people first, then money, then things. now you stay safe. now you stay safe. bye-bye. [ music playing ] this is "options action." tonight, merge stocks have been the hottest trades all year. but some satisfiry traders see big losses ahead on earnings. we will tell you which ones and how can you profit. plus, it's an industrial-sized problem. actually, the problem is that industrial stocks are lagging the market. we'll tell you why that could derail the rally. and -- ♪ reyou fight and it feels so good

♪ >> a surprise "option's" trader make her triumphant return to television t. "options action" starts now. look who is here, a familiar face to very faithful "options action" fans, stacey gilbert of susquehanna is back after a few years. so it is great, stacy, to have you back. >> it's great to be back. >> earnings have been like a clint easterwood film, companies reporting great reports, others like amazon are floundering. can the market add a few dollars more? let's go to the money and find out, mike, there has been pattern, is there one? >> i think it's bifurcation. you have to pay attention to individual stories. gm obviously has a lot of stocks, specific stuff in there. amd a disaster. intel holding in, looking okay.

chipotle, a high growth stock that trades at a high multiple and end up deserving it. but there are still other times of growth stories. i don't know that that's necessarily the case. so one of the things we've noticed. the market was down today, most of the stocks and the s&p were up. over 300 of the s&p stocks were up today. what that means is for your portfolio, you got to be taking a look at what you actually own. the mark, itself, is not necessarily your portfolio. >> i think that's a great point. the graphic we just showed had a bunch of names that saw pretty tremendous tumbles, yet, we got the xlk. the s&p tech following index that's pretty much at a 14-year high. >> i think a year ago, it was the long or be wrong, right, the s&p 500 was making new highs all time. you wanted to be in the market. now it's become much more company xefk specific. last quarter, we had a lot of people go, oh, it's weather-related. you remember that storm.

there was probably snow throughout the united states in the last wereings cycle. here it is now, it matters what companies are saying. to mike's point, pandora is down the chipotles that are up. it is much more of a company-specific type of earnings environment and we see this within those sectors. we see this within those products. the correlations of stocks, they're very differ. >> put it in layman terms, it's a stock picker's mark again. >> it's a stock picker's market. that's what happens, when people talk about diversifying tear portfolio, that's what happens. post-people don't own the broad market. they own a basket of stocks. you feed to figure out water only on with each one of them. >> i think it's one to put it in the comp text so far the blowned average earnings growth is about 6. 5%. not bad. we are seeing more importantly some price action not as good as

one might hope. let's look at two screens here. these are the five worst reactions to earnings. fafblg, some of the more beat, xilynx was a beat. here's the real take away, tech, tech, tech, technology is dock well, microsoft, intel, apple, yet the cyclical part of the sector not doing well. these are very bad reactions to earnings and some of the more beats. now, by contra distinction, stock that have acted well, there is no fee. it's ideokratic. it has nothing to do with steel dynamicles. it has nothing to do with bur e burrito's. it's a cyclical tech story for the losers at the worst end of the reaction. >> stacy, i'm surious, if you

own let's say some of these stocks and are using an index as a head. does that still work in the stock pecker's market? >> it depends on what the index is, right now the s&p 500, the correlation, the realize iized correlation is decades low. if you want to buy a put on the s&p 500 because you believe it has exposure, it's probably not working well, this is where the individual stories are more important than they have been. >> let's talk individual trade, you are looking at the consumer discretionary fame. we seen hit or misses. >> this is kind of discretionary. it's kind of a same. whole foods is a grocery store. if it was a kroger's or a safeway, we'd call eight staple a full paycheck, this is an interesting story, we have earnings coming up. the stock got hammered. really the tore is, are they able maintain tear par gins.

if you look at their margins, they're 4%. that doesn't seem like a lomplt if you compare it, it's many multiples. look at price to sales. it's about 1-to-1. if their par gins are getting, depressed, they should, all these other stores are forgetting to bring organic products if, so you can't continue to see those high margins. the margin is expecting an 8% move. i think the bad fuse is probably going to continue. i'm inclined to do two things, one is to make a bearish wet t. second is to take advantage that the options market sees so much options. i will use a calendar slightly out of the money on the downside. i'm looking at the august-january put-sped. 80 cents is what the 35 puts are commanding. >> that is reflective since people are concerned about this

if it drifts down to that streak, this trade will be a winner. >> it's interesting, straes stacy, we heard, for instance, from chipotle, they've recently passed tear price hikes. they are seeing higher commodity costs. what do you think? >> i think what i think mike's interesting point about whole foods is options are implying around an 8% move. if you are buying an option here, what you are getting the earnings embedded if here for free in a sec, it moves 9.5%. 8% move, given some of the uncertainty and given again pike has an opinion, here you have two differ opinions on the desk. >> one of the reasons i think it's immike an 8% move despite it's had some moves, the last quarter a lot of people suspect that bad fuse has been bhaik baked into the stock price and that stock price decline incorporated that. i think it will move a decent bit. i'm not expecting it to move

quite as big next quarter. >> let's talk industrials. they continue to be the worst performing sector. the sli is up less the e less than 3%. the etf is up 7%. option traders think it will get worse. more than a 20 put trade for every call. one of the biggest options trade today, somebody bought 10,000 november put strikes for 20 cents apiece. the xli falls below 4969. that would be an 8 percent decline in two months. this trader loses all its gains for the year and then some. let's head to the cart master. carter, what do you think of the prediction? >> if you think about it, ten parts comprise the hole. this sector is the worst performed on the week, one month, two months, it's not good. i will work backwards today from long term to short term. here's the long-term picture. s&p versus one of its parts,

industrials, industrials have been an outperformer relative to the market long sterm term. since the absolute low in this bull park, you got a fairly substantial outperforms him then it's the here and now. the outperformance is starting to falter. here's the year-to-date chart of the s&p. now, of course, the yellow line is starting to diverge or industrials are starting to diverge from the s&p. from the cart perspective on an absolute basis, take a look at some of these fames, passive name. united tech following, well defined trend and a break in trend. pentair, massive conglomerate. 15 billion and a break if trend. general electric, it broke trend just this week. boeing, same story. so tremendous situation task parts, 40 billion, massive fame, broke trend.

the pro sum thunder u shun is the entire sector is going to break this remarkably orderly up trend it has been in for about three years. it gives way here. we're looking for a 10% decline for industrials. we think the tell back. >> i want to go back. we spin at lot of time saying how it's a stock pecker's park, we have ob very careful. here we say the xli as a group will move a certain way, stacy, why this group in this way? >> so, we were talking about how these stocks are not moving together t.xli is one exception, the actually has one of the higher correlations of all the sector products out there. if i were to look ahead this is one you are buying the movements, owning an option on etf you get those movements. >> pike. >> i think one of the things you need to remember is that the

industrials tend to be their secular chefs will be a broader issue. caterpillar, deer, they will likely trade together. that's the important thing, certain subsectors, you can could have stock specific stories, others, it's more likely to be the broader economic factors to push them around. >> let's get the trade on xli. >> if i were to say vol stilt low, somebody would onand say, give me something that doesn't have low volatility these days, looking at the volatility, it's attractive. it does not look more expensive than it has over the past decade. looking at that correlation, you buy an position, you are buying a basket of stocks together unable to buy the fact that these stocks are able to move together. >> what is the option here? >> i'm looking at the august 43 puts, tooz it was trading roughly 5378. those puts were offered at 37 cents, where is the break even of the raid? >> if xli goes down, carter

pensioned, he is anticipating to have a 10% roll overhere, if xli declines, i need a decline from the price i was looking at today to hit my break any. a couple things i'm worried about with this trade, one thing the only thing i'm worried about is timing. i pick all this. >> i don't think you need to be that concerned. it looks like things are rolling over. the industrials tend to have a lot more leverage, that can continue on the equity side. how much the stock will move around, that will be impacted by the leverage. i like this trade. >> got a question out there? send us a tweet at nbc options. hit up our website. we've got the hottest, hottest options news videos from throughout the week and exclusive trades as well. if we dould could turn the website into ra show we would. check it out, it's coming upp next.

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money, that's what many traders are hoping to make this coming week. that's because more than 100 s&p companies are set to report earning, including chevron and exxon and big names in energy. what does the options market stay about the results? >> you know, this is really interesting. it's a relatively quiet summer friday. energy stocks have done exceptionally well. let's take a look at three names that did not see exceptionally bullish activity. first exxon mobile which traded about 20% more puts relative to calls than it normally would. then you take a look at hess. exxon mobile is not far off those highs. only about 12% the options are expecting. you can buy xooep cheap protection.

the stocks might go down. let's lock at hess. this has been going up at a 45-degree angle. implied move, 3% it will cost you going into earnings and schennier, the rockstar, lng terminal company this thing has basically going up in an epic fashion, expecting a 4% move the options traders are expecting that, that move will be a bit lower. >> i love when a guest goes to the smartboard when carter is here, we can get carter's take of their interpretation of the carts. carter. . >> sure. it's all good hess is quite extended. here's the thing about the sector that's important. the whole sector, 11% of the s&p, three names exxon, slumberge are half awaiting the

sector and cheniere. exxon has 450. while it probably comes, if it's about exxon, chevron and a few marquee names. they look okay. >> they look okay. stacy, what side of the trade would you be on at this point? >> it's actually again looking at the energy, etf here. these stocks aren't movering together. i like looking at the individual names, having an opinion, do you like exxon mobile? you trade accordingly. i think this is one where it's actually harder to trade the etf options, that being said, we continue to see bearish postal workers put buying, protection headed into the earnings. >> mike, do you like the ones dart carter says are okay? >> we made a bullish bet. i like the company. i like what the options trader sentiment is on balance. options traders were generally bullish of these stocksing. now that tide and sentiment is

turning. will equity traders follow? if they do, it's bund to go lower. >> coming up next, hashtag earnings, keep the stock trending higher him we will discuss when "options action" returns. five tech stocks with more than a 10%... . .

can we call it a twitter surn turn around? shares are up in two months. that's good news for our friend dan nathan. here's why. on "options action" it's the reason we're twitter all stars, we always risk less to make more, that's just what dan did with his bullish bets on twitter. dan thought the social media stock was going higher. >> this stock can go 45, 50. >> buying 100 shares would set dan back 13-grand. to spend less, dan, instead, bought the 37 call for $1.45. in order to make money, dan feeds twitter shares to rise above $37 by more than the comfort of the call of above 38.45 for september expiration.

spending $1.45 to get in on twitter wlorks are you? the joker? >> i'm burning my hair. >> but dan sold the 26 strike put for $1.45 and created his risk reversal. he paid it easy to make.. between the buck 45 he spent on the 37 strike call and the 145 elected by selling the 26 sprooik strike put, dan is putting on the trade for free. that means twitter shares picks one penny above $27 by september, dan sees profit. >> this is like discovering plutonium by accident! >> it's exactly like that. but there is a tradeoff. because he sold that put, dan could be obligated to buy the stock for doctor 26 cents a share, even if it falls well below that level. luckily, since the time of the trade, twitter is up by about

25%, making a dan a big winner. and now twitter earnings coming up next week, everyone wants to know the same thing what will dan do with his twitter trade now? before we answer that, let's show you why options work so well for dan here, if he bought the stock, he would be up 25%, nothing to sneeze at. dan put it on for free, now it's 3.sfiechl dan is on vacation this week partying it up. he is take time away from the luau to drop us a line. >> first the luau then in new york the high time in the chicki bars here. great to see you back. i love your trade the reason that carter says the whole sector is breaking down. i like that play.

just on the twitter the options market is implying about an 11% move on their third quarterly report. as a public company next week. ist listen, thing to moved 25% t. trade makes sense because sentiment was really poor when the stock was above 30 and implied volatility was very high. it created an asymmetric trade on the upside. i don't believe that's the case anymore. if you are still long on this trade, one of the things you have to do, you have to cover that low delta put to the downside. it makes no sense to ride that out. ten you have to decide whether you want to be long into the quarter. i think some of the new metrics they are introducing to explain the active users and engagement. i think this could be a kitchen sink quarter. they want to reset to the new management and set the stage. to me, i'm left confident right here at $38 than i was at 30. but i'll tell you i'll be a

buyer in the mid- to late-30s. here's the thing that, 37 pause if you are long in the trade, you have to sell the higher trades to lock in the profit share. i would look at the september 44 call, 43-and-a-half was the prior high just a few weeks ago. i think that level should see some tech physical am resistance to the upside. >> dan, thank you so much for joining in, luau by the way is a state of mind. can you have it in lake georgia, wherever you are. >> with the strike running to all that k, i'd be inclined to take the money and run on the, mi myself. >> coming up next the final call from the options pit. ♪ 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.

these wifi hotspots we get with our xfinity internet service are all over the place. hey you can stop looking. i found one. see? what do you think a wifi hotspot smells like? i'm thinking roast beef. want to get lunch? get the fastest wifi hotspots and more coverage on the go than any other provider. xfinity, the future of awesome.

[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. time now for the final call. carter. >> take measures before as they say someone does it for you. >> stacey gilbert. >> not to suggest because i'm back i have the best trades, i do like that xli august 53 put

purchase. >> mike. >> i absolutely love we're back from a stock pecker's market. at least for now and whole food earnings look a little dodgy. >> stacy, it's great to have you back. welcome back. our time has expired him i'm melissa lee, for more "options action" go to nncb options action.com. "mad money" is up now. >> announcer: the following is a paid advertisement for . c stay tuned to find out how you can get the original magic bullet personal, versatile countertop magician free. that's right, get the complete 21-piece system free. details just ahead. [ticking] >> announcer: what can you do in 10 seconds?