goldman sachs' stock. the action begins right now. >> live from the nasdaq market site i'm mandy drury, sitting in for melissa lee. these are the traders here in times square. call it a day of pain on the 25th anniversary of black monday earnings whacked stocks and another heavy week for earnings on tap. is the carnage just getting started? the selling was broad based but particularly bad in tech and the high flyers. >> here is the thing. we started this week with this big rally. there was a lot of enthusiasm around financials earnings. as we broadened out and started seeing more out of tech, it got kicked off. you saw the disappointing reaction. forget the results but the reaction kept going. it started to spread to small tech names or small cap names

but really started to take hold in some of the high flyers. to me at this point you have apple computer who has so much gains in the stock. it is still up 50% on the year. it made a new closing low from august 2. there is a lot of performance in the stocks. >> it's not just the high flyers but also the dogs. these stocks have been horrible forever. how low can they go? apparently it looks like the answer is probably zero. that is the direction this thing is headed. >> you mean out of business kind of zero? >> what is the stock now? $2? this thing is an absolute wreck. the other thing is financials are a unique case because you have q eternity. fundamentals are really what is mattering here. >> we had a big rally. why was that? because on friday and on monday the s&p bounced off of the

50-day moving average. it was bedrock. when we bounced off on monday that is when it was off to the races. the s&p closed today right at the 50-day moving average. next week is going to be really important. it can be really dangerous. again today and we saw this is the second day in a row we have seen that. a big buyer of s&p 1270 puts. >> the final point i would say is when you see the vix play on the market a lot of that is delta. the market moves down and the vix moves up. in fact, long dated s&p options were higher by almost a solid vol play. >> we had the google announcement and they sleighed a lot of high valuation internet names. we had mcdonalds disappoint and look what happened to starbucks. i think investors are starting to take a second look at derivatives. >> i think it is really disappointing that big names are well below the 50 day moving average, apple and google despite the fact that the broad market is there.

>> it feels like the angels have fallen here. we have to look forward to next week. what all this action here means for next week. next week we have earnings coming out from amazon. i would like to know the price action means for amazon when it comes out with its report. >> here is the stock trading decently relative to other names. apple computers down 13% from the all-time high. it is down 9%. it is still up dramatically on the year. we haven't had specific news to the story. here is a stock, when we get the earnings it will be less to extrapolate the competitors and more about the business. this is what makes the story so interesting. the implied move is about 8.5%. it has moved around about 11% over the last four quarters. 8% over the last eight quarters. there is a lot of expectations

built in here. it is a stock specific story. remember this apple is reporting next week. they are introducing the ipad mini coming after the kindle fire. this is really interesting. >> it doesn't feel like a coincidence in terms of the timing. it sounds like dan is bearish on the stock. it is one of the most common strategies for making a bearish trade. let's crack open the play book. you buy one put and sell a lower strike put of the same expiration to reduce your cost. how do you make money? you want that stock to fall to the short put strike. that is where you make the most money and where your profits are kept. with that said, what is the trade? >> this is a make or break week for amazon. a lot of mutual fund

investors -- what i want to do is buy the november. i did this when the stock was around the 2.40. i bought one for 7.70. i sold one at 2.70. $5 is my max risk. i can make up to a $15 between 225 and 210. i make the full $15 between 210. i think it is an important week for amazon. >> this is a high flying name i loved for a long time. i have been wrong on this stock more than once. when you are dealing with a stock with such a low margin you keep thinking one day people will come to their senses. will it be the walmart story or will it be like the netflix. we are not in a very optimistic market. you are spending 25% of the distance between the strikes.

>> we have something we love to hate. >> i'm with mike. i'm dubious about the story that amazon has to tell. they continue to make excuses for the horrible margins. dan is right on this. he is spending very little money to get potential $15 upside. mike is right on the money. 25% of the width of the spread. i like the fact that dan is keeping us fairly strike and long a strike just below. amazon is not going to 0. >> what is the bottom line? >> just look at cng and chipotle. if this stock disappoints it doesn't have to do a lot to have this thing down 10% in my opinion. >> absolutely. if dan is so bearish why not just short the stock. playing a little stocks versus options. shorting any stock carried unlimited risk but dan's put spread offers a four to one

return and risks $500. interesting reward. the transports were flashing a big red warning sign by failure to rally with the dow. one of the biggest transports is set to report earnings next week. and the charts say watch out below. let's find out why. what name are we watching? >> u.p.s. one of the biggest transports around. i have three charts all same i have three charts all same time frame just drawing lines differently. this is a two-year chart. you call it a descending triangle or wedge. when you hover at it and then toy with that low and you are in the market you have a risk in drop.

it's the same chart but a well defined topping out formation. and then the third way it depicts the symmetry of going on here. you can call it head and shoulders top. there is a great risk that it pierces these lows and drops and fills towards 65. the last chart is the same chart but juxtaposed against the s&p. this is really the smoking gun. the total failure to participate in any market strength over the last three or four or five months is ominous. i think it is the beginning of what should be more to come. we are short here playing for 65. >> that's what the charts are telling us. what about the fundamentals. >> nice sweater there, carter. president carter was wearing a sweater when he was dealing with the oil crisis. looking at fundamentals in u.p.s. some of the other transports, federal express, results were mixed. we have been seeing not overly optimistic signs from the transports. diesel demand is down and demand

for class-a trucks is down. that suggests the transportation sector is weak. this stock is trading a small premium to the broad market. we are talking about a stock probably to see top line growth of about 2%. going into earnings i'm bearish. >> that does sound very bearish so mike is buying a put. let's open the play book to see how it works. when you buy a put you want the stock to fall below the strike of that put by more than the cost of the trade. that is where you see the profits. above that level you will see losses. it's that simple. with that said what is the trade? >> i'm going to buy the november 7 put. those cost about 87 cents. important point before

expiration the stock has a 57 cents dividend. quick point here. this is not a stock that typically moves a great deal on earnings. we are making a bearish trend bet here. that is about the average. that's why i'm just buying a put. >> i agree with these guys. the technical setup looks atrocious. fed ex looked like it was about to break in the same way. i think these guys given some of the commentary we have seen about the u.s. just from ibm and mcdonalds and what google had to say about the u.s. economy these guys are more exposed. i like this trade. >> i thought the interesting thing was that carter said his target is $65. why not reduce the cost and make the whole thing a spread. mike is not spending very much money and wouldn't receive much for selling the put. he would sell a dollar cheap put to put on a spread.

i don't ever want to. i want all that down side if all i'm spending is 85 cents. >> shorting stocks is the riskiest thing you can do. after all they can only go to 0 but can go up forever and ever. that's a mighty long time if you are on the wrong side of that trade. mike's put purchase offers huge leverage to the down side and risks $85. we will see carter later on in the show. in the meantime got a question send us an e-mail. we will answer it on our one-on-one web extra right after the show on our website. you'll find trader blogs and updates there, as well. fantastic things to see. check it out.

what's coming up next? still golden? last week dan made a bearish threat on goldman sachs. since the time of the trade stocks rallied. still hasn't lost much money. how is that? find out when "options action" returns. it is time for pump up the volume. this company formed as a result of a major merger in 2007 and it makes everything from fresh food packaging to automotive parts. and this week the stock has had a chemical reaction leaving options traders wanting a piece of the action. who is it? the answer when options actions returns. and you don't want to miss it with thinkorswim by td ameritrade.

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where were options traders pumping up the volume some yondellbasell. two times the average daily volume. calls were active. what's the news on this one? >> it is not the first time we talked about it. the chart is absolutely pristine. we have seen people buying calls.

i don't know how you step in and buy the stock. >> let's do total recall. and that is where we look back on our trades and give you the next move. two weeks made bearish trade on goldman sachs. the stock has moved against him but he has the opportunity to make money. is that magic? no. it's not. it's just options. >> on "options action" it's halloween. risk less so we can make more. that is just what dan did with his bearish trade on goldman sachs. dan thought the giant was set for a plunge. >> this stock has had an amazing run. i would expect consolidation here. >> shorting the stock? >> i advise caution on everything. >> so do we. to define his risk dan bought the november strike put for $1.90. to make money dan needs goldman sachs to fall below that put strike price by more than the cost of the trade or below 113 below november expiration.

do we want to pay almost $2? horrible. show us how to do this for less. >> one of the october puts. >> well done. so to spend less dan then sold the october 115 strike put for 50 cents and created his put calendar. he did something even better. he made making money easier and here is how. between the 1.90 he spent buying one put and the .50 he collected selling the other he cut his costs down to $1.40. instead of needing the stock to fall below 113 to make money it needs to fall below 113.60 by november expiration. but it gets even better.

and that's because the value of the data put that dan sold would decrease faster than the longer daily put he bought allowing him to do something even goldman traders can't do, turn time into money. >> that was an incredible feat. >> there is a tradeoff. in order to make the most money dan needs goldman stock to stay just above the put he sold by the first expiration or above $115. but below the strike of the longer put he bought by more than the total cost of the trade by the second expiration or in this case below $113.60 by november expiration. since the time of the trade goldman's stock has risen 3% leaving this trade in danger of becoming a loser. now, wall street tightens up and down the street want to know one

thing, what will dan do now. what will dan do now? let's see where the trade stands. had you shorted goldman you would be looking at al loss of $200. dan's put calendar costs $140. the put that he was short expired meaning he has won the first leg of the trade and he is long the second put at a discount and needs goldman to fall below 113.60 by the second expiration. where is goldman going and that is the question for you. >> we started talking about this at the beginning of the show. a lot of banks and brokers put up decent results. the stocks acting well in a pretty good market. what i was trying to play for was selling that implied move in october. what i wanted to happen happened although the spread did lose 1/3 of its value. i think we will see further weakness next week and look for a lower strike put.

>> let's stay with goldman and the financials and shoot it over to the master. carter, i believe that is you. what do you see in the charts? >> moving from a 52-week low of 90 you stall out when you first approach. we would short goldman here with dan and play for lower prices. >> mike? >> i'm inclined to agree. he was making a great point before. the financials can manage their earnings probably better than any other sector can. at the end of the day stocks are looking extremely weak. we see people pulling out of them. >> i think mike is right that stocks look really weak. today was obviously horrible. i did not like this trade when dan put it on. with the out of the money calendars you have to spread it twice.

with out of the money calendars the math is not working in your favor. dan and i disagree on this trade as much as we disagreed on any trade. he is long that 115 put now and -- >> i think it was good debate that we had last week. i wanted to buy puts but i don't love making a binary trade into an earnings event. i have a situation where i can recoup what i have lost by selling a lower strike put. i'm still in the game. i think there is going to be down side volatility in the space. around the election it will be the perfect sort of timing for this trade. >> a reminder as we head to the break. if you want updates on our trades be sure to follow us on twitter at cnbc options. dan posts regular updates of his trades on twitter. if you are on facebook you can stay posted on our trades throughout the week at facebook.com/optionsaction.

coming up next the final call from the options pits. and you don't want to miss it with thinkorswim by td ameritrade. you get knock-your-socks-off tools, simple one-click orders, real-time paper trading to hone your skills, plus anytime you need it support. ♪ stocks, options, futures, and forex. get your trading on track. thinkorswim by td ameritrade. trade commission free for 60 days, plus get up to $600 when you open an account.

time for the final call. the last word from the options pits. scott, you're up first. >> you you can still buy protection. >> next week apple is into tuesdaying what i'll call the amazon fire extinguisher. i want to be long amazon. >> i like the puts in u.p.s. >> it looks like our time has expired. for more, go to options being

as.cnbc.com. see you next friday. and you don't want to miss it with thinkorswim by td ameritrade. you get knock-your-socks-off tools, simple one-click orders, real-time paper trading to hone your skills, plus anytime you need it support. ♪ stocks, options, futures, and forex. get your trading on track. thinkorswim by td ameritrade. trade commission free for 60 days, plus get up to $600 when you open an account.

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