so, until next week, i want you to stay safe. bye-bye. this is "options action." tonight -- >> he is the one. >> that's right. one dow component could determine where the market goes next week. we'll tell you what it is and give you the setup. plus, did uncle carl dump all his netflix? >> i think there's a lot of verbiage about it. >> that's what some unusual options activity is suggesting. we'll break it down. show you how to profit. and is one of the biggest stocks in the world about to get even bigger? >> i was hoping you'd say that. >> traders say yes and we'll tell you why. the action begins right now. and we are live from the nasdaq

market site once again on this dreary and rainy friday afternoon. i'm mandy drury sitting in for melissa lee. these are the traders here in times square. hi, guys. great to have you with us. this is what matters to traders now. bonds are rallying, yields have hit lowest levels since october and small caps are being hit real hard and they are close to a 10% correction. but the s&p, well, guess what? is still near its record highs. will it be the next to tall? or it will fall. let's try to find out. dan nathan, how troubling do you this think this is? it's been hitting are new record highs. >> it is potentially troubling but it's not right now. for the last 24 hours, traders were staring at the 50 day moving average and it wouldn't break. it held there. and what did it do late in the afternoon? and then it popped. really on a week that didn't see a heck of a lot of movement, we basically closed the week where we started it. we did see a big move in bonds.

like you just mentioned. yields got nailed and so to me, you know, with the vix closing where it did, down in the lows of the week, you know, i think the move in bond yields is really if you want to try to get a sense for where risk is, it was there. one other point, the largest index options trade on the day happened right on the bell and a trader bought 50,000 of the vix september 21 30 call spreads. that was for 70 cents. between 2170 and 30, that's a profit trade. that's one trader saying risk is priced really cheap. maybe it's a good hedge. i don't know. >> what about you? >> we know the market as measured by the s&p is virtually unchanged. you could say if it's unchanged over the last two months, isn't it just as healthy as it was two months ago? of course it's not because we have a deteriorating situation in terms of low quality stocks. there's an adage from the 1930 that's applicable here. a market deteriorates under the cover of strength in blue chip

stocks. our blue chips are holding up but under the surface we're losing ground and the russell depicts that. we're down almost 10% and that's a big problem ultimately. that's for the overall market. >> any nervousness on your part, mike? >> i think this yield issue on the treasuries is really interesting. a lot of people have said they think that was sort of a flight to safety, but, the s&p doesn't necessarily reflect that and neither does the vix. i think what it is actually forecasting is an expectation for slightly lower gdp growth and slightly lower than expected inflation. i think people are taking that -- i think they are overly come play lent. because what that would suggest is they think, okay, we probably are going to continue to see some quantitative easing which will help support stock prices. i on the other hand thinking about long ten years at this rate is a ludicrous proposition. i thinking about short any form of market insurance at the levels we see in the vix right now is similarly ludicrous. i can't fathom what anybody would be thinking when you have the market trading on essentially on its highs.

you're tag about slowing growth. that's slower eps growth just so you know. you ought to be thinking about insuring your portfolio. >> as ludicrous as you taking an extra day in vegas. you couldn't get back to the show here? come on, dude. one of the things i would mention when you think about that risk or the pricing of risk, to carter's point, this is one thing people keep putting off, i saw a stat today and i got to quote it, a friend of mine who writes a relevant investor blog had the stat. in the last 14 years, since the year 2000, there have been 36 peak to trough sell off-s in the russell 2000 of 10%. 35 times the s&p, the large caps have followed. they have not followed this time. so to me you have this complacency that mike is speaking to that just keeps expanding and expanding. when you use carter's old adages, it's got to make you nervous here. >> mike? >> yeah. i mean, this is one of those situations, it's a combination of a whole host of setups. technically it certainly looks

like the blue chips are poised to start following some of the concern that was in some of the lesser types of stocks. the fact that the ten-year treasury here is also ludicrous, there's really nowhere for yields to go but up in my view. one of two things is going to happen. if you start to see greater than expected economic growth or some form of tapering, that's going to great another taper tantrum. that will bleed into equity prices. surely. and the other thing is the housing market, which is a whole part of the reason we're trying to do this hasn't been that stellar. we're going to find out more data in the weeks to come as we find out the pricing data going for first quarter in housing. this is a situation where i just can't fathom why anybody would be totally net long. >> you can't get on board with that. let's make some money here. dan, what is your sky -- >> we talk about volatility, implied volatility. the price of options. there's not cheaper vol than on the spy. that makes sense. it's the safety trade. look at that. it's at a two-year low. there's two ways you can think about this. i did put this trade on.

i'll tell you when i want to do this. next week, if we go up and try to make a new high in the s&p and we fail like we did earlier this week, this is when you jump all over this and this is when you do it. i was pricing this up today when the spy was 188. you could buy the june 187 put for $2.50. that break even is at 18450. people, that's down 2%. over the next five weeks. that could be protection. it could be a directional bet. the vol is really cheap. one quick point. david tepper got everybody in a bit of a tizzy with the market. what did he speak to? he said the ecb, they better lower rates. and that meeting is the first week of june. we could see some volatility into that. >> and i think it was -- >> i absolutely -- look, i would absolutely be looking to buy some insurance in the s&p right here. i might even look a little further out. it's a little bit like when you're trying to trade interest rates. you want to get a little more duration. if you're trying to trade volatility, the same thing applies. longer dated options will give you the potential if the market drops or if vol pops, either one. one nice thing about dan's

trade here, this is really important, folks. when implied volatility is low, the price of options is low, you're getting a ton of gearing. essentially what that means is it's like you're getting double the odds on a downside move on a higher volatility environment. it's hard for me to figure out why someone wouldn't do this at these levels right now. >> final word to you, carter. >> what's also interesting is part of what's holding up the s&p, of course, is it has a lot of bond proxies in it, staples, utilities, reits things that don't exist in the russell. as long as the rates are staying low, people are fleeing to large cap defensive names. and that's part of the mix here that's keeping the s&p artificially high, if you will. >> that's a really good point. guys, it was really the story of the week, wasn't it? the ferocious value we've seen in bonds. that has given the boost to a number of stocks as well. dominic chu is back at the mother ship. dom, beam us up. >> mandy, here is what we've got. we're talking about those unyielding type situations. investors piled into that ten-year treasury this week. that sent rates below 2.5% and down to the lowest levels since

october. now, that's a far cry from the 3% where the ten-year yield started this year or the end of last year, and the action definitely impacted some of the stock market. this week's best performing sector was telecom which happens to have a 5% dividend yield on average. that's the highest of any s&p sector out there thanks to companies like wind stream with a 10% yield. reits, real estate investment trusts, also outperformed this week as did mlps, master limited partnerships that do oil and gas pipelines and that kind of thing. but curiously, home builders, which should benefit from lower rates, well, they were actually down on the week. so, again, some of the interstate sensitive trades there are but it doesn't apply across the board i guess is the best way to put it, mandy. >> that's quite a good point. isn't it, actually? thank you very much for that. so if home builders aren't feeling the love as rates drop, could there be trouble on the home front and one large retailer as well? let's check in with the chart master. what have you found there, carter? >> we're going to focus on home

depot. it's a very important point conceptually. these stocks are so sensitive to the cost of money and the cost of money has collapsed but they haven't come to life. just quickly we know the s&p is basically unchanged on the year. let me switch to red, and you have that versus the home builder etf, masco, fortune brands, beacon roofing, la-z-boy, this is disaster. this is year-to-date performance and again this week, not getting any lift as rates continue to go lower. let's talk about home depot. this is a big asset, second biggest retailer in the united states, and it's an intersection of a lot of different things. it speaks to employment, speaks to housing, it speaks to home improvement, and if one likes to draw trend lines, you can't draw any more precise trend line than that and you can't call it anything other than a break in trend. this has been responding to the trend line perfectly for the

better part of three years and over the last six, seven months, we have clearly left the direction we've been in. now, you can draw it this way. you can draw it this way. i would call it a well-defined bullish to bearish reversal. the implications are, of course, that you have great risk of breaking here from these lows and, frankly, collapsing. so here is how you could draw it if you wanted to say, well, maybe it's not going to collapse, carter. maybe it's just a range and this is the setup for the breakout. in fact, there are a lot of people i know who are quite bullish on this stock. they might be right. here is the thing. is this pause that refreshes that a good thing or is it something else? here is why i would interpret it as a bullish to bearish reversal and not a setup for a breakout. i would interpret it not a setup because here is the same chart, here is the same consolidation, but this is what's important. relative strength. this stock since basically may a

year ago has been underperforming the s&p. so optically while it's sideways, its relative performance is nothing short of a disaster. this is not good. we think it comes out to the downside. we would sell home depot. >> i would also add what's a disaster is when you talk about rates, dom just said you would think rates coming back down, that would be very good for home builders and related stocks. i actually see it as very bearish. i see it that the fact is investors are seeking bonds out because they see risk to growth right here and so to me i don't think you have a whole heck of a lot of people running out to buy new homes. i know there was some decent data today. to me i think that relative underperformance is very troubling and i would stay away. >> would you as well, mike, stay away? >> this is really interesting. what dan was just highlighting is the fact that if you see these falling rates, that expresses investor skepticism. there's actually proof in the home builders because what we saw the last time that rates started to spike was that there was a rush to buy homes, and i think we pretty much exhausted

whatever demand there was at that time because here we have rates much lower, people are not stepping up, and specifically we're not seeing people like first time home buyers, for example. kind of a jobless recovery. the affordability is about average at this point. if rates rise, it's going to get much worse. if anybody could be buying, this is the time we'd be seeing it and we're not. this is one of these situations where, look, we've seen 20% eps growth for five years. but only 5% revenue growth. and if the economy slows, it's not even going to be that high. i'm with carter on this one. >> thanks very much, guys. well, we'll get back to you in just a second. you, dear viewer, if you have a question, you can send us a tweet @cnbcoptions. we'll answer it in our one-on-one web extra. that's on our website, option action cnbc.com. you'll also find some great trader blogs, educational material. makes us all smarter so check it out. but in the meantime, this is what is coming up next. future events such as these will affect you in the future.

and one of those events could be an oil spike. we'll tell you why it could be good news for one of america's biggest companies. plus -- >> who thinks that? >> that's what investors have done to netflix shares all year. we'll tell you why it's about to get even worse. when "options action" continues. [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade.

[ bell ringing, applause ] five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade. so a number of big investors

making news this week with their 13f filings. one of of those investors, carl icahn has disclosed he sold a chunk of his netflix stake in the first quarter, but by now has he gotten out entirely? what kind of movement are you seeing? >> here is the thing with these 13fs, you have no idea what people have done. he disclosed in that filing in q1 he sold 16% of his position. that was a position he owned 100% more of last fall. and so one of the things that's really interesting, mr. icahn was the largest shareholder. he got into netflix two years ago when it was below $100. and i just want to show some of the price action. why do we focus on the stock so much, especially in this high valuation stock sell-off that we've been in? it's kind of been the poster child for it. let's look back. this is october of 2013. look at this day. this was one day after they reported their q3 results back in october. what happened? right here mr. icahn tweeted out he had sold half of his position.

he had a fabulous gain in that. look at that. that stock went down. it had almost a 20% reversal that was peak to trough here. just because he was getting out. a lot of people riding his coat tails. let's move forward over here. this is april. this is just last month. the company reported a better than expected q1. you had this big gap. what happened right here? the stock actually sold off again almost 20% after that initial earnings gap. now, again, he sold down a portion of position. supposedly he still owns 2.2 million shares. that makes him about the seventh largest shareholder in netflix, but remember, people, this data is 45 days old, okay? so let's look at the chart right here. this is a company that actually -- they're doing a lot of really good things, but they have tons of competition. they have regulatory issues, and to me it's a high valuation name. you have to be careful. i'm long a put spread in june. when the stock was 338 a little while ago, i bought june 325 puts and i actually sold a

downside put to offset some of the decay. the stock is at a crucial level here. if you look at this, you know, it really has to break right here, and at the end of the day today it had a big pop. i think there were a lot of people digesting the fact mr. icahn might have sold. i'm long the 325 puts in june. >> mike? >> this is a situation where it's a great company, but it's not a great stock. kevin spacey was speaking at the salt conference in las vegas this week. what he was talking about is this is a company that allows the creatives to do what they want, it gives consumers what they want, but it does not give investors what they want. it's trading at 131 times earnings and in an environment where the market is a little risky, you'd be foolish i think to think about getting long here. >> and just as dan has laid out, in terms of the pattern itself, the word dreadful comes to mind. >> dreadful. >> this is a textbook bullish to bearish reversal. you can calm it head and shoulders, top. we close at 349 and it looks like it's going to 250. >> on a short time basis, as a trader with a short position and i have time working against me, i'm actually really nervous

about a break above 350 filling in that gap a little bit. >> possible, but that's the noisy part. i think the bigger part is what you inferred which is this is a critical level and ultimately it should give way. >> mike? >> this is where you want to put put spreads on. it's a higher volatility. dan is doing that sensibly by taking advantage of the high skpries useing a spread to help the bearish bet. >> up next is a spike in crude about to hit the markets? a surprising chart says yes. we'll tell you how to cash in on that when "options action" returns. so is one of this year's hottest trades cooling off after ♪

so is one of this year's hottest trades cooling off after a great three months? energy stocks have suddenly turned sluggish. that is left mike and carter's bullish exxon trade in jeopardy. let's take a look. >> on "options action" sometimes risking less to make more isn't quite enough. sometimes you want more cash, and that's the case with their winning exxon trade. carter said the shares were looking good.

>> we think the opportunity here is to play exxon for some catchup. >> mike said let's do this. but just buying the stock, 100 shares would set you back $10,000. >> imagine that one. >> so to make a bullish bet, mike bought the october 100 strike call for $3.50. that's the most he can lose. in order to make money he needs exxon shares to rise above the strike of that call by more than the cost of the trade. or in this case above $103.50 by october expiration. and here is what makes it even better. if exxon shares do rise, then that call will gain value faster than the stock meaning more money in mike's pocket. >> do you get the picture? >> and after initially rising 2%, exxon shares are up just fractionally, making this trade neither a winner nor a loser. >> i sympathize with you. >> with a ton of time left until expiration, "options action"

fans from dallas to damascus are asking the same question, how can they make even more cash? dallas to damascus. i only wish it was so. let's get that answer in just a second. before all of that, carter, i have a question for you. do you still like exxon? >> you know, i do. and here is the interesting thing. so in june of 2008 the stock was basically where it is now. we've just now gotten above that high of seven years ago. so it has characteristic not only absolute but relative. if there is a real drawdown, exxon will hold up really well. it's a low beta stock, but it's a defensive stock by nature. we would stay in this trade. we like it. >> what about the next move according to you, mike? and is there a way to make even more cash on this trade? >> you know, one of the things that dan highlights all the time, you're in these positions, this was a stock that rallied. you could have taken a little money off the table but rolling it in into a spread or rolling up and out. which basic life means pushing

out the expiration and buying a higher strike and buying some of those profits. if the stock rallies and i'm going to stay in this trade, that's probably what you should look to do? >> i don't like the trade. i will give you a freebie -- >> you didn't like it when we put it on either. >> i think it's up because of buffett got in back in february. that's why it had that huge rip. i would look for a play back to 95. you can look out to july. just spel spell it out real quickly. to me 95 would be a great level to press this thing back. the 100, 95, 90 full put fly is probably 85 cents. that's a great risk reward if you're of my mindset that you think the market can pull back. >> the real tell is that brent acts really well. right? it's $109 this week. wti at $102. the underlying commodity acts well. we think exxon participates. >> final word to you, mike. >> market neutrality doesn't mean you sell absolutely everything. there has to be some places you're long. i think of all of them, this is probably the best place to do it. >> a quick programming note because next up on mad money it's raining here on the east coast but if you're still

feeling parched, cramer might have an interview that can quench that thirst. find out if aqua america can provide a steady stream of returns after this volatility. but up next, with the final call from the options pit. don't go away. [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade.

[ bell ringing, applause ] five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap...

of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade. it's friday afternoon. the traders all want to go home so let's get to the final call. the very last word from the options pits. mike, you take it away first. >> when you get more concerned about the market, you don't need to sell your stocks. you can use options and we'll explain how on the 101 web extra to express the bearish view that carter articulated on home depot. >> carter, what about you? >> home depot, a five fold increase off the lows in 2009. almost double the pace of the market. take profits as you have those gains and rely on exxon as a safety trade. >> dan. lucky last. >> s&p 500 if we get a failed

retest of that previous high, i think spy puts are very, very cheap. you can use them as portfolio protection or a directional bet to the downside. >> okay. guys, thank you so much for that. it looks like our time has expired. i'm mandy drury. check out mike's trade as well. go to our website. have a great weekend. see you next friday. >> announcer: the following is a paid presentation for the nutribullet brought to you by nutribullet llc. special tv offer. stay tuned to find out how you can get the nutribullet superfood nutrition extractor free! that's right. get the complete nutribullet system free! details just ahead. >> my muscle aches, my back aches really started to decrease significantly in one week. >> first night that i actually used the nutribullet, i actually slept really well. that was exciting. that was phenomenal. >> the bad cholesterol which was