we'll explain. we'll explain. plus, how would you like to make money if apple goes up, down or nowhere at all on earnings? >> is that possible? >> it is not only possible, but it is the simplest options trade around. and we'll teach you how to do

it. and you won't believe which stock trade is having a huge move on earnings next week. >> please tell me. >> we will, jack. because the action starts right now. and the big story of the day is tech. nasdaq 100 sold more than 3% with amazon, microsoft and alphabet, will the breakout continue. dan, is today's rally sustainable. >> well we've said this on the desk, when we are looking at the nasdaq, the 100, the top five names are apple, amazon, facebook and google, make up 35, almost 40% of the entire weight of that thing. so you have these four or five stocks doing most of the heavy lifting and there are a lot of stocks in the index that are in a bear market.

and i know carter will get in another breath. and i just don't like the conversation. it reminds me of the year 2000. >> it has that element. one thing we know is there is great exploitation of potential. a lot of stocks with breakout levels have broken out. and we have a few to go. there is apple and facebook. but the broad message from the nasdaq is that most stocks are not only not participating, they are in bear markets. they've been going down for a year and most are down more than 20%. that is a bifurcation that happens at or near the end of a cycle. >> the have and have notes. those that blew it out this week were good. but what is interesting, when i take a look at the options, is taking a look at implied correlation. what is going on here, right now the options market is saying that these stocks are basically going to splinter and go off in every possible direction. much more so than they have been saying for the entire year. generally speaking, what happens is, when everything tracks together, the index matches what happens to the individual stocks.

when you see correlation drop, the opposite occurs and right now this is the lower correlation in the space that we've seen all year. >> and here is the thing. you just mentioned it. apple is the big one. when you see the stocks that move to today the way that they did, apple was asleep. it was in the long dirt nap for the last month or so, going sideways and all of a sudden it wakes up and rallies 7%. so when you think about earnings next week, and apple, could that stock have a huge gap, 6, 7, 8%, it could and that could make you nervous here in either direction, is my guess. >> you are seeing troubling signs in the charts. >> in the sense there is so much exploitation. and maybe one or two left and that would answer it. but let's figure it out together. so i have a two-panel chart. and this is the setup that is the consternation of the active manager and for many market participants. top is the composite and we are within a fraction of making the all-time high. but for the past 16 or 17

months, the number of stocks themselves advancing, that is where the advance decline is in very simple language, is not progressing. and this is a function of great leaders like google and apple, carrying the weight for other players on team. 2700 players that are not participating. another way to look at it is this -- so here is the nasdaq on the top and on the top again. and this is the number of stocks that are making 52-week highs. the nasdaq is at three-year lows. how is the numbers making new highs should be up here in this range with the others when the index is high. because again, the average stock, the median stock has been in a bear market for the better part of a year. okay. so, aur all-time high, march of 2000, and we are, right now, about 4% shy of that high, in the nasdaq, 100.

so is it apple or facebook that gets us to that level in but either way, this is sort of -- and the end of stage kind of thing. we've had a lot of breakouts. so there is your line. let's go to the nasdaq 100, which is the equivalent of the q. and this gap, if we get a little bit more, say out of apple and facebook, we'll be right at the july 20 high. that is about a point and a half higher. 1.5%. that is a good bet. maybe you can cap the upside and start to phase this based on the long-term stuff and based on fact that so many have done huge moves, microsoft, google, not much potential left. >> what about the argument that we have some momentum here. today was a great day in tech. maybe we'll break through the resistance? that is a possibility. how high of a possibility -- >> of course. one of the things about big gaaping action is with news and

typically good news. and is there follow-through. often there is and then it lasts a day or two. but something like a microsoft repriced as it was today, they don't typically go and go. they back and fill after the initial gaap. >> thank you very much. mike, what is your take on the triple q's in particular. >> i was just talking about the fact that index relative to the single stock seems relatively cheap to me and there is no way i would short stocks here. with china coming out and saying whatever it takes an the ecb saying whatever it takes. but i think you can make a bet to the down side usinghe q's and i was looking at the december 12, 106 put spread. so you are spending 1% of the index to make a bearish bet that could pay you two to one if the mark pulls back. and we've been long to make up the indices. so if you see a pull back, this is an in expensive way to make that bet. >> and i think mike prefaced it well.

with the momentum we've seen well, do you want to make short bets all over the place. think about a trade like this in the qqq, if you are not ready and think there is potential for them to continue to go. but you want to use hedged tactically at inflection points and you may want to wait until apple reports and you may get a better entry. i'm just saying. >> and let's say apple is bad. then that puts the top in. >> well that is one of the reasons why you would put on a hedge like this. because for most people -- look, it is one of the largely held stocks. and a huge component in the index. if there is a risk, that is what the risk is. it is not macro economic. because we are getting as much support from the market as you can. >> carl used the word bifurcation, but i think they have bifurcated the market. amazon, the xrt, the retail eps was down 1.5% on the day on a day that amazon was up 7.5%. so the point is retails are

doing poorly and amazon is just taking over the world. so to me that is actually a very dangerous situation. it speaks to your breath point. >> and microsoft surging 11% to a 15-year high. that move created $37 billion of fresh value for some perspective, more than the total market cap of raytheon, halliburton and cbs. if you missed out, fear not. because dan, you say, another 90s tech darling could follow suit. >> could is the key word. and i give credit to carter. he called the microsoft, trading between 40 and 50 and he called the breakout last week on the show. now it is above $50. and when you look at the long-term, the 15 year chart there is no overhead resistance until the prior high which was $60 for all intents and purposes.

so let's talk about the 1990s tech darling and it was cisco. it has traded for the last year within a fairly tight range itself from the low 20s to now the high 20s here. and when you look at it on a long-term basis, and there is the one year, it looks similar to the way microsoft did prior to -- look at that right there. $30 has been resistance for more than 14 years. so what i'm thinking about here in cisco is this is a very cheap stock. trades at 12 times forward expected earnings. we know they have a great balance sheet and they basically are very committed to capital return. like microsoft, they also have a new ceo, who is going to be paving his own way here. now here -- >> john chambers is still sitting in the back kind of -- >> pulling the strings. but quickly, the point i would make about cisco, is yes, they have dollar headwinds and exposure to emerging markets but they seem immune to it. so look out to february. and you could buy today when the stock is 29.15.

that is your maximum risk. and you have a lot of leverage to a move if this thing goes parabolic. >> you are giving yourself a long time for this to pay out and here is the thing about cisco, you mentioned the headwinds and the street recognizes them and it is not overly loved stock. it is only up $31 on this and you have six sells on it which is unusual. so with people looking down that is one of the reasons why having an option could pay off. >> and you were asking, could it go higher. if cisco breaks out that will lend strength to the q's. if we get a whole bunch of others break out it will take the q's out but these are happening not at the beginning of the cycle, they are happening at the end. >> what about facebook. that is a structural story. >> no, i'm talking about where -- after a multi-year run, and you start to get consecutive breakouts, stock after stock, that is a buying euphoria. >> and the potential for a breakout is the reason you want

to use options. because it is that opportunity. it is a binary situation. it could go sharply higher or lower. and you buy an inexpensive option that gives you time and that is when you can get the things to pay off. >> no doubt about it. in the context of yes, there is the potential of a selloff. that is what the q trade is. but look tactically for opportunities where like carter did last week in microsoft where you think there is potential for torque to the upside and this is a good tactical long trade at what could be the end of a cycle. >> if you have a question send us a tweet at "options action" and if it's nice we might read it later in the show. and check out the website optionsaction.cnbc. we have the hottest news and videos throughout the week and the trades. it is like you died and went to options heaven. here is what is coming up next. up, down or sideways. can you make money in apple. >> brilliant. >> it sure is. and we'll show you how.

plus industrials have been on fire -- but there is something off about the move and we'll tell you what it is when "options action" returns. here at td ameritrade, they work hard. wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this.

ahh... steve, other than making me move stuff, ces. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this. welcome back to "options action." i'm seema mody. we're coming up on the biggest welcome back to "options action." i'm seema mody. we're coming up on the biggest week this earnings season with more than 150 s&p companies reporting.

some of the names on tuesday, apple and twitter. the largest biotech, am gen on wednesday and then conoco phillips on thursday and chevron on friday. and there is huge moves implied. alibaba pricing in a projected 8% move in either direction. gopro looking at 15% move and apple a 5% move and twitter is looking at a 12% move in either direction. now if each of those moves were to pan out, backing a result of more than $50 billion shift in market cap by the end of next week. simon, back to you. >> thank you very much. the biggest name presumably reporting next week is apple. and mike, you are looking at one of the common options strategies as we await the big one. what is it. >> i'm taking a look at an override. sometimes if you are buying the

stock and basically let's go over three quick points. when you do a trade like this, this is a mildly post trade. so you look for stable stocks but still want to have a bullish view. but when you sell options, which is what this strategy involves, you want to make sure you are collecting a meaningful amount of premium. for me that means 12 percentage annualized or more. and give yourself upside. 2% if you can. all right. so if we can go ahead here and we'll take a look at apple. and it was trading at 118.5 when i was looking at this. you could sell the 125 call for $1.20 so we're collecting 1% in less than a month to get us the 12% annualized. we have well more than the 2% i was looking at. why is that? because this captures earnings. and as seema just implied the stock has a move of possibility 5% to the upside. >> dan, what do you think about that? >> after the moves we saw today and the big names i would say be

careful about selling calls against stocks that you own and love and are dominating in their field like amazon, microsoft and google are. we know that apple is that story also. so to me there is a couple of ways to think about overrights. apple pays a dividend and this is one way to add yield and create buffer to the down side. so i think the strategy makes sense. and don't forget people, if you sell against a call and it goes through, you can always cover the call and you've taken away the upside. it is not like you are locked into the trade. >> you can roll the strategies out and look to collect additional premium. and this is a recurring strategy where you are looking to enhance the field over time. so don't get intimidated by the possibility it might run through that. >> what are the charts saying. >> this will help the market a lot. but one thing is how does a security do in the preceding quarter. and if you look at microsoft, the last quarter it gaaped up, amazon, it gaaped up. apple's last quarter, it gaaped down.

so the response was negative and it has laggard, as you point out, dan, and that is something that is wrong. >> and a lot of people out there own apple shares an looking for ways to enhance the yield and a big move to the upside of 10% or move is a huge move. >> for $680 billion cap. >> let's round up and call it a $700 billion cap. >> carter has a great point. the stock sold off because they missed 1 million iphone units. i think it was on a $50 million -- i think if this is raging, people would forgive that. they have a lot of stuff going, into the holiday season and this just launched. so if we get to a period where analysts are expecting between 70 to 75 million iphone units in the upcoming quarter and that does not exceed what they sold the last year, the same quarter, investors will say what does

this upgrade runway look like and it is probably a lower level and they have to kind of really adapt to a stock that is just going to be hard to grow. >> some of the stocks associated with it are not reacting good either like avaggo and kws. >> one quick point. they have instituted policies to encourage people to upgrade their phones regularly. >> tyou have tried it mike, it is very difficult. i'm saying a lot of people -- it is right over here. i picked it up this weekend. >> it is not clear-cut. it is a process there. and to me, i think at the end of the day, consumers are figuring out how to do this. i don't believe that consumers want to spend a few hundred dollars a year for a smartphone that is not particularly differentiated from one that is much cheaper on android or something like that. >> many will disagree with you but we'll leave it there. up next, g shares hit a multi-year high today but it may not be enough to save one group of stocks. we'll tell you what they are right after this. here at td ameritrade, they work hard.

wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this. he can not see through doors. his speed, anything but superhuman. but when it comes to health care options, george found helpful information and resources at aarphealth.com this makes him feel unstoppable. well, almost unstoppable. discover real possibilities at aarphealth.com today and tomorrow take on the world.

ahh... steve, other than making me move stuff, ces. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information

for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this. time for total recall where we look back at some of the open trades around the desk. time for total recall where we look back at some of the open trades around the desk.

lack week kuo and carter made a bullish bet on microsoft ahead of earnings. >> we have a big range and a nice setup and we are toying with the tops and it is a heads you win, heads you win type of thing. >> i'm looking at the calls that expire next week, january call spread and send 90 cents to do that. >> carter, a victory laugh. microsoft hit a 15-year high. >> it is not so much about microsoft as it is about the formation. we tried the same thing with apple four months ago and it went the wrong way. you want to play breakouts. if you are wrong, take your losses an move on. if you are right, stick with it or reduce some. but breakouts over time are a good hand to play. >> mike? >> you know what is very frustrating is that he made a great call and i did not play it the right way. and the reason for that was -- >> this is the structure. >> this is an issue of the structure. we were long on a calendar spread. we were modestly bullish and we should have been wildly bullish. and this was not a wildly bullish trade. we been better off buying the

weekly 48 calls and -- >> can i give you a hand. >> if you don't mind. >> from someone who gets too cute, too cute on the structure, and i think you made the point right there. listen, if the main input is that it will break out, don't try to finance to get in there and just do it, right. >> one of the things about the long calendar trades because i don't want to talk them down because they are very effective and high probability bets, people should use them option but the next time you hear breakout and if i say long calendar spread, someone hit me first. >> moving on. let's look at the trades that did not work. dan thought that the run in industrials was over. take a listen. >> when you look at the chart of the xli from the 2009 lows it has come down now to that uptrend that has been in place since 2009 so. want to make a defined risk bearish bet looking out to december expiration when the stock was around 52.5, the xlive, i bought the 52, 48 put spread in december and i paid a dollar for that.

>> okay. the xli is now up 4% for the week. dan, are you sticking with that trade. >> nothing else has changed but the fundamentals didn't improve for the stocks that make up the xli over the course of the week. so i paid $1 for the $4 put spread wide. and this is on life support but i want to make one really important point. think about what happened in the last couple of days. the ecb in china and they are easing because global growth is weak. and what did oil do. it went down. >> definitely stick with that. the fundamentals were terrible. it is one earnings announcement after another with missed on the top and bottom line. and it has recovered to a very difficult level. >> and right now the action of the payoff if it did run to that short strike is 7 to 1 not the 3 to 1 you were talking about. not saying double down but it is hard to press the short with the money flushing into the system but it is not a bad trade right now.

>> speaking of what can you expect next week. don't forget cnbc is hosting the next republican presidential debate in colorado next wednesday, october 28th. it is a very big event clearly for our network and for the political discussion so please don't miss it. coming up, dig deep in your pockets and grab your phone and think nice thoughts, please, because we're going to take some of your tweets after the break. god help us. here at td ameritrade, they work hard. wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade.

you got this.

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ahh... steve, other than making me move stuff, ces. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this. okay, let's take a tweet. okay, let's take a tweet. andrew asked is starbucks poised to gap up after earnings next thursday. carter? >> this is a particularly persistent case of strength. unrelenting. and i think being short this is

dangerous so the precip row cal playing for a gap to the upside and i would make that bet. >> mike. >> i won't be foolish and go long but right now the december options are cheap. the 65 calls cost over a buck, it is worth a wait. >> mike, dan, thank you very much. that is "options action," have a great weekend. >> announcer: the following is a paid program for the new t-fal optigrill plus, brought to you by groupe seb usa -- innovative ideas you can't live without. how do you like your steaks -- rare, medium, or well-done, but juicy? whether you love tender, juicy grilled chicken or mouthwatering grilled salmon, there's nothing quite like the taste of perfectly grilled food. but grilling it right is never easy, undercooking your meat can be dangerous, and overcooking makes it dry and rubbery. you never get it just the way you like it -- until now. introducing the new, improved t-fal optigrill plus, still the first and only patented indoor