money, then things. now, you stay safe. bye-bye. this is "options action." tonight, high bar. investors are expecting a huge jump in tech earnings next week. we'll tell you why they can be in for a shock. plus who just got in bed with bed, bath and beyond? >> are you kidding, really? >> not you, george. we'll tell you which activist some options traders think it could be. and it's the stock chart that might be on the cusp of a major meltdown. what is it? and how can you profit?

we'll reveal. the action starts now. it does indeed, live from the nasdaq market site, i'm in tonight for melissa lee. these are the traders here in times square. and on a rocky week for markets, a new concern is starting to crop up. that being the u.s. consumer. companies from walmart to rent a center and many others starting to warn about consumer spending. how big a problem does this pose for the rally? let's get in the money and find out. i could go down the list. lumber liquidators, tractor supply, container store, walmart u.s. you could throw five more at the board. what's the problem here? >> well, i think this has been going on now over a year. we've had a lot of situations in consumer and retail where a lot of investors have explained them as one-off situations. company-specific. but at some point you have to think about it as a trend. you talked about, threw out names. this week, let's talk about it, it's kind of the good, the bad and the ugly.

we had costco, june sales slightly better than expected. the stock hung in there. then that was the good. the bad, we had family dollar missing. guiding down. the stock was down 5% on the week. then we had the ugly. the ugly was really ugly. you mentioned lumber liquidators. 28%. container store down 26% on the week. so at a certain point they're less than one-off situations. you've got to start thinking about it as a trend. >> you have to start thinking about it, when the ceo of container stores says we're in a retail funk, that's sort of on the same exact day the walmart guy is out saying, we're not really seeing a lot of things materialize here. >> there is an overarching theme which kind of explains the things we've seen that have been good and bad. what has been good? things like auto sales have been good. that's supported by low interest rates. home sales what we've been seeing is increase in asset prices. home sales, although values have gone up, the number of home sales is not that great. what you're really talking about

is a situation where asset prices have gone up, wages have not. that indicates a consumer is suffering and people are buying cars -- >> they're buying cars because there was pent-up demand. we had a very old fleet. we have incredibly low interest rate which make them more affordable. that's the only reason i think -- you see interest rates tick up i think things like durable goods, car sales are going to follow. i think this is the tip of the iceberg. >> i would say with car sales it's an outlier. these companies, for a long time, were missing sales until earlier this year. they sput a string of sales didn't. that goes to the weather. didn't we hear in december, january, february, people weren't going to the lots because it was cold. you've seen penn-up demand for large purchases. down the chair, let's talk about it. look at the blowups this year. bed, bath and beyond. coach. whole foods. these are stocks trading at mult multi-year lows. they've gotten destroyed.

to me i don't think they're one-off situations. i think we're going to look back at some point and say, that was the canary in the coal mine. >> carter, are you seeing more pain in the charts? >> looks that way. one of the most principles in markets is mean reversion is very real. that's largely what we're looking at. this is the xrt which is very much a consumer discretionary item, versus the entire consumer discretionary sector in the s&p versus the s&p itself. from the high in '06-'07. we have the '09 plunge and the recovery. basically what we see is here is the market. we know that the sector, consumer discretion has outperformed the market by almost double. then these very discretionary names have outperformed the sector. so it's now a question of, do we have mean reversion? let me show you what i mean by that. really long-term. so here's the s&p in one of its parts. ten parts. comprise the whole consumer discretion.

no sector has outperformed the market for more than five years in a row, going back to the 1980s, and consumer discretion last year completed a record sixth year of outperformance. so this underperformance is, we believe, the beginning of a very powerful mean revert in trade which is to say we're likely to have some convergence between the outperformance and the market. >> carter, you talk about discretionary spending especially on premium type brands. you could throw starbucks in that lot. you'd be spending four bucks on a cup of coffee. >> i would very much throw it in. i'll say this, this is a cult stock. it's a cult -- consumers place a lot of the loyalty in this brand but at some point to me the stock, when you think about it, is priced for perfection. it trades at 30 times earnings. this is a $60 billion market -- >> it did peel off too. remember when momentum stocks had their sell-offs, starbucks was right in there. >> russell, it's a bigger company, it's an expensive

large-cap stock, kind of like nike, one of these premium brands but they report on july 24th and to me the stock is priced for perfection. had a 10% rally. so this is a trade that i'm examining to talk about that i want to go next week. i priced it up today when the stock was 78.50. i want to make a bearish bet. i think if there's any hiccups this stock retraces a good bit of this recent move. so when the stock was 78.50 today, could have bought the august 77 half, 72 half, put spread for 1.25, my max risk. how i make money on those trades between 6.25, down a little less than 3%, 72.50, i can make up to 375. i'm risking a quarter of the width of the spread to make three times the money here and i think this stock is in a very important technical level, just got rejected at 80. that was a level it broke down from late last year. to me this is a sort of trade i want to do in this type of

market. >> i like the options trade structure. i definitely feel you on the overvaluation of starbucks at 30 times earnings. the one thing i would point out is we used whole foods as an example, interesting case. they had a premium product, there are alternatives. a lot of the other grocery stores are beginning to provide the products that whole foods has typically been able to charge a large margin for. that was the reason they had higher margins. there isn't much alternative for starbucks. people still line up there. >> dunkin' donuts, this stock can't get out of its own way either. to me it's rolled over. that was a premium, stock trade traded at premium, and another one, panera. stocks can diverge, sooner or later, if this become add trnd -- >> panera did have bad news. we had a little bit that could bleed over to starbucks. i would say people who drink starbucks, i don't think they're going to switch very quick. >> you're wearing the "options

action" uniform, blue shirt, blue blazer. >> and starbucks. >> as earnings season heats up next week's tech earnings to determine the market's next move, dominic choo at hq with more, there's some big and important companies reporting next week. >> oh, there are, even though are forgot my uniform i'm going to talk about those tech earnings. heavy hitters are coming up next week. big giants like intel. on the chip side, intel is huge. yahoo!, ebay, google, ibm all reporting in this coming week. so what are the analysts expecting out of these big tech heavyweights? on the earnings side, tech companies are expected to report a 7.4% increase in earnings from the prior period. from the prior year. according to analysts at fact set. that's considerably higher than the 4.6% credit expected for the s&p 500 as a whole. it looks even better when you call the top line side of things. the revenue side. analysts are looking for a 5.4% bump in sales.

that's double the revenue boost seen for the entire s&p 500 as a whole. where is the growth coming from? it's all about those chips. on the whole, analysts expect to see 41% year over year earnings growth in semiconductor stocks like the intels of the world. semiconductors, tech very much in focus next week. >> intel's had a nice run. could wall street be getting too optimistic ahead of earnings? cbw? >> let's have a look. here's the smh. this is the semiconductor itself. we'll look at smh next. what's important here is this outperformance of this part of the whole. we know semis are a part of all technology. and you're talking about from july 12 to july 14, a two-year run that's basically 80%. and almost double that of all information technology in the s&p. so a lot of outperformance. and so much outperformance, in fact, now let's look at the smh

itself that we are now above -- this is the point of trends. they're not my trends. take a look at this. this is well defined, there's no way around it. you're at the top of a channel. so we are discounting a great deal of those prospective good earnings. another way to do it is to just use a moving average. we prefer the 103 moving average. the smoothing mechanism bounces to the penny, to the penny, and it checks back, checks back, checks back, and you're due for a check-back. if you've got good privates in this take some off. >> in fact, you're going to make a bearish bet here, a very -- very much in the same way dan did with starbucks. >> well, yeah that's exactly right. i think there are times when even though the fact is options prices are not that high, it does still make sense to do a spread. that's what i'm going to do here. specifically looking at the november 49.45 put spread in the

smh. i'd use a limit order. i'd like to spend $1 for that spread, 25% of the difference between those two strikes. you can spend $1.50 to get the 49s and sell the other ones against for approximately 50 cents. that is where you get that $1 deb it in. one of the things we've seen here is that a large part of the price appreciation has been coming more recently from an increase in multiples and a lot of these old line stocks have been trading at a huge discount. guess what, they're not at such a huge discount anymore. if the market pulls back these are lower beta names like the intels of the world, they still are vulnerable and they're looking a bit extended. >> this is a good way to play it. intel's reporting, they preannounced this quarter. expectations are high. stock up 20% on the year. smh, 20% of the weight of smh is intel. this is one way to diversify, to make a bearish bet away from intel. i like it here. it makes sense because to me i think -- >> you like intel? or the bearish bet? >> i like the bearer bet on the

semis in general. >> there's a shock. >> dan pointed out there was a huge bearish bet on the smh. they did a similar trade, i think it was when the -- a little older, august. we want to give ourselves more time to i practice out. i think it traded 20,000 times. that's a substantial -- >> you say tech's going to struggle? >> it's going to struggle. >> this has been a leadership greth. >> intel earnings and sales are expected to grow mid to low single digits at best the next few years. there's no growth. you're paying market multiple for it. there's been expansion, if we down turn the cycle these stocks are going lower. >> tweet us @cnbcoptions. check out optionsaction.c nbc.com. the hottest options news and videos throughout the week and exclusive trades so check it out. here's what's coming up next. >> to infinity and beyond!

>> that's what some hope an activist will do for shares of bed, bath and beyond. we'll break down the suspicious options activity. plus some investors are expecting a big meltdown from one high-growth name. we'll tell you what it is when "options action" returns. ♪ when the world moves, futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with paper money to test-drive the market. all on thinkorswim from td ameritrade.

[b♪ll rings] time and sales data. split-second stats. ♪ its so close to the options floor, you'll bust your brain-box. all on thinkorswim, from td ameritrade. here's a question, is a big

activist getting into bed with bed, bad and beyond? a rumor an activist may have taken an interest sent shares up more than 2% today. it also set off a flurry of options activity. in fact, call volume was four times its average daily volume. so where do these traders see the stock going? mike breaks it down for us. he's at the plaza, what do you think? >> take a look at this. where we were seeing a whole lot of activity was right here at the money. 59, 60, 61, near-dated calls were the ones trading including the ones that expired today, the ones that expire next week, the ones that expire in august. these guys are all obviously expecting a short-term bump to the upside. if you thought an activist was involved we can take a look at other distressed retail names where activists have gotten involved. pet smart announcing they were taking a stake. take a look at what the stock did. quick shortstop. family dollar, carl icahn is

involved, same thing. as soon as the announcement came up the stock did that. take a look at this. traded down afterwards. take a look at maybe one of the most well-known cases, jcpenney and bill ac man. when he got involved, stocks shot up. basically went sideways for an extended period of time. he bailed out after it went down here. the important thing to remember is all these names have some real distressing stories behind them. the street hates this name. revenues are flat. the only eps growth is coming because of buy-backs. what you're looking for is a short-term pop, but look out below in case they get this wrong. that's why they're using options to make their bullish bets. >> people are going to game this trying to figure out hot activist could be. not a surprising market. retailer under some distress, one that people don't like -- >> the truth is this is the quickest way for people at home to lose money, chasing these calls, short dated calls, when

implied volatility, the price of options gets so jacked. two examples in the last months. whole foods, lulu. after they blew up, the same sort of thing. the stock started to rally, who knows what it was, restructuring recently. all of them are back down toward the lows here. i don't think you chase this sort of stuff. i'll make another point. family dollar has almost filled in that entire gap since carl icahn made that announcement. it's back down here. >> the eventually was not there. 6 million shares. >> that was in the options market. >> in the stock where fidelity's trading and wellington and big players, no volume, 6 million. plunged a week or so ago. there's no endorsement here. >> the point you have to make here is that people can't help themselves. when they think somebody's going to get involved, a big name, they think they can get ahead of it, you don't want to buy it after they get, in we saw what happened. this is the only way to do it. to dan's point, the probability of success on these trades is very low but at least you're going to be risking less when you make those bets.

>> we did call bed, bath and beyond for a comment, they did not return our phone calls. by the way, a quick programming note. tune in wednesday all day long, we'll be live from delivering alpha, the conference inside new york city's pierre hotel. i'm sitting down for a live interview with carl icahn. we'll talk about family dollar and other potential activist targets as well. who knows what he's going to say. we can't wait for that hope you'll tune in. which high-growth stock will be the next to fall? one name attracting some attention. [bell rings] ♪ time and sales data. split-second stats. ♪ its so close to the options floor,

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 been a bad week for

sales force, the shares down 8% amid a broader growth stock rout. they didn't fall enough to make dan's bearish trade work out and here's why. on "options action," sometimes risking less to make more just isn't enough. sometimes we need to fix our trades. that's just the case with dan's trade on sales force. dan method the stock was about to slide.

>> this is one of the worst charts i've ever seen. >> just going short? >> are you, um, out of your frickin' mind? >> good question. because since sales force or any stock for that matter can technically keep rising forever, shorting the stock could mean infinite losses. so to define his risk, dan instead bought the augie strike put for $2. now to make money, he needs sales force fair to say fall below the 50 level by more than the $2 he spent or $48 by august expiration. it gets even better. because that put will gain value faster than the stock will lose value. meaning more money in dan's pocket. and since the time of the trade it's been a wild ride for sales force shares. initially falling, then rising, now falling sharply. but not enough to make the trade a winner just yet. >> i hate when that happens. >> and "options action" fans

have only one question. how can dan fix his trade? despite this week's lidecline ts trade is not looking good. >> the truth is i have a very low probability of success even though the stock is not far from where it was when i put the trade on. problem is the options have decayed a lot. i have about a month here. what i'm going to try to do is get out for as little of a loss as possible. i don't own the right strike anymore. sometime in a trade identifying the fact that you're wrong, wrongly positioned, is the best way to figure it out. fy move back toward my strike i'm still going to be down on the trade but i'm going to get out and cut my losses. >> one of the things i might look to do is spread and go basically a little further out in time, maybe put on a put spread. one of these names, a lot of options are not very expensive. names like this high-flying names tend to be pricier. gives you a bit more time for your thesis to play out and that decay is being offset.

>> you said that was one of the worst charts you've seen. still the case? >> i hate it now. >> so if you can put it on again, do it another way, terrible chart. >> it wasn't just sales fors. zillow, linked in, yelp plunging as well. this is a broader issue? high-growth names, social stocks? twitter had a rough week. >> this is one of those situations where there are skeptics on this desk. maybe a lot of skeptics on this desk. the fact of the matter is these things can't stay at these valuations forever. so the question is whether or not you happen to subscribe to the idea that they're likely to crack sometime soon. i'm not talking about next week. that's why i've been trying to look out six months for my bearish bets. but that is what i would do here. i think that the party is over. >> and it doesn't help that there was all this mma chatter. the lows in may, a lot of these stocks ripped hard. yelp, takeover stuff, we had the open table acquisition for price line. that's kept things buoyed here.

sooner or later that's not going to matter. to mike's point the valuations these stocks trading at 60, 70 times, it's not going to work anymore. crm is one of these ones where i believe a lot of investors think there's something secular going on. it is but it doesn't deserve the multiple it's trading at. they're going to come home to roost, i'm not sure this month, next month. >> trouble here. pandora, sales force. the burden of proof has shifted. up next, a quick break and final call." ♪ when the world moves, futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with paper money to test-drive the market.

all on thinkorswim from td ameritrade.

[b♪ll rings] time and sales data. split-second stats. ♪ its so close to the options floor, you'll bust your brain-box. all on thinkorswim, from td ameritrade. "final call," the last word from the options pits. we'll start with carter. >> i think it's time to realize gain in semiconductors. >> starbucks. i'm leaning short. >> i like calendar put spreads and google, actually. >> what are your expectations for earnings? high or low next week? >> i think high. because the market's up.

>> looks like our time has expired. for more go to optionsaction.cnbc.com and check out our daily segment inside "fast money" at 5:40. have a great weekend. >> male announcer: the following program is a commercial presentation of total gym fitness. [ mid-tempo music plays ] >> ♪ make a resolution, total gym ♪ >> ♪ get the best solution, total gym ♪ >> ♪ if you want to get strong and fit, total gym ♪ >> ♪ make a resolution >> ♪ get the best solution,