Why some traders are betting big bucks the space could continue to take off in a special report. The action begins right now. Lets get right to it because stocks are at twomonth high and the vix at a yeartodate low and high yield is surging. Take a look at the hyg, up nearly 8 from its recent low as the highyield market has seen recordbreaking inflows this week. Do you buy into this rally . Lets get into the money right now. Mike, what do you think . Decided not to start it off with the big bear on the desk this time. Motive. The entire reason that we had all the volatility in the markets since the beginning of the year has really been the high yield market, and this is a really good place to look if you think that the cracks are emerging underneath equities. The credit guys tend to see those first and, of course, theres a lot of things to see and obviously a lot of bankruptcies in the energy space and a lot of reason to be concerned and i do like high yield here and im not bearish of equities, as i have not been over the last couple of weeks. I feel like this is a monumental moment. Look, the reason ive not been that bearish is because when you buy stocks its very easy to do that just taking a look at, okay, well have 100 worth of earnings in the s p down from maybe 120 last year and when you buy stocks youre buying cash flows for the next 5 to 10 years. So what were seeing right now, people buying high yield and equity, were looking beyond. Just a few weeks ago, we were looking at a lot of materials, a lot of energyrelated names that were just massively levered. A lot of stocks up 10 , 20 , 30 in a day and 50 in the last couple of days and market cap of a couple billion and 8 billion in debt and earnings cut in half. It was really kind of a desperate sort of situation. So weve had a couple situations. We saw this marathon oil and saw some Capital Raising and gone really well and a lot has to do with sentiment. It has to do with the fact that investors are willing to take a little more risk in in some of the scenarios and especially in coiled spring like a lot of these stocks were. When you look at this rally in high yield, another thing we havent mentions, thats liquidity. And thats something that b. K. Feels very strongly about, when you think about the markets and particularly an instrument in the hyg. Thats where a lot of those afford and we had an amount of debt and an amount of corporate debt has almost doubled since 2000al and because of doddfrank. The amount of debt or Balance Sheet power for brokered dealers has been cut in half and when these things turn they turn violently, and i dont think i dont think anything has changed. Dan mentioned the deals out here. What do you think people will do with that newfound cash . The only capital to be deployed in the highyield market is not bank Balance Sheets. There are real money accounts. There are pensions. Not even close to these guys are net buyers. Not even close. And im not going to deny that the commodity super cycle wont have more implosions, they will. But thats not what people are buying when they buy stocks. Buying the next ten year and i i think you can worry about energy exclusively. And for the week oil is up 10 , 9 . And thats certainly helped change sentiment for this week, especially in high yields. Sentiment is the a huge thing and when you think about all the fears, you know, a lot of fears have abated over the last month since february 10th here a little bit. Listen, i think that this is a call in the near term on oil though, mike. So you can talk about buying cash flows for the next 5 to 10 years but if Oil Goes Back down after the massive rally that its had from 26 to 36, you know, again, were going to start hearing about defaults, reorganizations and bankruptcies and we havent had that massive flow yet. And, to me, i think that the hyg because of liquidity issues and because of the dramatic shift in sentiment and the move in the etf it sets up for those looking for black swanny sort of trades, it sets up as a kind of an interesting countertrend trade. And have a chart here. Its a couple years. Look at the downtrend that the thing has been in. Draw the lines any way you like and that tells me you probably have another dollar or so in that thing and it sets up for a pretty decent short, maybe for a move back to prior low of 75. But if things get really hairy, iry, and we get back towards lows i think you probably see something towards the credit crisis lows which is much lower. Whats your trade . If you are inclined to think this way, lets see how it acts next week and see what follow through is. But today, when the etf, hyg was 85, look out to june expiration and buy the 80 70 put spread for 2. Thats your max risk, 2 , 3 of the underlying price. Buying one of the june puts for 2. 25 and selling one of the 70 puts and 2. 25, maybe do, maybe dont. Whatever. The point is looking to say this is going to take a little while. You know, i probably want to try to help mitigate some of the potential if it starts to kind of settle in here around 80. But i think this sets up as a decent risk reward. Its a relatively amount of premium and the decay out of the money action is much higher and makes a lot of cents to do that spread. Additionally we do see that there are some ready buyers for the highyield space down at the levels we previously saw which is one of the reasons why choosing that lower strike makes a lot of sense. Im not sure high yield has a lot more room to the upside. Just in terms of asymmetric risk owe reward to me the trade makes sense even though i dont necessarily think well see the whole world roll over. This trade actually, what i like about this in this environment, a lot of what ive been doing is trading with options, right . Because we see these massive sentiment shifts and see this huge volatility, its very difficult to have an outright short position in this market. And if you do it via an options spread or any type of defined risk strategy, then you can weather another point up. You dont have to worry about it every day. I like this. You mentioned a black swanny sort of play, not for a black swanny sort of event . Youre just looking at revisiting prior lows. Yeah. And that would be 75. Heres the thing, when i look out and i look at option prices across a lot of different instruments where i can get bang for my buck, option prices for hyg are realtively cheap here. And i get near the money participation here, and if Oil Goes Back towards 30 youll have some of the fears very prevalent a few weeks ago back into the market and this thing will have at least a 7 handle ton. Moving on to some of the most hated stocks on wall street that are beating the markets this year. Like this one, freeportmcmoran, one of the most unloved stocks in the s p 500 and yet shares are up in 2016, breaking it down, a man never any problem feeling the love, cnbcs dom chu. Hey, dom. Well, melissa, you guys are way too kind. I appreciate all the support from the options action gang and now where theres the most hate or least amount of love, close to 50 members have short love of 10 or higher. And in this case were defining Short Interest as a number of shares short as a percentage of the total flow so were going to kick it off with our hat tip to the house of cards season four premiere and netflix Short Interest is around 16 and that stock has risen 7 over the course of the past week. Now, youve got some of the most beaten up Energy Stocks here as well, and if you look at shares of coal and gas company, Consol Energy and Short Interest there. 29 of float shares and rallied 36 in the last week. Offshore oil drillers like transocean, Short Interest there is 36 . Its rallied 44 during that time. Now, some of the most unloved stocks can catch a bid when Short Covering is a big part of the story, so some of these unloved names have been seeing a lot of love, melissa, as of late. Back over to you guys. Thanks so much, dom chu joining us from the Stock Exchange tonight. Dom mentioned a Short Covering rally and once a lot of these shorts have been flushed out, appears that maybe a lot have with 40 , 50 , 60 gains, whats happened next . Thats the issue were short. Most people say who cares who is buying and whether its a short, a person covering or not, right. Right. But when it pulls back that short is probably not there. You take your longterm buyers tend to be very price sensitive and they are already there and that short is not there. Probably long gone. When i look at these names, the one that looks most vulnerable to me is freeportmcmoran, right . Weve had had a huge rally in this thing and heres the copper. The copper stocks in china are up 11 . Youre starting to see potentially theres some manipulation there and nothing has changed on the supply, so why why should freeportmcmoran go up, it shouldnt, so ill be very careful getting into that one. Any of these things worth a buy . Regular viewers will know the last couple of weeks, transports with one sector and materials two weeks ago, clearly im wrong. But, you know, back to b. K. s point, thanks for being here, buddy. Thanks for having me. You take shots and define risk to a certain point and ive been wrong. These things have a tendency to go longer than you think that they will. But im not a buyer of them here because freeport is a great example. This was a stock trading at 3. 5 and now its above 10 and that doesnt make a whole lot of sense. Can you say, well, it didnt deserve to be down 80 . Well, it kind of did for a whole host of reasons. Theres a lot of reasons why the stock deserved to be down there, but the hard thing is how can you press shorts, even on rallies in names like freeport. A lot of the names that are in the commodity space are heavily levered. So when the stocks get cheap as a percentage of the total value of this business, even relatively small swings rip the equity in a huge way so i dont think thats necessarily where you want to try to take a short position. Of these stocks youre taking a look at netflix. Im looking at netflix, a a stock ive been skeptical of for a long period of time based on valuation. And part of my thesis here is when you compare the value of this against other Media Companies, they dont necessarily have to have a lock on the space. If some other Media Companies decide what they are going to get with the program and get more innovative and try to go after the things netflix has been doing. And, also, theyre early in the process, i dont know that everything is going to be a huge success. The way to take short bets in these types of stocks, use options and define your risk, and the way im going to try to do it because volatility is high is sell an upside call spread, the one i was looking at, the april 101 call spread, collect about 4. 10 by selling that. If the stock basically sits right here, youll collect some money. If it drops obviously youll keep that premium. We do capture earnings. If the stock even runs though to the upper strike sometime between now and expiration its not going to go to the full 10. So its not like youre risking 6 to make 4. The truth is even if the stock rockets higher, youll have an opportunity to cover this. You might lose the 4 bucks but this is a trade there. I kind of like the bearish bet in this one. You who thinks the markets will go lower. Do you like this trade . I was looking at the f. A. N. G. Today, and this stock was up 3. 5 , Something Like that. Google and amazon were down, so was facebook, actually. Facebook and google for the week were flat which was kind of interesting to me. That will being said, a 43 billion market cap and netflix, a bit more squeezy here. The trade is kind of interesting to me because i think what mike is looking to do, just looking to sell volatility in a high volatility name that has the potential to possibly be pinned to 100, give or take a few bucks between now and earnings and at some point hell take the tradeoff for a couple of bucks. Thats exactly the idea. Yeah. And the thing is, if we get the stock to go lower youll have the opportunity while vol is high and a put spread and maybe youll have the opportunity to put that on at the same time creating the incredibly complex structure we call the iron condor. But the idea is were trying to collect some premium. I like gold condors. The iron ones golden condor. In terms of netflix, right, ive been skeptical here. Competition ultimately matters in this, right . They had a moat around their business like Warren Buffett likes to say. They had a mote. Its not there anymore. Competition is coming into this space. You want to be short. Got a question out there . Send us a tweet. Check out the website optionsaction. Cnbc. Come, have the host options news, very hottest news. Videos throughout the week and exclusive trades and even sign up for our newsletter. Its so neato. Be sure to check it out. Heres whats coming up next. Theres always cocacola traders have been drinking up shares of coke this year, and well tell you why the charts look poised for fresh new highs. Plus let the good times roll dont look now but emerging marks are surging and according to some traders the good times are just getting started. More options action right after this. 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. Td ameritrade. Hey hows it going, hotcakes . Hotcakes. This place has hotcakes. So why arent they selling like hotcakes . With comcast Business Internet and wifi pro, they could be. Just add a customized message to your wifi pro splash page and youll reach your customers where their eyes are already on their devices. Order up. Its more than just wifi, it can help grow your business. You dont see that every day. Introducing wifi pro, wifi that helps grow your business. Comcast business. Built for business. Here at the Td Ameritrade they work all the time. Sup jj, working hard . Working 24 7 on mobile trader, rated 1 trading app on the app store. It lets you trade stocks, options, futures. Even advanced orders. And it offers more charts than a lot of other competitors do on desktop. You work so late. I guess you dont see your family very much . I see them all the time. Did you finish your derivatives pricing model, honey . Td ameritrade. Welcome back to options action. A big week for emerging markets. Seema mody is at headquarters with a look at what drove the stocks. Hey, seema. Hey, melissa. A strong week for emerging markets. The emerging market etf seeing its best week since december 2011 due in part to the rebound in oil prices, encouraging news out of china. The central bank announcing theyre injecting more liquidity into the system and keep the yuan stable for now. That helped close the shanghai index up 4 . The question on investor minds is whether this rally is sustainable. Over the weekend china will unveil its updated growth forecast at the npc as well as its plans around fiscal stimulus. Signs of further spending on industrials would be widely seen as a positive for the stocks and economy. Plus the Upcoming EuropeanCentral Bank Meeting on thursday could also lift sentiment if mario draghi cuts rates deeper into negative territory. Strategists say that would make emerging market bonds more attractive as yields in europe and japan would likely fall. Lastly, keep an eye on u. S. Economic data if it continues to surprise to the upside and that results in the dollar strengthening. That could also spell trouble for emerging markets. Melissa . Seema, thank you. Dan made it over to the smart board. You say options activity has actually exploded this week. It did. It exploded today in the eem, that tracks the emerging markets. And today it was actualactually like one trader was rolling out of a bullish position that he put on a few weeks ago in march expiration. Options volume was 2. 5 times average daily volume so the traders sold out of 140,000 march 3 calls and thats 2 million in premium and breaks up at 3520 and 6. 5 out of money and let me tell you something. We report it had on fast money when the trader bought the march calls way out of the money then and i didnt think it was a great chance to be in the money and they were. The these aprils, looks like a far way away and who knows and ill tell you who knows. When you look at the chart. Theres a oneyear chart of the eem and you can see the downtrend here. And it tracked amazingly and look at the breakout here. Its up 9 . Like sema said, on the week. Up 18. 5 or so from the january lows and now the stock is still down 25 on the year, so excuse me, from the 52week high. Theres a massive breakout here, obviously a sentiment shift. But as were talking about the eem, we also have to talk about brazil. If all the factors that helped emerging Market Equities go up, certainly help and look at the ewz, the etf that tracks the brazilian bovestas here. It was up last week, and look at this down trend that its been in. Want to make one point about the 25 level. Stopped at its 200day moving average. Look at how many times its been rejected. An interesting one to keep an eye on next week an ive got to tell you, implied volatility, price of options in the ewc are pricing a lot of movement and very easy to make directional bets in this one. Zc are pricing a lot of movement and very easy to make directional bets in this one are pricing a lot of movement and very easy to make directional bets in this one. Brazil is really fascinating. If you look at the bovespa, its up 13 . And what happened in the last day or so it was the corruption problem. They detained the former president . Questioned him for hours. And what the market thought was that here comes regime change in brazil. Things are going foe get better. You know, i dont know if thats the case. I certainly would not be buying ewz brazil on levels like that. I think you fade it, if anything. Are a lot of hints that this is just the beginning, that theyre going to take it right into the existing government. Frankly thats a cathartic moment because if you have a corrupt system and they have been bleeding off the economic value then you