Lowes and home depot, something in the chart suggests more pain. Lets get to it while the s p has fallen 1 in the last month the socalled safety sectors, rallying, telecom and utilities up 4 , even Consumer Staples managing to eke out gains. If volatility picks up, is this where you want to be dan . Its interesting, we used to talk about Interest Rates and thought we were in a rate increase cycle here. Fed fund futures pricing less than a 35 chance of hike in december thats why youve seen these rate proxy names kind of come back to life a little bit. Telecom is interesting, we know theres fat dividend yields there and utilities like you mentioned there, staples are acting pretty well if youre looking for safety trades and volatility will pick back up, valuation may become a concern for some of these sectors that have had big runs it makes sense to look at ones regionally priced with decent yield. What could you do in view of the safety trade move weve seen one of the things interesting about the safety stocks, the valuations are very different in this space you can take a look at names like staples and utilities and valuations are maybe a little higher than they are in the Telecom Sector if youre looking for yield, that latter one is where youre likely to find it. I mean, theres no great valuation anywhere in the market utilities are at or near close to historic highs and its the reason the xlk theres no etf, they love at t. Only three stocks, right . Two. Coke and pepsi, the question is can they continue to generate the cash flow and buy things to do that. No chairman wants on their watch i caught the dividend so they keep desperately trying. As operating businesses i mean to that point, one of the things you should look out for if youre looking at stocks, when you see very high dividends and very high yields, that often can be a warning sign. Its base beiically telling you might be unsustainable. Im looking at at t, i bought close to 36 a month ago prior to the earnings and its important to think about why were buying stocks in a market that was at all time highs, it was near 52week lows, i was thinking of something fundamental and thinking about the yield also. To me i think this stock sets up pretty well if you believe the fundamental story. That gap you see there a few weeks ago, the stock was up 5 after the q2 earnings, they beat on sales and net ads and other thing, wall street journal reporting yesterday that their time Warner Acquisition bid for 85 billion bid and i like this fundamentally, that is at advanced stages. If we get nor clarity, i think the stock will rally i bought more today but theres an opportunity near term to sell against my stock and do a buy right and add additional yield this is a stock that has an annual yield of 5. 2 today when the stock was trading at 37. 5, lets say you were to buy 100 shares of stock, look out to october expiration and sell one, 100 shares, one of the october 39 calls at 38 cents, you have a buy rate. Your max gain is up to 39 in the stock of 1. 50. If it is 39 or lower, you take in the 38 cents. That is a 1 additional dividend yield. Or just yield in general if you annualize that, that would be a 6 yield on top of the 5. 2. Its important to remember that this is long stock, short call and stock will pay a 49 cent dividend in october. To me im eyeing a move back towards the 40 range and if i get to october, the stock moves up to 39, then ill roll that to a higher it sets up well, a super yield trade in a name i think is beaten up. In yield trades typically in high dividend paying stocks, youre not expecting the stock to rocket higher, which is why you may look to sell upside calls, often times youll find the premium you collect for you what you sell seems low and implied volt tilt, price of options is up a little bit which makes it more attractive, its not likely to rocket higher for the reasons weve articulated. I think that makes sense. Right, price action, what obviously we know, this is a stock that had a 52week low, 52week highs in the newspapers for past 100 year. Gapped up, that appeals to dan and buying the check back. Its good technique. The question is the upside of a 1. 50 and downside is 1. 50. Do you get the next listen, my brother, this is an options show, i got the call premium and then have the dividend thats hes collecting between the dividend and call. Sort of in the middle of those very well defined. I want to make this point, this is sleepy friday, not much going on in the markets. This is the starter drug trade for equity traders here. You own something, youre not going to sell it you look out and sell calls against it and take in a premium. If you feel like its going to rocket through, you cover that call and leave that position intact to me this trade gives optionalty on long equity earnings. Now to deere seeing the worst selloff after disappointing earnings before today they were trading in lock step for most of the year carter, you say deeres pain could double down to the triple counterpart. We know deere and cat are correlated but its not these two as it is all industrial stocks break them down. Inferences are based on evidence but it is also a presumption. Lets do this rapid fire ill go through fairly Big Industrial con glom rat type names, its clear its an up trend. Lets go to the next stock inger sol rand, 21 billion, clear up trend and here is a breaking trend ill give you nice red arrows to get your mind aroundit next one, here weve got illinois tool works, 48 billion, big up trend, heres the trend line and breaking trend. Theres a pattern going on now we have a big deal, 80 billion, biggest railroad in the world, heres your trend line and break in trend flavor of the day, deere, up trend, heres our line ready. Break in trend all gapping. So inference, heres caterpillar, heres its trend and its the only guy holding up either they are sort of miracle or going the same way. Ill bet they are going the same way. Im a seller. Caterpillar is an interesting case because of course this thing is trading not far off its all time peak valuations and rallied strongly and had a great year so far. But its earning 40 lower revenues now than it did at its peak in 2012 60 lower eps. If something sets up for weakness, companies with a little leverage and cyclical and trading close to peak valuations when maybe the fundamentals dont justify it, those are 9d ones that set up for a potential pull back. Im inclined to go along with carter and buy a put spread, the october 100 p put spread you can spend 4. 25, sell for 60 cents and 3. 65 for the put spread which could be worth as much as 15 if it went to the maximum value of the spread. Contrarily, im only laying out a relatively small amount of premium and giving time to play out and there are plenty of things that could make it play out sfwl the trade itself, i like the structure and the fact its in the money and giving yourself stock has been range bound for a month or so. This helps you stay in the game a little bit when you start to see a kmpelt tore, with a gap, that was a nasty breakdown, it could be telling a story about these multinational industrials that maybe things are not as good as cat is more multinational than deere, has actually much more focused on construction and mining than deere is which has considerably more ag and forestry businesses and more volatile and vulnerable. How closely do you Pay Attention to whats going on with commodities its all related. Specifically to caterpillar more son than deere nothing to do with the key commodities like copper iron ore and aluminum deere broke today but every one of the other stocks on the earnings broke cat has come right back to its all time high and its somehow defying whats going on generally speaking in industrials, whether its Big Industrials like ge or the transports can kalt go it along . Probably not. The amount youre risking is a fraction of the gains youve had so far a very small fraction of the gains. Why would you not even think of hedging. We have much more options action still ahead heres whats coming up in the rest of the show. They are selling. Stocks just post two back to back weeks of losses. Get back in there and watch it sell, sell. Dont be so dramatic. We have a way to protect your portfolio. Calling all options action fans, reach in your pocket and grab your phone and tweet us your question at options action if its nice, well answer it on air. When options actions return. Logicalg 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. It lets you chat and share your screen directly with a live person right from the app, so you dont need a comfort pony. Oh, so what about my motivational meerkat . Inapp chat on thinkorswim. Only at Td Ameritrade. Track your pack. Set a curfew, or two. Make dinnertime device free. [ music stops ] [ music plays again ] a smarter way to wifi is awesome. Introducing xfinity xfi. Amazing speed, coverage and control. Change the way you wifi. Xfinity. The future of awesome. Hthis 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 welcome back, im dominic chu, weve been talking about the lack of volatility in the marketplace for months now over the last couple of weeks thinks got dicier. Yesterday was a loss of 1 or more and third all year. We came close last week on the heels of all of that north korea tension. To put it in perspective, last year there were 24 times the dow had a 1 or greater drop and 2015, there were 34 such instances. For the most part this is still the buy the dips and shake it off kind of market there are fears we could see a mean reversion towards more volatility take place. In fairness, stocks arent even close to being in panic mode there was a time when the geopolitical and macro level shocks seen in markets would lead to much more than a 2 pullback but there are traders who look at the recent price action and of course bets being made by Hedge Fund Managers on more stock market volatility ahead. Michelle, they are perhaps getting a little more cautious than they have been lately its something to keep an eye on back over to you. It certainly is, dom, thank you. If youre worried about more volatility, how can you protect yourself mike is at the plasma with the call to action. Although we had a slight bump up in volatility, we havent seen that much yet if you are interested potentially and want protection, you might want to buy a put. If youre anticipating more volatility, are these 1 moves weve been seeing recently a sign or harbinger of things to come options prices are low they are higher than they were but still in fact quite low. We can see obviously the dow, we were talking about dow stocks earlier, quite a rally this is a pretty small little move to the downside i still think if youre interested in buying protection in your portfolio, you have the opportunity to do that im looking out to december, you can spend 4 to buy those, thats less than 2 of the price of the diamond etf inexpensive way to give yourself a hedge to the end of the year, gives you a little bit of leverage in the event we see sharper moves to the downside. What do you think let him go on the charts first, i want you go on the charts. You broke that up trend from the sure, and heres the nothing has happened i mean, think about it okay, so we had an all time high, a week or so ago, it was tuesday, s p was what, 24. 90, that number sticking in my head, were down 2. 6 . Its like nothing has happened and the feeling is though the market died. This is just a salvation of what could happen and all depending upon a few big stocks. The top five stocks in the s p are the same value as the bottom 250. Thats going to determine what happens. Not every constituent of the Dow Jones Industrial average has rolled over yet. We were just talking about one of the big ones, caterpillar, only 30 stocks in the index and one is trading up there. So things that could make this trade work out, obviously a pull back in a name like caterpillar could help general volatility in the market listen, when things start to turn over, you see correlation rise and thats when products like the diamonds and qs are going to behave much more sharply than they have typically in upward moving markets. What i like about this, why i wanted you to go to the charts first, if you have these dow winners that have appreciated a good deal, 2. 10, your strike price is the level it broke out may june thats what you want protection for. Weve been lulled into sleep how many times have we had a 1 droudown twice . It can happen once i like the idea. If youre long the 2. 10 and gets near 2. 10, then look to sell that by selling a lower strike put and take that off the table. The likelihood of it going below 200 is not particularly great and thats one way you trade consider if implied volatility like the vix was around 20, you would expect the move on average each day to be at about 1 , right weve had two instances so far this year. Were talking about its happening every 2 how about if it started happening 20 what do you think about russell . A bigger drawdown like the s p, thats 2. 6, the s p equal weighted is down 3. 3 that speaks to a few big names theres this, remember a week or so the dow had eight or nine days in a row it was up. It is a lower beta index than the s p and lower pe when the dow was starting to outperform the Broader Market s p to that rate making new relative highs, thats a defensive kind of thing. But a lot of them had no ground giving back, boeing hasnt cracked and mcdonalds we talked about caterpillar. A lot of those still quite steep. Thats vulnerable. Coming up next, home depot sinking 5 in the last week and something in the charts suggests more pain in the way 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. Youre searching for something. Whoooo. Like the perfect deal. On the perfect hotel. So wouldnt it be perfect if. There was a single site. Where you could find the. Right hotel for you at the best price . There is. Because tripadvisor now compares. Prices from over 200 booking. Sites. To save you up to 30 . On the hotel you want. Trust this birds words. Tripadvisor. The latest reviews. The lowest prices. What . Pony neighing] 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. It lets you chat and share your screen directly with a live person right from the app, so you dont need a comfort pony. Oh, so what about my motivational meerkat . Inapp chat on thinkorswim. Only at Td Ameritrade. Welcome back home depot shares fell 5 this week, thats great news for cal and carter. On options actions its how we build sturdy profits, risk less to make more. Thats exactly what they did with the bearish bet on home depot. Carter saw cracks in the Home Improvement retailer heading into earnings. So i think the next move is down and want to bet against home depot having rallied steeply going into earnings. Just shorting the stock that could lead to mass destruction. So to make a bearish bet, mike sold the september 155 call for 3. 45. Now to keep all of that money, mike made shares of home depot to stay below 155 he wont see losses until home depot rises above the price by more than the 3. 40 he took in or above 158. 40 by september expiration however, above that level, mike will be vulnerable to infinite losses to limit his risk, mike then bought the september 160 call for 1. 40 and created his bear call spread. You know what im getting at . Not even close, tim now between the 3. 40 he collected by selling that lower strike call and the 1. 40 he spent buying the higher strike call, mike still pockets 2. That 2 is the most he can make on the trade but to keep all of it, mike needs home depot shares to stay below 157 by september expiration above 157 losses do kick in but they are limited to the difference between the strike of the call that he sold and the strike of the call that he bought minus that credit. Little clearer now . Less than ever, tim well make it real simple for you. Mike can now do something even the handiest of men cant do not exactly. But he can make money whether home depot goes down, stays flat or even goes slightly higher and since the time of the trade, home depot shares have fallen 5 now options action fans all over the world want to know just one thing, what will they do now . What do you do with that trade now mike weve made essentially all of the money you can make on this trade. Ill defer to carter and you think we have more downside . Theres the tactical. You paid for an earnings miss, we happened to be short. This is structural, as low as 17 on the crisis loi and high of 160 weve given back little. Still operating business and its a hardware store. After all, if things get in trouble, home depot wont be immune to that. Take your profits and i can roll out out to the 1. 40 put spread and playing with you went into the event and new option prices were elg elevated and sold premium and got it right do you want to roll it out i want to buy premium because i think premiums are underprigsed they tend to go up often go up more than they should if you can identify a direction, now weve got a trend. First youre just trying to make a directional bet. Once it starts to roll over, you can press bets and were doing it again with house money. Up next, your tweets and the final call 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 steve, other than making me move stuff,