in there. If this legislative agenda really does get held up, then this group, which has been underperforming the s p this year, not from the november lows, is going to underperform so to me, its actually another leg of the trump trade ill just make one other point you guys had a great discussion on fast money about rotations out of these highly concentrated sediment names in technology, and then today the xlf closed on its high, the xle closed near its high that looked like a pretty good rotation with ugly action and then iwm closed pretty well. To me, i think you might have lost one leg of the stool today, of the bullish thesis, and i think you could see it play out in the summer. Thats kind of my view. You know, that may very well be the occasion, but everybodys not going to run out and sell all their stocks right now this is a way that you could maintain a long position, hedge, commit a very small amount of capital. I think its an easy play. Mike, i think its important to remember, people didnt run out and sell all their stocks today with the nasdaq down 2. 25 . No, they actually sold headed for the door at the same time, and you had some of the biggest stocks in the world down 4 , 5 . Its not and for anybody to be glib about that no, but that speaks to fragility. That goes to whether or not you could sell all your stocks even if you wanted to, and the fact is you cant what creates market fragility is a lack of bids, not basically an onrush of sellers. You need somebody supporting the market last comment. There was no person all of a sudden on apple and amazon these are computers, we know that it was so synchronized, but for whatever reason, the computers thats it. Send us a tweet t to optionsaction and check out optionsaction. Cnbc. Com while there, check out our super cool newsletter. Its going to be so hot this weekend, youll want to bring it to the beach in fact, yeah, youll need to have a beer or two with it thats coming up next. Apple shares are getting crushed, but if you own stock, we have a way to protect yourself for free. Plus, snap is a disaster [ screaming but weve got a way to make money if shares go up, down or nowhere at all well break it down when options action returns im here at the Td Ameritrade trader offices. Steve, other than making me move stuff, what are you working on . Let me show you. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place and lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim. See options data like never before. With thinkorswim only at Td Ameritrade. Tthats why at comcast,t to be connected 24 7. Were always working to make our services more reliable. With technology that can update itself. And advanced Fiber Network infrastructure. New, more Reliable Equipment for your home. And a new culture built around customer service. It all adds up to our most Reliable Network ever. One that keeps you connected to what matters most. Oh hey john, im connecting our brains so we can share our amazing trading knowledge. Thats a great idea, but why dont you just go to thinkorswims chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders . I know. Your brain told my brain before you told my face. Mmm, blueberry . Tap into the knowledge of other traders on thinkorswim. Only at Td Ameritrade. I was snap im not quoting the great bismarcky. Im talking about shares of snap inc. , which tanked this week, trading just above its ipo price. Julia boorstins in los angeles with more on this. Julia . Reporter hey, thats right, melissa, snap shares dropped another 4 today, bringing the stock down a total 22 over the last month now the latest blow, today citi lowered its estimate and cut its rating on the stock from buy to neutral, citing concerns about user and Revenue Growth as well as the pending lockup period expiration looming, which starts at the end of july this is the fourth critical analyst note just this week as investors become increasingly concerned about snaps ability to grow its daily active users in light of growing competition from facebook and instagram. Now, analyst anthony diclementee put a reduced rating and 14 price target on the stock and issued a note highlighting data from sensor tower, indicating declines in the number of worldwide downloads of snapchats app in the first two months of this quarter now, earlier this week, oppenheimer weighed in with concerns about new advertiser adoption of snapchat, saying its slower than expected but added that revenue should ramp up in the second half of this year all of this is in sharp contrast in contrast to this negative sentiment on snap, today Piper Jaffray issued a new note on facebook, saying that facebook could triple its revenue by the year 2022 with an overrate rating on the stock, Piper Jaffray also says instagram revenue could increase from 2 billion last year to 22 billion in just four years melissa . Boy, different views. Julia, thank you snap basically all over the place. Whats a good Options Strategy to use to make money mikes at the plaza with this call to action. Take it away. This is an interesting case this is definitely a buyer beware type of stock and you know, i was asked earlier what were ways to make a moderately bullish play, and if you thought it was going to manage to hold that ipo price. So, well look at selling a put spread, a trade you will do when youre moderately bullish. You obviously do this because youre selling premium, when options premiums are high. They absolutely are, and thats not surprising, given the more than 20 decline to this and finally, you want to do a put spread, rather than selling puts because youre looking to minimize risk and weve clearly seen theres plenty of risk here you can see that in the chart and the decline that obviously julia was describing the trade were going to look at, were just going to look out to july and were selling the 1817 put spread you can collect 50 cents for that now thats a dollarwidespread. This is basically a coin toss trade. If this stock holds here or declines slightly, you can collect that premium obviously, if it plummets, goes down to the 14 target we just heard about, you can only risk 50 cents to the down side. So this is one of those situations where, you know, if you have a lot of questions, youre looking to make a coin toss trade and you want to collect some premium, you can look at selling a put spread like this. Dan, what do you think of the trade . It makes perfect sense. We talked about it a little bit on fast money last night the low float and high cost to borrow before we get to this lockup is causing premiums to be elevated so mikes taking advantage of that. It wouldnt take much for the stock to be an easy winner and one point about the sentiment. Listen, its gone from bad to worse, from clearly a sentiment standpoint im not talking about the way the stocks trading reminds me a bit similar to facebook, you know, back in 2012 after its ipo and this thing could get ahead of that lockup, and you could see the thing in the midteens. And then you probably have a situation where youre going to want to be selling puts in front of whatever event there is coming down. Theres not a lot of price history, right and what we know is obviously we trade on the desk. I think after the gap on may 11th, try to catch but stepping back more broadly, i mean, is this a serious proposition, right this is a stock that came out of the gates, and the only one that be happy is the person who sold it to the public, got their shares, got their money out, or the person who bought the ipo and sold two days later because its at a 52week low and it looks like death. There is also significant Short Interest and one other point which we didnt discuss here, but you can use options to look at where the Options Markets truly believe the stock is going to be in the future we have seen this in many other cases and were seeing it here, that actually, the Options Market is not overwhelmingly optimistic about snap. The forward price is lower than it is right now. And thats the reason put premiums are so elevated. Up next, apple tanking 4 for its worst day in over a year, but fear not because dan has a way to limit your losses hell lay it all out. Plus, got a question send us a tweet t to optionsaction. If its nice, well answer it later in the show. More still ahead [pony neighing] what . Hey gary. Oh. Whats with the dogsized horse . Im crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. Isnt that right warren . Well, you could get support from thinkorswims inapp chat. 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