That sounds like the Perfect Question for professor khouw welcome youre not alone as individual investor interest grows, so too is the Options Marketplace. Professor mike khouw explains how that could benefit everyone with more diverse product, well, options. Its time to risk less and make more options action starts right now. And lets get right to it. A slew of retailers on deck to report Quarterly Results next week including walmart, target and kohls despite todays big pop in Monthly Sales data, our chart master says the recent retail wreckage isnt quite over yet. So, carter, what are you seeing in the charts . We did get data, as you mentioned. Retail sales today reported that the total value are now higher than covid thats in a way bullish. But the stocks reflect it in aggregate. Lets look a few charts the first is a comparative chart. Youre looking at xrt, thats the equal weight retail etf. Its 88 stocks, its 3 trillion versus the s p one compare. What we know is this index is double the performance of the s p, up 36 , versus the s p up 18 so the question is how much is priced in . Second chart, this is a two panel chart. Its another way to look at the circumstance in question whats right here is that the xrt on top going back to its inception with its 150day moving average on the bottom is a calculation its just showing how far above or below the xrt has gotten. We are now just as exactly as high as we were coming off the 2009 crash and ricochet. Overbought comes to mind as a phrase the third chart is a comparative chart, twopanel in this case, were looking at xrt on the top, and now youre looking at xrt equal weighted retail index versus the actual dominated by home depot, amazon, nike and so forth. This counter trend move on the bottom panel is relative outperformance period. Every time weve gotten to the trend line, it has failed. You can see those arrows drawn there annotated the chart. The bet here is its going to fail again as a relative outperformer and start to falter and then finally, the chart of xrt itself, you have this incredible move from the plunge low in march right back to a welldefined prior top in principle before exceeding a high, a stock will contend with the high, which is to say back in full or back away weve just now approached the former high. The thought would be to hedge, to trim before someone does its for you. Thanks for that, carter mike, what is the trade out of this so its interesting when youre talking about equal weight which is cap weighted indices and thats the situation we have here, one of the downsides of a capweighted index is that youre heavily dependent on the winners of course thats also one of the good things too. Whoever wins as they go up, they increase their weight to the index and of course the ones who are underperforming have a smaller and smaller impact whats interesting here is, you take a look at Something Like rentacenter, thats the same weight as amazon in this particular index thats hard to imagine theres Something Like 15 autoparts or Car Dealerships in this you have to understand that, of course, given the economic environment were in, some of these big durable goods exposures have to be in significant jeopardy now, if youre taking a look through a volatility perspective, weve started to see volatility in the broad markets come in very much here too. We often do see increases in volatility after we get through labor day. Looking ahead to that rather than trying to involve myself in some kind of a spread, i was looking out to the october put weekly trending a 1. 85. You might wonder why i chose that particular expiration usually when im trying to follow carters technical setups im looking for 60 days to 90 days the idea here is im trying to be able to carry through labor day, through september, sometimes an uptick in volume volatility. Were trading at these alltime highs here definitely some companies that havent been on the radar, but they obviously could be exposed if we start to see some significant consumer weakness. Tony, what do you think yeah, so, i really like carters chart work here, but i will want to warn investors its typically quite hard to shorten this particular market especially the strength were seeing in xrt. If you look at the constituents of this etf, you have a lot of them have rallied into earnings reports but have now stalled or started to reverse lower i do like the opportunistic play of a short here. Overstock, carvana, wayfair, have stalled momentum and started to move lower. I think the key is to limit your risk as small as possible. I think thats exactly what mike is doing using a put here. For investors that want to maybe even limit their risk a little further, you could perhaps spread this and trade a put spread the trade i really like. Why not a put spread, mike . I think theres two reasons for this one of them is a lot of the names and some of the ones tony just mentioned are treading at heady valuations you start to see some kind of valuation, multiple contraction here, combined with some general market weakness, that could hit this pretty hard im not opposed to spreads i love spreads, but this is a situation where if we start to see the market roll over, youre going to want to work your way into that spread wait until it starts to roll over and then look for your opportunity to sell downside strikes or roll this one this gives us more flexibility is there more risk yes. Were still looking at less than 4 of the current level of xrt by putting this on its not a significant risk. Its a lot less risk than shorting xrt would be. Carter, are there retailers whose charts you actually like even though you dont like the overall index. Sure. I think walmart is quite good, targets quite good. We heard about overstock of the 88 stocks, overstock is the biggest weighting in xrt its 5 . The next closest is 2. Overstock is basically priced for bankruptcy before the covid hit. It was trading at 2 its now at 100. If you look at all s p 500 stocks, all technology stocks, stocks in the russell 3000, th number one performing stock of all stocks listed is overstock. Com and it is the biggest weighting in this equal weighted etf thats staggering its not just retailers set to report next week were also getting more numbers out of the Semiconductor Space nvidia, tony what are you looking at . Im looking at nvidia the stock is incredible. Its driven predominantly off of two major sectors which is gaming and Cloud Computing nvidia has pretty much dominated even before covid. Since covid weve poured fuel on the fire we expect q2 earnings here to be fairly strong because you see gaming and semiconductors to remain resilient through covid predominantly gaming i expect to be very strong and this is coming down to the fact that you have an xbox launching in the fall. That generally triggers gamers to upgrade their tech. Nvidia has a 75 market share within i think thats going to offset some of the softness out of the Cloud Computing space. Guidance is really important here if we look at the chart, the stock is really not a whole lot to say other than just incredible strength. It recently broke out above the 430 resistance level, its now starting to move higher. Thats the type of setup that i typically like to look for going into an earnings event the options currently are implying a fairly sizable move here but theres no hiding behind the fact that nvidia trades at a very rich valuation, a very large premium to its peers at about 56 times next years earnings as optimistic as i might be on this particular stock, i do think its fairly valued and i think theres a somewhat limited upside im going out to september and im selling the 450415 put spread here collecting about 22. 60 selling the september 450s and paying about 10. 60 on the september 415 put. Netnet here im collecting about a 12 credit on this 35 wide credit spread which is just about a third of the width here thats about 12 out of the money. My break even price is 438 im only risking 5 . So in the unlikely event that nvidia blows out earnings, and moves substantially lower, im risking only 5 of the stock trade to take this bet. Do you like this trade . I definitely like the trade structure. Its almost impossible to short a stock thats this expensive and is definitely going straight up i definitely like the structure from that standpoint the street is pretty overwhelmingly bullish on the name but the stock has gotten well ahead of the average analyst price target sometimes thats a sign that investors know something that the analysts dont or at least havent gotten around to telling us yet this is a good way to place a bearish bet. Do you agree with the direction of this trade, carter . What do the charts look like you heard the word incredible twice from tony. It is just an incredible up trend. But you also heard from mike that the street is bullish 34 buys, only two sells. Of those 34 analysts their price target 12 months from now is 415 the stock is at 462. Are they bullish the streets just had this thing wrong. Its been a monster, its incredible make your bets before earnings check out optionsaction. Cbs. Com. Coming up, youve got options and youre getting even more of them professor khouw explains why new product slices could grow the pie for everyone plus, calling all options action fans. Reach into your pocket and tweet us your question optionsaction if its nice, well answer it on air. Do you look for when you trade . I want free access to research. Yep, Td Ameritrades got that. Free access to every platform. Mhm, yeah, that too. I dont want any trade minimums. Yeah, i totally agree, they dont have any of those. I want to know what im paying upfront. Yes, absolutely. Do you just say yes to everything . Hm. Well i say no to kale. Mm. Yeah, they say if you blanch it its better, but that seems like a lot of work. Now offering zero commissions on online trades. We charge you less so you have more to invest. You say the customers maklets talk data. S. Only Xfinity Mobile lets you switch up your wireless data whenever. I accept 5g, everybodys talking about it. How do i get it . Everyone gets 5g with our new data options at no extra cost. Thats good. Next item corner offices for everyone. Just have to make more corners in this building. Chad. Your wireless. Your rules. Only with Xfinity Mobile. Now thats simple, easy, awesome. Switch and save up to 400 a year on your wireless bill. Plus, get 400 off when you preorder the new Samsung Galaxy note20 ultra 5g. 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 to options action. Weve been tackling the explosion in options volume for a while now. As you all know, you cant talk about options without talking volatility especially when it comes to the years best performing index that would be the nasdaq 100 up a whopping 27 theres a brandnew way now to track its volatility professor khouw is here with the call to action i mean, this is really pretty exciting news. Its not out yet but it will be soon what were talking about is, were talking about the nasdaq 100 volatility index theyre going to be offering futures on this subsequent to that theres going to be options trading on them. Even if you dont happen to trade these products, theyre going to be fairly big contract, contracts multiplier on these futures is going to be about a thousand this matters a lot as you pointed out, the nasdaq 100 is the years best performing index the volumes of options have essentially been exploding we can take a look at the history of options volumes traded on the list of exchanges in the United States its gone up more than 50 over the course of the last three years. Theres also been a big increase in the interest in trading in volatility strategies. And volatility strategies, its easy enough for people who buy and sell stocks to see how much the market is moving around. These volatility products tell us how much the Options Market anticipate that it will move around and when you involve yourself in volatility strategies, the way money is made and lost is the difference between those two. I see this as a good complement to the vix this is broadly known as the fear index which tracks volatility on the fpx. The vix can be a little bit obscure for people to understand in order to calculate it, you actually have to take a look at a weighted strip of options that expires 30 days from now the way most traders actually take a look is they take a look at options that are at the money. This will continuously be looking at options that are 30 days from the day youre looking at them. The first two out of the money call strikes, the first two out of the money put strikes essentially are the way to look at this. Intuitively i think thats going to make a lot of sense to people and as far as im concerned, when we see the big uptick in volume and the Information Available to investors, more competition, i think thats a winwin. Its probably going to be a win on pricing, its going to be a win on transparency and price discovery in the marketplace of course its a big increase in investor choice. I think this is a positive development. Tony, do you think this will be useful . Yeah, absolutely. Arguably these days when you look at an investors portfolio it is likely to look more and more like the nasdaq 100 index rather than the s p 500 index. Its important to have an index that tracks your portfolio especially from an institutional perspective. The calculations here are different from the vix so that is important because the volq index is more closely aligned with what a traders actually use for their calculations whether theyre using implied p perce percentile the volq calculation is much more in line with those calculations that investors use. Theyre going to be calculating a call deck and a put deck so you have a good understanding of skew between the call and put side these are all advantages to the volq index that i think is going to be quite interesting to look at as they launch here on october 5th. Carter, your thoughts on this new product . In principle the more the merrier, so more vehicles, more ways to participate is a good thing, not a bad thing in terms of the explosion, you think about what happened in slv, slv options never traded more than a million contracts. In the past ten sessions you have had six days where thats happened this is all to the point of more investor interest and more opportunities to do very well but of course to also hurt oneself. Mike, last word the more specific you can be about the things that you want to bet on or believe in the marketplace and the more tailored you can make your bets, the better off youre gone to be thats another positive way to take a look at this. There might be opportunities to trade this product against the vix. I imagine there will be a lot of them up next, a cisco slide. We are breaking down how the tech stocks fallout on earnings this week is shaking out for one of our traders plus, were taking your tweets send us your questions a optionsaction 100 online car buying. Carvanas had a lot of firsts. Car vending machines. And now, putting you in control of your financing. At carvana, get personalized terms, browse for cars that fit your budget, then customize your down payment and monthly payment. And these arent madeup numbers. Its what youll really pay, right down to the penny. Whether youre shopping or just looking. It only takes a few seconds, and it wont affect your credit score. Finally a totally different way to finance your ride. Only from carvana. The new way to buy a car. Welcome back to options action. Time to take a look back at a couple of our open trades. Just last week tony laid out a bullish way to play cisco into earnings cisco is the backbone of the internet hardware business it currently trades at a very reasonable valuation just like john deere. Its recently made some Strategic Acquisitions here in the Cloud Security business. And i think that 2020 is going to be a turnaround year here for cisco. The trade im looking to do is use a september 47. 552. 5 call spread paying about 1. 85 for that 47. 5 call collecting about 35 cents on that 52. 5 call as we all know, ciscos reports disappointed what are you doing now, tony cisco reported earnings, beat actually on both earnings and revenue but the Company Guided lower. What we saw is about a 9 drop in the underlying stock price. This is why we use call spreads, to limit the amount of risk were taking stock is down 9 the strategy itself when we tweeted on thursday morning to close out the trade, only lost about 2. 5 of the underlying stock price you were able to mitigate a lot of the Downside Risk compared to buying the stock this is a prime example of how you can utilize options to limit your risk on a trade like this. Meantime, khouw and carter laid out a way to play the soft commodity space for cold, hard gains. Everyone knows what a breakout is. Do they always work . Of course not. But this is the setup that we look for and then we look for the catalyst we know we have earnings coming up in the next two weeks john deere here closed out at 183. 50 and i think is going to 200. Im going to buy the september 185 calls. Those were about 6. 75 sell the august 195 calls. Netnet im spending 5. 65 thats a little over 3 of the current stock price. John deere jumped about 5 this week, what do you do . This is one of those situations where you go to a store and it says act now, and thats what you needed to do monday morning midweek it hit our target of 195. Obviously this has worked in our favor. Some of you may have gotten in fairly close to the price we were talking about others may have missed the boat. It is still working the way we want it to i think were going to start seeing some decay in that 195 strike this is a trend you stay with. Carter, you stand by that chart . Right, all of it, very good action continued this week fertilizer names john deere obviously having a big week but the earnings are still coming next friday its the catalyst for further gains. Up next, we have your tweets and the final call 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. If you caught up at the top of the hour you heard Warren Buffett took a new stake in barrick gold we have a tweet on gold. Lets get to it. One viewer asks i have gold september 20a 215 call. Should i sell it for a loss or hold it . Carter, what do you say . I think you sell it for a loss we know that gold has just pulled off nine consecutive weeks in a row up. Thats only happened three other times in history, 1980, 2003 and 2006 and looking forward those other times gold moved down consistently one month, three months, six months gold got a little hot. Id take the loss and move on. All right, our next viewer asks, spy, march 290 puts, what do you think i like owning puts. Obviously its consistent with our xrt trade. Thats a little bit far out and a little bit far down. 30 days. That might be my answer. Its time for the final call the last word. Carter braxton worth xrt is a way to bet against consumer retail. We like it on the short side tony zhang . Im looking for a continuation in the surge in gaming selling a put vertical spread in nvidia mike khouw. It looks really exciting. Im looking forward to it. October 2nd xrt 50 strike put. That does it for us here on options action. Well be back next friday. Meantime, do not go anywhere Summer School is back in session. [woman] the following is a paid advertisement for the Hoover Smartwash pet automatic carpet cleaner. upbeat music real life is crazy messy especially on your carpets. Whether its kids, pets, or just plain heavy use your carpets get dirty, but cleaning them can be such a hassle, even painful. Down on your hands and knees to spray and scrub or struggling with one of those bulky rental machines, up the stairs and all around your house. And did you ever wonder if the last person to use it even cleaned it up afterwards . What did they clean off their floors
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