♪ this is "options action." tonight, energy stocks have gone from hot to not. >> shut up. >> but according to the chance, they could actually be setting up for a huge run higher. we've got a special report. plus -- >> zoom zoom. >> that's just what tesla did this week. the shares wept to an all-time high. but we'll tell you why some traders say it is time to hit the brakes. and will bill cosby save netflix? shares have been on the pause button this year. but a new strategy could take the giant into fast forward. we'll tell you how to play it. the action begins right now. >> indeed it does.

live in the nasdaq market site, i'm mandy drury. hello. this is the big question for this week. do bond trader nose something the stock traders don't? stocks enjoyed their best tweets since april. the ten-year yield dropped to a 14-month low. who is right? the risk takers or the safety chasers? dan, i want to get to you first of all. it seems like someone has to be wrong in this. >> that's a great way to put it. listen, on the week, if you look at the tlt, which is the 20-year bond etf, it was up almost 2%. the nasdaq up 2%. in the world that we live in, we know over the last year that there was this bifurcation. we saw that when we had the taper tantrum last year. when equities came back, bonds continued to go down to the end of the year tlch was a long period where bonds and equities went up. here is the thing. we're $3 trillion into the bond buying. it's almost done. and at some point, something's got to give. i mean, at least from where i'm sitting, something has to give.

we're going to know soon enough. >> for something to give, there has to be some kind of trigger, doesn't there? >> first of all, if you see rates going down, what that suggests is there some global macroeconomic concern which suggests maybe you're going to continue to get a little bit of fuel for the fire for all financial assets. and what i would point to is the fact that although there has been a mild uptick in credit spreads, they still on a historical basis are exceptionally low at less than 350 basis points. it isn't as if the treasuries have traded up that everybody is panicking in the bond markets. >> you're over there at the plasma screen. what does all this bond action tell you? >> we think bond rates are going lower there is relative value in the u.s. compared to everywhere else in the g-8. let's look at the charts. here is the tlt. you can draw the lines this way as a double bottom or draw it as a textbook bearish. we think this continues on a yield basis. we're around 2-3, 2-4. we think we're going to 215. take a look at the long-term chart. you can draw the lines, fairly

well defined. when we got to the top of the channel, we got to the bottom of the channel. and by all accounts, we failed here. we think we go to the mid point. that implies about 2% ten-year yield, or 23 now. >> i think carter makes an excellent point, don't you, when he talks about the relative attractiveness of u.s. treasury yields. the german bund below 1% now. >> given the language we've gotten from the fed and the fact that they're willing to wind down qe in this cautious optimism, if yields are at 2%, something is going to be terribly wrong in the world. and that's to me something's got to give. i could be total lay moron about this. but it just doesn't make a lot of sense that equities continue to make all-time highs. it seems like every week. but bond yields are going to go back to 2% in a good economic environment. >> mike? >> well, my view of this is you're just not going to find bonds with yields like this to me is the same thing as selling exceptionally cheap puts. i see plenty of downside. if this is a situation where,

listen, if we're going get something where we fuel equity markets, i'd probably rather be long equities than treasury. i don't think that's the way i would play it. >> what is the trade we look at here on the tlt? >> i'll break it down. i kind of want to take the other side of at least carter's technical call. i'm going to go by his guidance with the technical. if you look at three-year yart, 120 looks like fairly interesting resistance. if we get one more spike and we see the tlt back at 120, thing is a good level to look the other way, have this consolidation just last week at 115. so today, i priced it up. when the tlt was about 117.80, you could look at the suspect-november 115 put calendar. what am i doing right here? i'm selling the september 115 put at about 80 cents. and i'm buying the november 115 put at 210. really what i'm trying to do is thread the needle a little bit. i want the tlt to move back to 115 between now and september

expiration. i want the tlt to expire and then own november. why am i targeting november we're going to have the wind-down of qe and i think that's going to be a really good opportunity talking about the potential volatility that we could see. what is the catalyst? maybe it's when the fed is done buying bonds. >> thing is a very smart way to try to buy premium, try to take advantage of the fact that the near options will decay. you know, the other situation here, i mean, this looks like the very low premium. but actually, treasuries are not that volatile. so when you're looking at these things, you might say well why would i sell those inexpensive options? they're not that inexpensive when you look at how much treasury historically. >> the bottom line before we move on to oil? >> i don't know how you buy here. if you're buying bonds, you think a whole heck of a lot of stuff is going to go very badly in the next few months. i don't think the world is going to come to that armageddon situation where we're buying bonds when the fed is telling us they're done buying. >> all this stuff around the

world makes the u.s. look a whole lot better, doesn't it? okay. crude oil bouncing today, but only after hitting a seven-month low. jackie? >> hi, mandy. well, we're certainly seeing oil respond to ted lines out of ukraine today. crude prices on both sides of the atlantic rising more than 1%. traders telling me that given the fluid situation, they have no desire to be short going into the weekend. of course the broader trend still remains bearish as crude has lost about $10 in two months. the reason for that, well, geopolitics hasn't actually impacted crude oil surprise. and that drop has been no help to the energy stocks either. in fact, energy the only losing sector this week. back to you, mandy. >> okay, thank you very much, jackie deangelo. so will energy stocks keep on lagging? let's check once again. what are you looking at over there, carter? >> it's interesting. history shows that when you get this severe a drop in crude oil over a two-month period, actually energy stocks outperform looking out one, three, five months. we know that crude has dropped

from 108 to 95 mid-june to mid-august, around a 12% decline. take a look at these statistics. there have been 200 times, 203 in fact going back to 1980, 25 years, where oil has dropped on a two to three-month basis by 15%, as stated here. oil drops more than 15%. and this is actually the performance of the s&p 500 energy sector on a one-month, three-month, and five-month basis. relative to the s&p. it actually outperforms. so we think that's an important backdrop here because we've had a nice sell-off in crude. take a look at two charts that matter. a two-year chart of the xle which measures s&p 500 energy stocks. and these are the four important intermediate declines of the last two years. and the percentages are remarkably similar. 8%, 9.5, 7.5, 7. and the duration. this was 22 sessions. this was 23. this was 22. and this one has been 32.

but the principles are that after a sell-off, you get a bounce, you get a bounce, you get a bounce. and we're playing for a bounce here, based on this chart and based on what history tells us. now last chart. the long-term chart of the xle. this is the all-time peak. in 2007. and this is where support comes in to play. on any further dip but here and on any other further weakness, we think the xle, energy stocks are a good bet. >> pete najarian was also saying he is seeing good energy. what do we think about energy stocks and whether or not carter has his eye on the money there? >> i like taking a look at potentially bullish bets when everybody else is throwing them in the garbage. that's the kind of situation you look for some kind of a snap back. and there are a lot of things that people don't like about many of the component of the xle. so the biggest component of the xle is the integrated oil

company. chevron and exxon alone represent about 30% of that. the integrated oil companies which are essentially, you know, a basket of their reserves, are trading relatively cheap to the market. they're about 12 times earnings. about 7.5 times. those things are exceptionally cheap. the other thing is there are a lot of subsectors under pressure as well. some of the drillers. carl icahn is notably in one of them. one of the stocks absolutely decimated and trading cheap. everybody has been fearful that the refiners were going to start going down. but really, their spread has held up nicely. they're still doing well. >> so what is the trade on the xle itself? >> i mean, very simply, i'm just going out and taking a look at the quarterly 95, the ones that expire at the end of the month and spend about four bucks. xle was about $96. that was 1 dollar in the money already. this is a way you can spend about 4% of the underlying to

make a bullish bet. >> do you agree with that trade, dan? >> i would probably look to spread it. but i disagree with the setup here. i think the momentum is broken. the xle had a 22% rise from the low in february. it just broke that uptrend that has been in place here. to me, it looks like you have a broken momentum situation. i don't really want to be long premium in a sector where i think the momentum is waning. >> okay. you were going to say something, mike. >> look, this is the reason we're trying to trade calls here, because this is an inexpensive way to take the bullish bet on this. even if it doesn't work out, you're not taking the risk of just going out and buying. >> and that was the final word on that. okay. viewer, listener, if you have a question, you can send us a tweet at cnbc option and get your voice heard. check out the website. it's optionsactions@cnbc.com. this is what is coming up next. coming up, will this man make you big profits on netflix? >> all right, hit it! >> mike's got the cosby trade. and we'll tell you how the cash in. plus -- >> how did that even happen? >> hmm, good question, elon.

because despite some bad news, tesla shares are hitting an all-time high this week. we'll tell you how to play it, when "options action" returns. [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. [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. okay. welcome back, everybody. well, don't look now, but tesla has just hit another all-time high this week. i was so surprised, i had to walk over to check it out up close and personal. once it's hit its all-time high, does the run continue or does it stall? >> you have this new all-time high. one of the interesting things, it is a piece of negative news. consumer reports came out.

>> yes. >> a wishy-washy sort of review of the car. >> and edmunds. >> the 15,000 miles on it. and generally, they're pretty enamor with it. they were talking about some issue there's. investors didn't seem to care. when you look at this chart right here, this is interesting. when you look at it for one year, it looks like it's basing right here. look at this. this was the bounce it got off the giga factory announcement in february. it stalled out a little bit. i guess you can say there is reason to pause. this could be a fairly epic double top. if i was looking to get back in on the long side, if you thought about taking profits, this could be a good level. this is the 200-day moving average. this could be a momentum indicator. but listen, there are the traders throughout who love to play the momentum. they love to play breakouts. if there is any good news and this stock breaks out, remember, there is 30% short interest in the name. and that's why you have gaps like this when there is good news. i'm just going to make another point here. we just talked about the short interest. this is a really well owned stock, meaning it's in very good

hands. elon musk, the ceo and founder owns 23%. it's like he is in a battle with the shorts. he is never going to sell. and the shorts keep getting tripped up. they have to cover that creates buying opportunities. then the stock keeps going up and they keep buying. >> he has the muskian touch. what i want to know, you've got some negative report there's about the car like from edmunds and consumer reports. if bad news like that doesn't knock this off its momentum. >> what is going to. >> what is going to? >> here is one of the things that is really interesting to me. when you look at the top holders, it's pretty tightly held there are very large capital pools that own and they don't look like they're sell anything time soon. but looking at the options market, the highest levels of open interest, they're all in strikes that are like 50, 100. i mean things that are put on long ago. and they were like 10, 30,000 contracts. when you look at the there is not a whole heck of a lot of options activity. and one thing that says to me is

that the stock is in such good hands. like i said before, people are not nervous. they're kind of complacent. this is the price of options. this is implied volatility of tesla over the last two years. look at this right here. it's at two-year lows. my conclusion is here. i'm not going to tell you whether i think it's going up or down. i don't know. my crystal ball is not working. >> the weekends, if there are any is going to be when fidelity decides they're going to start lightening their position. they own close to 10 million shares of this thing. they've obviously been exceptionally bullish. they were right to be. so at the end of the day, the valuations here are at such a level that whatever their thesis is, they have to be thinking about taking some profits. and if they start to do that, that's when the bottom falls out. the only thing that can hold it is up that short interest. >> you can't even use the word valuation there is no valuation. so now it's just momentum. it's just a dynamic situation. and the truth is it's right at a past high. the absolute high was 265 on february 26. we think this thing breaks out. i think it's a dangerous thing to be short. if you're long, stay in and

enjoy. >> and i would add one more point back to the chart with implied volatility. for a stock that has moved so well like, this i would actually expect a $32 billion market cap. it's up 57% on the year. i would expect implied volatility options to be much higher. here is the thing. if you're starting to get a little nervous, you can think about using options to refine your risk or buy protection. that's what this chart tells me right here. it's about as cheap as it's been at any time in the last two years. >> and the one thing you're saying, you don't know whether it's going to go up or down, your crystal ball is broken. i know one thing for sure, it is a beautiful car. it is a beautiful car. okay, everybody. coming up next, is netflix trying to eat hbo's lunch? we're going to discuss it when "options action" returns. ♪ [ 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...

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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. well, talk about a net gainer, netflix continuing its incredible run with a 2% bump

today. but that's not such good news for our friends, coe and carter. this is why. ♪ >> on "options action," it's why we're internet superstars. we know how to risk less to make more. and it's just what coe and carter try to do with their bearish bid on netflix. carter thought the stock looked like a house of cards. >> take your profits if you're long, try to sell short if you can. all right, mike thought, i'm in. but just going short? >>ly not do that. >> and neither will we. look what happened if you shorted netflix two years ago. so define his risk, mike instead bought the january 3 strike put. now to make money, mike needs netflix shares to fall below $380 by more than the cost of that put or below $349.50 by january expiration. but wait. you're spending $30 just to bid against netflix? >> maybe you should have thought that all the way through. >> mike, your move.

>> sell the near dated one for about $13.50. >> so to cut costs, mike then sold the august 380 strike put for 13.50 and created his put calendar. but he did something even better. he made make mongolia even easier. here is how. between the longer put and the 13.50 he collected by selling that shorter dated put, mike has cut the cost of his trade down to $17 even. and now instead of needing netflix to fall below $34950 for him to make money, mime just needs the strike to fall below that strike price by more than the $17 he spent, or below $360 by january expiration. but it gets even better. that's because the put that mike sold will decrease in value faster than the put that he bought, meaning he can turn time into money. >> that's what i'm talk about! >> but there is a trade-off. and because he sold that near dated put, mike needs netflix

shares to stay above $380 through the first expiration, but go below that level by the second expiration. and so far netflix shares have only risen, making this trade is light loser. >> even achilles was only as strong as his heel. >> but with plenty of time left in the trade, all the "options action" binge watchers want to know what will khouw and carter do now? >> before we get to, that let's play some option versus options to explain why we use all these strategies. so if mike had simply bought that january 380 strike put, he would be looking at a loss of 60%. but since the near dated put expired he is looking at a loss of 25%. not great, but better than the alternative. now carter, would you keep on betting against netflix? >> we like that bet. the principle is this that the stock has returned to a difficult level, and is actually finding a bit of difficulty in the sense that if you look at how it has performed over the last three or four weeks

relative to the market, it's a real laggard. and we think this is the stall or the sign that ultimately it's going to roll over. and given the amount of time we have, we're inclined to stay. >> you know, the exercise here was that we realized this was a momo stock that was really on the move. the other thing is netflix, the biggest knock against it for the longest time was that they were going to see increasing content costs. they solved that problem by deciding they were going to start creating their own. and some of those turned out to be incredibly successful, kevin spacey said himself the show he is on never would have been created without something like netflix. so they actually are changing the game a little bit here. the valuation is really what we're betting against, but it's hard to get naked short and hashed to buy outright options. this has been offset by some decay. i'm inclined to stay with it. >> dan, what do you make of netflix introducing the new comedy specials, including one with bill cosby. >> yeah. >> it kind of feels like they're trying to move on to hbo's turf. >> not only are they going right at hbo, they're going out of their playbook. hbo pioneered this having these

exclusive events. and here is the thing. when you talk about orange is the new black, there is tremendous cost in producing these sorts of shows. you know what? there is not a whole heck of a lot of costs in doing? production one-man comedy shows. to me i think it makes perfect sense. i think we're going to see a lot of this with netflix as they have to broaden out their original programing. but at the end of the day, listen, bill cosby you go see him here and there. you can go on youtube. >> i have a bet on netflix because 90% of the content on television that we consume in our household other than cnbc is off of netflix. but the valuation is something they can't stomach. and so i don't mind having a cheap bearish bet on it as well. okay. coming up next, the final call from the options pits. [bell rings]

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>> everybody in unison, aww! >> aww! >> this week our executive producer max meyers and his wife sarah welcome this beautiful little baby boy, robert joseph meyers, weighed in at 6 pounds, 8 ounce. we are told that his very first words were risk less to make more. >> well -- >> or they will be. >> i'm very happy for max and sarah, i feel a little jealous. i feel like i was his tv baby. he brought us into the world. now we have a little competition. don't you feel the same way, mike? >> i think robert has max's hair. >> i was going say he has more hair than max. >> that's the picture of a leap. >> okay. time now for the final call. the last word from the options pits. carter, over to you. >> well, to be contrarian here and bet that crude weakness is a setup for strength in energy stocks. >> mike? >> you know, calls like thoets those in xl are a way to stay strong. >> and if the fear trade

purchases tlt higher, i think you can use that strength to sell it. and i think you do it with defined risk and through put calendars. >> and on that word, it looks like our time has expire. i'm mandy drury. check out the daily segment inside "fast money" every day, see you next friday. have a great weekend. my mission is simple, to make you money. i'm here to level the playing field for all investors. there is always a bull market somewhere and i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." i'm trying to make you money. my job is not just to entertain you but to educate. why don't you call me? i think stocks have become the most hated commodity in existence. they are