More local economies continue to reopen across the nation, and etf has risen more than 10 off march lows but there may only be a handful of names who have all the ingredients. The secret sauce, carter, have you been crafting something for us exactly how clever, crafting and clever and here we go before we look at acouple charts, this has been a disaster of a stock what we know, of course, is it peaked almost four years ago at basically 98 and bottomed this year at 20 youre talking about a 79 decline. Its not loved only two analysts considered a buy. And, yet, two people hold almost 50 of the stock warren buffet, of course, and 3g global but, anyway, a few charts. So here is the first chart and what we see is that it has all the characteristics of a bottoming out formation, a bearish to bullish reversal. You can see the 150day moving average starting to flatten and actually rise. The second chart is the same time frame but its just showing you another way, the trend line meaning kraft peaked back in february 17 at 98 bucks. The third chart, i wanted to zero in on the events two of years ago. What you see here is of course when the stock plunged, it had an sec investigation, took a 15 billion charge there in february of 2019 you can see the stock plunging 48 to 35 and its been basing ever since. And then the question is can we move into that gap to the upside so take a look at chart number 4. This is the same chart sort of up close and personal. And this is the opportunity. Again, the stock drops on 135 million shares, trade 6 million on average and now two years later is toying with the prospects of moving into that gap and so the final chart, the fifth chart shows you the importance of the current level. The stock continues to bump up against the 3350, 34 level and the breakout would be clear sailing all the way up to the mid to low 40s. I think its a tremendous opportunity. Nobody likes it. Just going to downgrade by a classic contraire kind of innovator. We think this is good. Tremendous opportunity, mike. Whats the trade here . Yeah. So this is an interesting situation, because, as carter pointed out, theres not a lot of places in the market where we dont see at least some signs of a rational exuberance. This thing is trading at less than 15 times earning. Its not a growth stock but it isnt pleased like one either. These are the types of buy and hold stocks that people used to look to in the past to try to collect some dividends its also the kind of stock where some fairly traditional Investment Strategies that we like to use and options mightve been appropriate with all the volatility weve been seeing lately, some of those Investment Strategies have been harder to identify. I noticed that the implied volatility has gone up quite a lot. And yet the stock isnt expensive. A putright is a situation where you sell a downside, put on a stock. You collect the premium. If the stock stays here. And the worst case is that the stock drops below the strike that you sold and you end up buying the stock but you end up buying it at a discount youll buy it at a strike less than the premium collecting. And the amount that youre collecting is also higher. I was looking at the august 32. 5 puts you can collect 1. 90 for those. Im looking to collect maybe 1 of the stock price here were collecting more than 6 the down side risk is that you would own it at 32. 5 or a 1 discount and youre still going to have that 1. 90 this is not a stock that youre looking to hit it out of the park and see 15, 20 gains in a short time because its not that kind of a growth story but it is an unusual situation where we cannot collect substantially more premium than we would have normally been able to if the markets werent as disruptive as they have been we dont often talk about putrights, tony. What do you make of this trade 1 is usually when we target on a putright. Getting 6 , thats very attractive and i think carter has found a phenomenal setup you have this multiyear bottoming formation thats just about to break out theres a lot of potential here. But thats my concern here is that its potential here because kraft hasnt seen any revenue since 2016 i would like to see this break out even a couple bucks above that 33 34. There is a lot of upside here up into the low 40s id like to be a little patient here, wait for that breakout and perhaps buy some calls here. That would be my preference. Carter, your response thats right. Theres two types of technique and waiting for a breakout is much safer sometimes you miss it because the breakout, like a spotify, is so big that its almost too late its up 12, 15 . We want to put the trade on here, and then in the i want of a breakout, get even bigger. Theyve cut the dividend, but theyve indicated that they are earning the dividend, paying 1. 60, earning about 2. 50 its a yield of 5 you think that also adds to the charm of this crafty and clever pick crafty. Youve got a pun of your own mike, do you have a pun for us no puns ill leave those to you and to carter but i think this is really the idea here that were splitting right down the middle what tony was talking about, what carter is talking about selling a put is the sort of way that you can bide your time. If it does start to break out, then we can look to do something more aggressive on the upside. Tonys taking a look at a way to play one of the biggest names in the consumer space. Tony weve been talking about retailers for a while. But i actually think walmart is a good standout here from the retail space, both on the short term and the long term when i looked at this chart earlier today, i actually didnt think the chart looked particularly strong. It recently broke below that 120 support level, which is a major level for me but when i started taking a look at the fundamentals, i actually think the current weakness we see is an attractive long opportunity here from a risk reward perspective. If we look at the walmart business, the ecommerce business is one where amazon dominates this entire space. Their ecommerce business is almost seven times larger than walmart. But walmart has recently struggled with their ecommerce business but has really come to life here in the last year here. Theyve grown 39 , only half of that for amazon, about 20 and if you look at the grocery business, this is really where walmart currently dominates and amazons trying to catchup. Walmart has been investing heavily in their Online Grocery and their Digital Strategy for pickup and this is really where walmarts physical stores outshine amazon because most americans live within ten miles of a Walmart Store so theyve seen almost a 200 growth in their growth and especially if you see today when apple announced that they were shutting down some stores, walmart saw some strength as a result of that so i really like this particular stock in the current weakness that were seeing. So the strategy that im looking to use here is the same strategy that mike used and im concerned that people are going to say that im copying mike here. But the strategy im looking to use is really a strategy i think is very underutilized by many equity investors, which is selling a cash secured put to acquire a stock that you like at a particular discount. So the strategy im looking here is to go out to july im looking at the july 31st, 118 puts i can collect about 2. 83. Now as mike said, we usually target about a 1 discount on these cash secured puts to purchase the stock but here im collecting almost 3 here. And my breakeven price here is about 11517 at about 4 to 5 below the current price of the stock price. Mike, i will go to you so you can comment on whether or not you think tonys copying you but i really think this has to do where the markets are and where volatility is right now. I think thats right. We have a situation where its another stable stock, and its another situation where options, premiums are elevated. Its another situation where the revenue situation for the company is relatively stable those are the kinds of setups we like for putrights and for anybody who thinks hes copying me, he definitely isnt. I was pretty busy. I didnt know what he was going to come up and he didnt know what i was going to come up. But i do happen to like the idea carter, how about you well, tony led with the comment, and hes right, of course, that the chart is poor and so while sometimes the fundamentals can trump a bad chart, and its not a horrific chart. What we do know is that walmarts beta is literally a. 5 versus staples at a. 7 and for it to be underperforming like this down 12 from its peak, it doesnt feel like its going lower. I dont think thats the worry but i dont think its going higher it just feels like a sort of a dull duck here tony, last word well, thats why i kind of like selling these puts to acquire the stock for the long term i agree with carter in the short run. I have concerns in the short run, but im looking for this to use walmart as a longterm investment here against amazon and target all right coming up next, with the feds big Bank Stress Test right around the corner, theres a dislocation in dividends around some of the stocks and for everything options action, check out our website while youre there, you can sign up for a newsletter. Stay tuned there are times when our need to connect really matters. To keep customers and employees in the know. To keep business moving. Comcast business is prepared for times like these. Powered by the nations largest gigspeed network. To help give you the speed, reliability, and security you need. Tools to manage your business from any device, anywhere. And a team of experts here for you 24 7. Weve always believed in the power of working together. Thats why, when every connection counts. You can count on us. Welcome back to options action. Feds stress tests are fast approaching and the banks suddenly find themselves in a precarious position. The bean group made about 7 less profit that it did in 2019. And options traders are saying that could spell bad news for dividends. Professor co is here this is an interesting situation. A lot of times in markets like this, people might look to stocks that pay big dividends as maybe safe havens. I think this is a dangerous exercise when you see dividends get very, very large, though, in percentage terms were certainly seeing that in some of the financials take a look at a name like wells fargo. This is a stock that has about a 7. 4 dividend yield that might seem appealing, but that usually tells you that there is a good chance that the dividends are at risk. If we take a look at what the Options Market is implying, we are seeing that as well. Were seeing that, in many cases for the banks in particular, the high dividends that theyre paying might actually be a little bit higher than what we are going to end up getting if there are some form of dividend cuts, and in some cases thats what theyre implying. We have the stress test coming up when you hear us talking about the implied dividend, we talk about that quite a lot but you might be wondering how we come up with that well, the way we do that is we compare the price of a stock to its synthetic equivalent in the Options Market what is that well, what we can do is we can actually replicate the performance of stock by buying a call and selling the same strike put, same expiration put so heres an example if i went out and bought the january 100 call, for example, and sold the january 100 put on a stock, and i took the net debit or credit of that transaction and added it to the strike, thats the price of my synthetic stock and i can compare it to the actual stock the principal difference between the synthetic stock that i created with the options and real thing is that options dont pay dividends, the stock does. So generally what youre going to end up seeing is that as the implied dividend is falling, youre going to see that the price of stock relative to its synthetic equivalent will drop if you start to see dividends go up or implied dividends rise, the price of stock is going to rise compared to a synthetic equivalent so when we take a look at this for a number of stocks including stocks like jp morgan, we can see that there is maybe a 30 chance or so that at some point within the next year were going to see a dividend cut. Does that mean its going to happen no do but it does mean that some of these dividends will be at risk. If youre looking at this space thinking now is the time to get long, i would urge a lot of caution. And the thing is if you own a basket of stocks like the s p 500, you also own some financials and maybe youre a little bit concerned about the feds stress test maybe youre a little bit concerned about those troublesome looking dividends. You can hedge out that risk or make a bearish bet the 24 20 put spread you would spend about 1. 15 to buy that put spread. Actually xlf was below that 24 strike so its slightly in the money. And thats one of the reasons that were willing to pay a little bit more for that than we normally would normally were willing to spend about 25 between the strikes. When you see exceptionally high dividends, they might be tempting dont be fooled into chasing those stocks though. Because usually unusually high risks. There is going to be an additional Sensitivity Analysis layered into the stress test to test for various scenarios in the economy because of the coronavirus pandemic lvw, thats all going to be tested here. So theres another layer of uncertainty in this whole mix. At the end of the day, we have these great adages that are popular because often theyre right. Where theres smoke, theres firer, dont fight the fed one of them is if its cheap, it belongs where it is. There is something wrong and i think this is where the hopes are that somehow you know, the Financial Sector really never got above its 07 high the bkx index never got above its 07 high its below its 09 relative low. The xlf does have insurers in it, berkshire is the biggest holding. But even earlier we were talking about price to book. Thats what a value trap is. Tony, your thoughts on mikes strategy as far as a hedge i think its skewed with the stress test i think mike makes a lot of sense as a way to hedge yourself the only thing i would potentially modify is that i might not sell the 20 strike, which is pretty far away thats only 16 move to the down side im going to look to move that up to maybe a 21 strike. Trade a slightly narrow vertical and one comment on the implied dividends. While i think implied dividends is a way to predict what might happen in the future, one of the things is that the information thats embedded in that option, in my concern is that its also embedded in the stock price. So i want to make sure investors dont use as a reason to go out and short wells fargo. When the dividend cut actually takes place, the stock doesnt actually drop very much. Those are good points, mike yeah. I think thats definitely true and i was alluding to that when i was talking about high dividend yields. By themselves they suggest that a lot of bad news has been priced in already. We are making a return trip to two of our open trades, lyft revving higher while ford stalls well tell you how they are playing right now. Its a thirteenhour flight, thats not a weekend trip. Fifteen 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. You get the freedom of what a 7day return policy. This isnt some dealership test drive around the block. Its better. This is seven days to put your carvana car to the test and see if it fits your life. Load it up with a weeks worth of groceries. Take the kiddos out for ice cream. Check that it has enough wiggle room in your garage. You get the time to make sure you love it. And on the 6th day, well reach out and make sure everythings amazing. If so. Excellent. If not, swap it out for another or return it for a refund. Its that simple. Because at carvana, your car happiness is what makes us happy. This crisis is going to be over know exactly when and we dont know exactly when the stock market will reach its bottom, weve got to be prepared for this to last a long time. If you assume that youre out of work for nine months but you end up only being out of work for three, well thats great. But if you think youre going to be furloughed for three months and it lasts for nine, well thatll be emotionally devastating. So, weve got to prepare ourselves. Tangibly and practically, as well as psychologically and emotionally. 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. Welcome back to options action. Time to take a look back at some of our open trades a lot of car talk on the show recently lets begin with lyft. Last week tony told traders to prepare for lyftoff i think the chart here for lyft is fairly constructive. You have a breakout above 35 resistance its come back to retest that as support. And i think this is really coupled with a relative strength constructive for the stock to continue moving higher im going out to the july 10th weekly options expiration. And im selling the 36. 5 31. 5 put vertical im collecting about 3. 26 for that 36. 5 put. Well, low and behold, lyft rallying in the last week before falling into the red here. Tony, what do you plan to do with this trade now . Yeah. So the trade was working beautifully until apple announced today that they were going to shut down some stores, and the stock fell almost 6 it is still trading just at that 35 level that i was referring to last week and the trade itself is actually still flat so my indication at this point is to hold it till next week, see if we break below 35 if we do i would cut my losses and get out. But i am still looking for a potential bounce off from ridesharing to auto stocks, mike put on a trade to help mitigate some losses. I think this is maybe one of the most pictureperfect cases ive seen. If you bought the stock earlier this week, perhaps on monday, which was its high for the past month, obviously youve taken some significant punishment since that time. So what can you do in the Options Market first of all, you want to look at stock recovery strategies one of the things you can use is a one by two call spread you could buy one july 7 call. That would cost about 39 cents and then you could sell of the two eightstrike calls for about 18 cents each. Well, ford reversed some of those losses but it was down today. So, mike, what do you do with this trade