All right now weve got some tunes lets start with the big story of the day amazon, you might have heard this, buying whole foods for nearly 14 billion that news sending both stocks higher in the session. Whole foods surging. A lot of Short Interest on that stock as well. 42 bucks a share was that bid. Some maybe suggesting we could see a bidding war. Options activity exploded and whole foods today off the chart. The stocks saw more than 70 times its daily average volume options super hot as well. Pretty much all centered right around that 42 mark but the nature of the volume might suggest traders are betting against the notion of a bidding war. Obviously very complicated so lets break it down. Mike, you know, based next door to whole foods you live in austin i do. Whats the options take well, first of all lets talk about something fundamentally first. Its interesting to me, whole foods was a company that was everybody was wondering whether they were going to get their mojo back and as soon as amazon comes back theyre saying they underbid this was a company that was looking at mar john compression, a lot of competition from conventional grocers what was going on, its conventional to see this in takeover situations. What happens is they come and try to squeeze the last bit out of the stock they get into buy rights the reason is theyre backstopped. Stock is not going to go a whole lot lower because theres an outstanding bid and if another bid comes along theyre better protected than they are otherwise. They dont need to look for high returns because they view these as very low risk trades. Not everybodys a pro out there. When you say the risk arb youre talking about the risk profiting from the spreads and deals in laymans terms what are they doing with the price and the options. Well, usually what youll see is the stock will be trading below the takeout price. Thats not the case here you buy the stock, you hope to get that last dollar out you sell calls at or around the price where you think the deal is going to close. And stocks usually trade a little below because theres a slight chance that something doesnt go through so a 42 deal will trade at 41. 70 or whatever. When you see a trade over theres basically the market is telling you its a low chance that its going to break usually a 42 deal would trade well below the 30 cents deal theres some investors who think theres a greater potential for a deal its my view that the only buyer will be amazon so if it ends up being higher, that sort of thing. The stock has been down a whole heck of a lot unless you bought it recently you dont have profits. All of a sudden you have this stock trading at 42 in the opening and you see those calls still well bid amazon would still be accretive. Thats how much this company gained on this news. And who is happy about this this was a 65 stock back in 13, 14 who wouldnt want to be bailed out because is this going back to 65 . No chance. But at 42. 68 where whole food Social Security on a 42 bid, they did have a note, both notes out today saying they thought that another deal could come in. But if you go out there and you buy whole foods today or tonight, youre guessing i mean, thats really what youre doing youre guessing youre playing odds flipping your coin on another bidder but eyoure stopped at 42. You could have a bidder come in just to make amazon pay more. I dont think amazon is going to walk away from it. Its so far afield for them that i think they laid out their strategy here and theyre going to buy this company. If someone comes in to try to make them pay 46 or 47, theyre going to pay higher than that or whatever it is and theyre going to get this deal done. As we were saying before, for them to increase the bid even a nominal amount for them could be material in keeping anybody else away im not sure somebody else will come in, but i dont think this deal breaks. I think theres almost no chance of that. So and look, the risk play is a professionals deep end of the pool kind of a trade and i would invest with those guys if thats the kind of thing you want to speculate rather than just picking this one deal where its already trading over the offer price to do it yourself but thats what youre seeing. Deal or no deal other grocers concerned they could see lower margins. Sprouts Farmers Marketing sinking about 6 super value also a big distributor down 13 kroger, another 10 , kroger down 30 in a week. Heres the question. If youre a bargain hunter or a risk taker, any of those names worth their money . I think kroger could be and first things first, this whole foods amazon deal is not going to happen until really the second half and its going to take a while for this to be implemented and really take its toll on grocers. Kroger was down 18 on thursday. They guided down about 10 from an eps standpoint. The stock was down 18 and down 11 and a half. So youve got a 30 decline in just a few days here this thing trades 11 tiems heres a company with 120 billion in sales. Thats almost as much as amazon had last year. Theyre buying whole foods that had about 15 billion in sales look at that chart right there i think this got a little overdone in the near term. If you start seeing other retailers poking around a bit actually whole foods does not have top line and they have margin compression and there are other things that grocers could do to expand their margin. Blue apron a small startup thats a higher margin way to sell groceries you wonder if theres a trade though, guys give me a specific way to make money. So i would look out to the fall and i would let this thing kind of settle in a little bit here trading a 56 week low. Next week, september expiration will be listed the next identifiable catalyst will be there fiscal q 2 earnings going to come some of the commentary yesterday from the ceo on cnbc is that the quarter was Getting Better toward the end of the quarter so they just kitchen sink the year. I think you have the opportunity to bounce back to that breakdown level. So when the stock was trading at 21. 70 you could buy the october call spread paying 1. 50 for that 22 calls for a buck 70 selling the october 29 calls it costs you 1. 50. You could make up to 5. 50 between 23 and a half up to 29 i like the risk reward of this trade. Im making more than three times if i get et all the way back i think this trade makes a lot of sense youre giving yourself a lot of time for it to play out. If it isnt, you know, youre basically stopped out with a potential risk youre taking i think youre going to need all that time. I mean, by my work, you can fill the first gap, the 24. 50 to get to 29 i would say the chances to that is as close to zero as youll find. To another Prominent Group of stocks that has gotten taken to the wood shed and that is tech a number of the high flyers have gotten hit the hardest get this, facebook down 3 alphabet and video down 5 apple and netflix both down around 8 but then theres tesla floating above the fray, up around 1 since thursdays close. However, chart master carter worth, you say tesla could be the next stock to join the tech wreck. Walk us through it lets look at some charts this is dangerous stuff too. The opposite of buying something thats broken like that supermarket is selling something thats strong. So you take your chances, but lets talk about it. What we have here is a fiveyear chart and i think optically its quite clear that the following is what happened right . We have a nice breakout above that, but i want to zero in on the here and now and try to put this current move in context so weve had our breakout and its quite remarkable how precise. It gets the top, it gets to the top, it gets to the top, backs away and then rips through the high okay so breakouts can continue and that will be the risk with shorting this but i think possibly weve got the chance for a little bit of a giveback so heres the current move weve got from essentially 200 to 380 and you can draw the lines any way you want but i think that a good way to draw them would be something along these lines and what we do know is that all uptrends have checkbacks and that you have a possibilities or some sort of odds that were getting due for that kind of thing and so thats what im playing for is some giveback in the context of stock thats obviously broken out and then just for fun, lets just stare at this. These are the top five performing stocks in the s p you can see thechlt and you can see the numbers. Tesla is not in the s p. If it were in the s p. Well, it doesnt matter. Tesla is up here yes . Number one performing stock bar none i think at this point you take profits or if youve got a little courage you go short. Mike, how are you treating tesla . I dont need to talk about the fundamentals i think what were going to do here is just sell the july 3. 75, 3. 95 call spread if the stock stays here youre going to collect the 8 in premium that you would get for selling that and obviously even if it does continue to rally, we can debate about whether or not theres a risk to that but this is a technical trade the most youre going to risk is 12 but only if it does that all the way through expiration and you were to hold it so i think this is basically the way to take a short bid on the stock. And mike is using july so hes playing for a consolidation or kind of a slight move lower if he really thought this thing could go all the way back to that breakout level, then youd be actually looking to commit some premium and buy a put or a put spread or Something Like that and youd really want to look to august we really need to hear an update on the model 3 thats whats driving this thing right now. But that would cost you the premiums are quite high. So what i would do, listen, people, well do it maybe next week but i would look at a longer day to put in august and sell a shorter dated one and keep financing puts on this thing. If carter thinks this is going to go down 15 or Something Like that mikes trade is a high probability youll make a little bit of money 8 is how much you can make and 12 is as much as youre risking on a stock thats 400. But if you did play the calen r calendar, the risk reward is going to be similar to this. Right . Because youre still going to be short dated premium and if it makes a big move thats not a win. But it gives you optionalty you can always cover that short put. Mike is playing the odds here and i think you have to look at the fundamental view, look at the technical view, how much do you believe in carters charts and if you do then youre going to dont you love how theyre kind of talking about you . Youre sitting right here. Lets start with what you started with the fact that it didnt succumb at all when Everything Else succumbed suggests theres a buying base that is not worried about everything so thats the risk and thats what will make the trade work or actually this is a growth stock that has nothing to do with ig else and is taking over the world. I hate to call it a cult stock but its people are fanatical about it changing automotive, changing technology all right. Speaking of change, we have much more options action still ahead. Heres whats coming up. Thats whats been happening to tech stocks lately, but theres one name the chart master says you should buy on the dip. Well break it down. Plus, calling all action parents. Reach into your pockets and tweet us your question at options action if its nice well answer it on air. More options action after the break. Hey gary, what are you doing . 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. Yogigspeed internet. Me . You know whats not awesome . When only certain people can get it. Lets fix that. Lets give this guy gig really . And these kids. And these guys. Him. Ah. Oh hello that lady. These houses yes, yes and yes. And dont forget about them. Uh huh. Sure. Still yes you can get it too. Welcome to the party. Introducing gigspeed internet from xfinity. Finally, gig for your neighborhood too. Steve, other than making me move stuff, im here at the Td Ameritrade trader offices. 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. Welcome back tech stocks have been hitting hard over the last couple of weeks. Really the main market theme but there could be more in store for one name when it reports its earnings next week and that is oracle the stock had moved more than 4 in either direction when those numbers come out wednesday after the bell carter, you have a clue as to which way the move is more likely to go what is it i think i have a clue, but who knows . Maybe its the wrong clue. Okay two lines, two colors. Two securities and what weve got of course is here oracle versus the tech sector over the last two years and the numbers speak for themselves either this having lagged as an opportunity for catchup or because oracle has a problem lets keep going all right. This a little bit longer term. Now a fiveyear chart. Youve got this outperformance of sector versus one of the big stocks in the sector lets go back to 09 of june proposition here again, right . So the question is, is oracle set up to break out absolute and or to play out performance to the sector . All right. Alltime chart you can see the lines. You can see where we are its not random that were right back to the dot com ir era. I thought id draw some lines here march of 2000. Earnings now 2. 19 that gives you a pe of 116 then, a pe of 20 now so if that matters to you i would say thats a better price than that price. Another way to draw the lines is like this. Were right at the top i think this is a good setup im going to play for the presumption of a breakout, two highs. Lets look at the daily chart, you could draw it this way, head and shoulders bottom and play again that were going to break out. Lets do it another way. You could call it a cup and handle like this and play for the presumption that youre going to break out lets go to the here and now you can look at it that way. Again, you can draw your lines any way you want but theres a lot of tension here and were back to the 2000 high, so this is the key do you see this gap here that was the last earnings that gap, that was a big beat and i think youll get another one right here and the stock will gap up on its earnings. I want to play for that, an old line tech that can come to life. First before you talk about you ear trading it its weird used to talk about oracle all the time the stock is up 16 in 12 months and we barely talk about it anymore which maybe is a good thing from a spread perspective. How are you trading oracle whenever you see a catalyst like earnings options prices will tend to be elevated if you think options premiums might be too high to reach out and buy them, you can look to spread it in a way where youre selling more options than youre buying this is a trade dan has used many times im looking at the august 41, 45, 48 call spread youd pay 1. 45 for those straight calls and sell one of the 48 calls and one of the 41 puts against it. Those options are going to decline in value fairly significantly right after earnings come out. Im also looking at the 41 level because it seems to me that seems to be a good level of support in case we get this one wrong. I like the trade idea i like playing for the breakout. I think it makes sense last quarter the stock had a huge gap they had a really strong fourth quarter. I think this is a company thats also known to kind of like have really strong fourth quarters and have it drop off on q 1. The only question i have is i think were in a period and i think last friday the action in txdot showed us. To me id rather commit the capital on the call spread to make a bet on that because if they were to actually miss this q 1 or guide down thats a fair point but this has not been tracking. And its trading a lot cheaper than most of those other tech stocks probably a little bit less but heres whats become very clear in 2016 and 2017 investors are looking to grow their top line at 20 a year versus oracle that only grows their top line by making multibillion dollar acquisitions they think theyre in this dead heat with crm about cloud sales. They both got to about 10 billion around the same time i mean, thats their main a quit point, effective rollup cans be effective investments. Were switching from Technology Well talk about food. Mcdonalds making a run at its alltime highs plus, get out your cell phones and were taking some of your tweets much more options action still ahead. Hey gary, whatd you got here . This bad boy is a mobile trading desk so that i can take my Trading Platform wherever i go. You know that thinkorswim seamlessly syncs across all your devices, right . Oh, so my custom studies will go with me . Anywhere you want to go the markets hot sync your platform on any device with thinkorswim. Only at Td Ameritrade the opioid my doctor prescribed for my chronic back pain backed me upbig time. Before movantik, i tried to treat it myself. Spent time, money. No go. But i didnt back down. I talked to my doctor. She said one, movantik was specifically designed for opioidinduced constipationoic and can help you go more often. Number two . With my savings card, i can get movantik for about the same price as the other things i tried. Dont take movantik if you have a bowel blockage or a history of them. Movantik may cause serious side effects including symptoms of opioid withdrawal, severe stomach pain and or diarrhea, and tears in the stomach or intestine. Tell your doctor about any side effects and about medicines you take. Movantik may interact with them causing side effects. Dont back down from oic. Talk to your doctor about movantik. Remember movantik. If you cant afford your medication, astrazeneca may be able to help. 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. All right. Welcome back to option