simon simon hobbs and i'm hosting "options action" tonight. here's what's coming up tonight on cnbc. ♪ >> cheesy, but that's what microsoft shares did this week. if you miss the move, another stock could follow in its footsteps. how could you like to make money if apple goes up or down or nowhere at all on earnings? >> is that possible. >> it's not only possible but

it's the sim plist options trade around and we'll teach you how to do it. >> you won't believe which stock traders see having a huge move on earnings next week. >> please tell me. >> we will, jack, because the action starts right now. ♪ >> the big story of the day is clearly tech the nasdaq 100 soared 3% with microsoft alphabet and amazon making up half of the gains. will the tech breakout continue? let's get in the money. dan is the rally sustainable? >> we've said it on numerous occasions here, when we're look at the nasdaq 100, it's apple and amazon and facebook and google make up 35, almost 40% of the entire weight of that thing. you have these four or five stocks doing most of the heavy lifting and there's a lot of stocks in that index that are basically in a bear market or at least a correction. to me, i know carter will get

into it, i don't love that concentration, it makes me a little nervous and reminds me of the year 2000. >> one thing we know, there's been great exploitation of potential, a lot of stocks have broken out. we have a few to go possibly, there's apple and facebook. the broad message from the nasdaq is that most stocks are not only not participating but they are in bear markets and going down more than a year and most are down more than 20%, that's a by fur indication that happens near the cycle. >> those that blew it out this week were pretty good. what's interesting to me, what i look at the options, taking a look at something implied correlation. what's going on here, right now the options market is saying these stocks are going to splinter and go off in every possible direction. much more so than they have been saying for the entire year. generally speaking, when everything tracks together, the index matches to the stocks.

when you see correlation drop, the off sit occurs and we're seeing the lowest implied correlation we've seen all year. >> here's the thing, you just mentioned it, apple, that's the big one. when you see the stocks to move today, the way they did, apple was asleep. in its long dirt nap for the last month or so going sideways and wakes up and rallies 7%. when you think about earnings next week and we'll hit apple's earnings, could that stock have a huge gap, 6%, 7%. it could and that should make you nervous in either direction is my guess. >> you're seeing troubling signs in the charts. >> in the sense there's been so much exploiltation and maybe it's one or two left and that would answer it but let's figure it out together. i have a two panel chart and this is the setup here that has been the consternation of the act of manager. the top is the nasdaq composite and we got very close to, within a fraction of making an all time high, yet for the past basically

16, 17 months, the number of stocks themselves that are advancing, that's what advanced decline is in simple language, is not progressing. this is a function of great leaders like google, amazon and apple and so forth, carrying the weight forea lot of other players on the team. 2700 players not participating. another way to look at it, here's our nasdaq on the top and nasdaq on the top again. this is the number of stocks making 52-week highs, nasdaq is at three-year lows. you wonder how is it that the number of stocks making new highs should be up here in this range? it's because again, the average stock, the median stock has been in a bear market for the better part of a year. okay, so our all-time high, march of 2000, and we are right now about 4% shy of that high in the nasdaq 100. and so is it apple or facebook

that gets us to that level? either way, this is sort of end stage kind of thing. we've had a lot of breakouts. so there's your line. let's go to the nasdaq 100, which is the equivalent of the q. what i'm thinking here, this gap you see, the u for ya of google and amazon, if we get a little more, we'll be right at the july 20 high. that's a point and a half higher, 1 and a half percent. that maybe could cap your upside and start to fade this based on all of this and long-term and the fact that so many have already done huge moves, microsoft, google, amazon, not much responsible left. >> what about the argument that we have momentum here? today was a great day in tech and maybe we'll break through that resistance. how high probability? >> of course, one of the things about big gapping type action, typically it's news related and

typically it's good news. is there follow through? often there is and then it lasts maybe a day or two. a stop that gaps up like a microsoft, they don't typically go and go and go. they typically back and fill after the initial gap. >> thank you. what's your take on the triple qs in particular. >> the qs, i was talking about the fact that index relative to the stock seems relatively cheap. with china coming out and saying whatever it takes, i think you can inexpensively make a bet to the downside using the qs and what i was looking was the december put spread, you can spread $1.55 to make a bearish bet that could pay you 2-1. most will be long stocks and long in these stocks, so if you do see any kind of pullback this is an inexpensive way to make that bet.

>> i think mike puts it well, with the amendment, do you want to be making short bets all over the place? you could think about a trade like this and so concentrated as a hedge against these holdings, if you think there's potential for them to continue to go. you want to use hedges tactically. one way to do this. you may want to wait until apple reports and then you may get a better entry, i'm just saying. >> what's interesting and let's say apple is bad, then that puts the top in. >> that's one of the reasons why you would put on a hedge like this. for most people, it's one of the most broadly held stocks and huge component of the index. it's not going to be a macro economic thing because we're getting as much support as you could possibly get there. >> carter used the word bifurcation, let's look at amazon, the xrt, down 1.5% on a day that amazon was up 7.5%.

the point is a lot of retailers are doing poorly and amazon is taking over the world. to me, that is actually a very dangerous situation. it speaks to your breadth point. >> microsoft surged 11% to a 15-year high. that move created $37 billion of fresh value for some perspective, more than the total market cap of companies like ratheon and halliburton and cbs. >> carter called the breakout in microsoft and clearly defined it. they were trading between 40 and 50 and called the breakout last week on the show. when you think about it, now it's above $50. the prior high was 60 bucks for all intents and purposes so let's talk about the 1990s tech

darling sisco, they have traded for last year within a fairly tight range from the low 20s to now the high 20s here. when you look at it on a long-term basis it looks similar to what microsoft did prior to its -- $30 has been resist ent for more than 14 years. what i'm thinking about here in cisco. we know that we have a great balance sheet and committed to capital return. they also have a new ceo going to be paving his own way here. >> john chambers is still sitting at the back. >> real quickly, the point i would make about cisco, they have a lot of exposure to emerging markets but seem to be immune over the last couple of quarters. if you want to make the microsoft bet, look out to february, you could buy about

$29.15, the february 30 call for $1, that is the maximum risk, 3% of the underlying stock price and you have a lot of leverage to move. >> you're giving yourself a nice long time to play out catching two potential catalysts. the street recognizes those head winds and it's not a really overly loved stock. the average price target only up 31 bucks on this thing and you've got six sells. that actually with a lot of people looking down is one of the reasons of having convexity could help pay off. >> could it go higher? if cisco breaks out that will lend strength to the qs. if we get a whole bunch of others, it will. but these are happening not at the beginning of a cycle or end. >> what about facebook? >> no, i'm talking about after a multiyear run and you start to get consecutive breakouts, stock after stock, that's sort of a buying u for i can't.

>> and the potential is the reason you want to use options, it's that opportunity. it's a binary situation, could go sharply higher or lower. you buy an inexpensive option, you can get those to pay off. >> this is really in the context of yes we're saying there's the potential for a sell-off, but you also have to look tactically what carter did last week, you think there's potential for twerk to the upside. >> if you've got a question, send us a tweet and if it's nice we might even read it later in the show. for everything options action, check out the website, options action.cnbc.com. we have videos throughout the week and exclusive trades. it's like you died and went to options heaven. up, down or side ways you can make money in apple.

>> brilliant. >> we'll show you how. plus, industrials have been on fire but there's 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 welcome back. we're coming up on the busiest week this earnings season with more than 150 s&p 500 companies

reporting. some of the big names we'll hear from on tuesday, apple and twitter, the largest bi yoxttech name amgen and chevron and exxon-mobil. now simon, the options market is implying huge moves from some of these stocks. take a look at this, alibaba pricing an 8% move in either direction and gopro15 and twitter, looking at a 12% move in either direction. if each of those pan out, that could result in a more than $50 billion shift in market cap by the end of next week. back to you. >> thank you very much. the biggest name presumably reporting next week is apple. mike, you were looking at one of the most common options strategies as we await the big one. >> i'm taking a look at an overwrite, if you're buying the stock. when you do a trade like this, this is a mildly bullish trade,

you're looking for stable stocks but still want to have a bullish view. the other thing is, when you sell options, what this strategy involves, make sure you're collecting a meaningful amount of premium. and the other thing you want to do if you're selling calls against stock, give yourself a little upside. usually at least 2% if you can. all right, if with can go ahead here we'll look at apple and the stock was trading about 118.5, you could sell the 125 call for 1.20. in this case we actually have well more than the 2% i was looking at. why is that? because this happens to capture earnings and stock has an implied move of 5%. i'm giving myself at least 5% to the upside. >> dan, what do you think about that? >> after the moves we saw today and big names, i would say be very careful about selling calls

against what you love, like amazon, microsoft and apple and google is that story also. if you're long in the stock, you want it to go up, apple pays a dividend and buy back stock. this is one way to create a butter to the downside. i think this makes sense. if you sell a call against your stock and it goes through the call strike, you can always cover the call. you basically have taken a little of the upside. >> you can roll these strategies out and look to collect additional premium. that's one of the things, this is a recurring strategy where you're looking to enhance the yield over time. don't get intimidated by the possibility it might run through -- >> a little difference and if this breaks out this will help the market a lot of the how does the security do in the quarter. microsoft its last quarter it gapped up, apple's last quarter

it gapped down. whether the number was good or bad, the response was negative. and it's been a lagard as you pointed out and that's the risk here, this in fact that something is wrong. >> which is another reason you might do this, a lot of people own apple shares and looking for ways to enhance their yield at a big move to the upside of say 10% or more is a huge move. >> for $680 million market. >> call it a $700 million stock, that's a $70 billion move to the youpside. >> the stock sold out because they missed 1 million iphone units, like on $50 million. if this thing was raging people would have forgiven that, they are going into the holiday season and the thing just launched. if we get to a period right now analysts are expecting between 70 and 75 million iphone units in the upcoming quarter, that does not exceed what they sold last year. the same quarter, i think investors will say, okay, what does this upgrade runway look

like and it's probablery going to be a lower level and they have to really adapt to a stock that's going to be hard to grow. >> some are not acting well either. it's not as clear cut as some others. >> one quick point they now instituted policies which will encourage people to upgrade phones regularly. >> have you tried it? it's very difficult. >> a lot of people -- >> it's right over here. picked it up this weekend. >> it's not so clear cut. it's a process there. to me, i think at the end of the day, consumers are figuring out how to do this. i don't believe consumers want to spend a few hundred dollars for a smartphone which is not much differentiated from android or whatever. >> 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 time for total recall, where we look back at the open trades around the desk. last week coe and carter made a

bullish bet on microsoft. >> we have a big range. a nice setup, we're toying with these tops, i think it's a heads you win, tails you win setup. the october weekly, 48 calls that expire next week, january 48 call spread, you can spend 90 cents to do that. >> carter, a victory lap, microsoft hit a 19-year high. >> not so much about microsoft that it is about the formation. apple went the wrong way. meaning you want to play breakouts and play the cards over and over. if you're wrong, take losses and move on. if you're right, stick with it or reduce some but breakouts over time are a good hand to play. >> mike? >> what's very frustrating he made a great call and did not play it the right way -- >> structure. >> this is an issue with structure. we were long in calendar spread and moderately bullish and should have been wildly bullish. this was not a wildly bullish trade.

we would have been better off buying the calls -- >> can i tell you from someone who gets too cute when i'm looking at the different inputs, get too cute on structure. you made the point, if the main input is it's going to break out, don't try to finance to get in there and do it, right? >> one of the things about the long calendar trades, i don't want to talk them down, they are high probability bets and people should use them very often. next time you hear them say breakout, somebody hit me first. >> okay, moving on, let's look at the trades that were not working. out last week, dan thought 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. i want to make a defined risk bearish bet looking out to december expiration when the xli, i bought the 52.48 put

spread and paid a dollar for that. >> okay, the xli is now up 4% for the week. dan, are you going to stick with it? >> not much has changed other than the price action but the fundamentals did not improve over the course of the week, yes, i paid a dollar for this $4 wide put spread and have until december. it lost half of its value in a week. this thing is on life support but i want to make one important point, think about what happened in the last couple of days. the ecb and china, i mean, they are easy again because global growth is weak and oil went down. this trade is okay. >> definitely stick with that. it's one earning announcement after another, absolutely misses on the top line and bottom line and recovered xli to a difficult level. >> right now the payoff if it did run to that short strike is 7-1, not the 3-1 before. >> a lot more leverage. >> i'm not ugt suggesting you double down.

it's hard to press the short with the money in the system. >> speaking of what to expect next week, don't forget cnbc is hosting the next republican presidential debate in colorado next wednesday october the 28th. it's a very big event clearly for our network and the political discussions. so please don't miss it. coming up, dig deep in your pockets and grab your phone and think nice thoughts because we're going to take your tweets after the break. eak. 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. let's take let's take a tweet. andrew asks, is starbucks poised to gap up after earnings next tuesday? >> this is a particularly persistent case of strength, unrelently, being short this is dangerous so playing for a gap to the upside, i would make that bet. >> mike? >> i'm not going to be foolish

and go long but right now the december options are pretty cheap. 65 calls cost you just over a buck. >> thank you very much. that is "options action" have a great weekend. the following is an important paid program about humana medicare advantage prescription drug plans. welcome to your medicare your decision, the program that guides you through the medicare options available from humana. there are many different medicare choices available today, but are you sure you have the right medicare plan? are you with the right company? do you wonder if you could save money with a different plan? no matter what medicare coverage you have now, this program will give you the information and facts you need, so you can make a smart decision, based on the plan benefits now available from