we're live at the nasdaq market site on this sunny afternoon. the guys are getting ready. while they're doing that, here's what's coming up on the show. >> have you guys heard when a guy asks you to netflix and chill? >> we sure have, but a key test looms next week for the streaming giant. we'll tell you what it is and how you can profit. and -- ♪ that was cheesy, but it's exactly what traders are betting one dow component will do next week. we have the name and how to play i it. >> here he goes, streaking away

already. it's bolt all the way. >> yeah, that's kind of what bank stocks did this week, but if you missed the move, we'll tell you how to catch up. the action starts right now. >> let's get right to it. apple shares tanking today on reports that the company will continue reduced production of its iphones. the news comes after a number of suppliers gave weak sales forecasts. so we asked is this just an apple problem or could it be something bigger? let's get into the money right now. dan? >> listen, i think it's part of the expectations for this q1 report. when you think about it, we had weak data. we had taiwan semiconductor preannounce or release very poor q1 results. but they gave a sanguine outlook for the balance of the year here. here's the thing. we know apple iphone has hit a soft spot and know investors are looking forward to that upgrade of iphone 7 in september, and that's a long ways out. so here's the thing about some of the suppliers, and we'll talk about qualcomm and others. we know that things are really week and know that the stocks are actually priced for a very soft period over the next few

months, so the fact that apple was down 2% today tells you that investors are pretty okay with probably -- probably a weak outlook when we get it in a couple weeks from apple. meantime, some of the component suppliers probably have some room to the downside because they have had such big rallies off the february lows. >> mike, what are your thoughts because we usually don't see the ramp down in production until we're closer to the rollout of a new phone and the fact that this is happening so early on in the year, does that make you more concerned? does it underscore this notion that maybe apple -- you know, there's no cattalyst in the foreseeable future until in the fall? >> no, i don't think there is a catalyst, but i also don't think that the stocks are really all that expensive. i mean, they got a lot of bad news priced into them already. if you take a look at apple i don't need to talk about the valuation there. that was cheap. a lot of suppliers are very cheap, too, and the thing is this news is out now so if you're thinking about catalysts of why you should buy a stock, usually it's buy the rumor and sell the news. here if you're saying, okay, you should short the stock and buy the news and some of the news is already out and these stocks

are looking awfully cheap to me. >> we often talk about the suppliers, carter, but in reality is there a correlation between suppliers and apple? >> at certain point there's is a correlation and other times there's not. apple participated in the rally with the market and if you look at the trend over the last year and a half you're talking about a well-defined succession of lower highs and lower lows and now we've had a big move from 90 plus minus back to 110, 115, and it's not going anywhere. it looks like it's sort of a dull no-trade kind of thing here. >> right. >> so, dan, you're taking a look at one supplier in particular. >> yeah. it's qualcomm. they're a 5% customer of apple, a 10% customer of samsung. we know they have had a whole host of problems. the stock is down a ton from its multi-year highs. a cheap stock, great balance sheet. about 40% of its market cap is in cash, 25% net of debt, a monster buyback, 4% dividend yield and trades 13 times. the problem is there's no growth here, okay, so it's kind of like

value trap. the stock has rallied 20% off its february lows. they will report next week. the options market is implying about a 6% move in either direction. and the way i see it here is that there's probably room despite all of the those good things about the thing maybe being a good value. there's probably room for one more downgrade to 2016 guidance because of the uncertainty about the high-end smartphone market and basically maybe demand in emerging markets. so to me i think the stock sets up for a good short opportunity here. when it was trading at 51.60 today, you could look out to may expiration and buy the may 52 half, may 45 put spread, selling one for 2.30 and one for 30 cents. your max cost is $2. you have to remember here this is a dollar in the money right now. so your break even is at 50 1/2. down $1 from here. so i like this trade is isolating retracement of

probably half of that move that we had off the february lows here. i think there's a pretty good chance we get a downgrade of forward guidance and investors think a little bit where this thing should be priced. >> how do the charts marry up with these levels? >> what's remarkable is how bad this has been. this was a super performer that's basically been cut in half. 85 to 45. and this counter trend rally leaves it right against it's declining 150-day moving average which is inherently a difficult level. if you look at the day-to-day volatility it's literally evaporated. the stock has traded dead flat for weeks. i would rather bet on the upside than the downside? >> mike, what do you think of the trade? >> so the trade makes a lot of sense here because the way he structured this basically is he's not playing extrinsic premium. this spread won't decay as much as other trades might. that makes sense, but the valuation of the stock has priced in a lot of this bad news already. everybody understands that the mobile phone and hand set and

electronics business is inherently cyclical so, yeah, not a growth stock right now but that's the nature of the business and that's the reason that it has the valuation that it does. >> i guess you could have made that same argument about the stock for the last two years. it's made a series of lower highs and lower lows, cheap the whole way. giving back cash hand over fist here. so, for me, this play is for one more down play to forward guidance. if you see it back in the mid-40s then you take a shot because expectations are low enough in my opinion. >> qualcomm isn't the only one reporting next week. a number of big tech companies are set to release earnings, and there are some hefty names. seema mody has more. >> reporter: earnings season picking up steam with a number of tech giants reporting. ibm kicks things on monday after the bell. tuesday we have intel and yahoo. qualcomm on wednesday and then alphabet and microsoft close out the week on thursday. the options market is implying some very big moves for four of these names in particular. ibm and intel could see a move of 5% in either direction. that's more than their average

of around 3.5%. and then there's yahoo looking at a more than 6% rally or decline. the company usually moves around 5%. last is microsoft looking at a 5% move in either direction. higher than its average of under 4.5%. melissa, if all these moves were to pan out, that would represent a nearly $40 billion move in market cap. so some big moves potentially next week. melissa? >> thank you, seema and the chart master says one of those stocks could be poised to break out. carter what are you looking at? >> it's microsoft. the last two quarters it's moved that much. it's been about 5% and they have both been up so we'll look at that in a little bit. i wanted to look at the long-term chart of microsoft just to set up the story here. so, you know, this is pretty clear stuff. the all-time peak, the nasdaq bubble, and a whole lot of ways to time. now we recovered to it. 59.97 on december 30th, 1999, here's your line. right? so we will play for a move to

the prior peak. close at 55 and change, and we think that's the way forward. let's drill down into the here and now. so this is the chart and actually watch what was just happening. this line right here is the breakout point, and when you pivot back to the point from which you break out and ricochet like that, that's a very good setup for backing and filling and going again. now, more immediately is this. here's the immediate chart and then that is what we're playing for. those ovals are the last two quarters. big beat and it gaps up, big beat and it gaps up. to my eye, we're setting up for a nice breakout above these tops. here it is drawn with the line. there's the gaps. let's put our tops in, call it a wedge, call it an ascending trend, call it whatever you want. what it represents is tension. big beat, big beat, we're going to make the bet that it will do this again and get back to the

all-time high. >> when we get back to the all-time high, carter. does it break out or is that a resistance? >> when you get to a difficult level you find difficulty and you say there's memory from there, no one owns it from there. plenty of people own it from there. when you get back there you're likely to back and fill and that's why the trading is at this level, and even if you back and fill for quite some time u can exceed a prior peak. >> microsoft is approaching a prior peak. mike, how are you trading it? >> i think the way you want do this is definitely with options. for a long time it's a cheap stock. it's cheap no longer. it's trading 19 times forward earnings at this point. they have demonstrated an ability to evolve. we can see that with their intelligence cloud business the revenues of which are equivalent to all the revenues that the company made at the prior peak over 20 years ago. the way to do this going into earnings because we're expecting an above average move, look at

the june 57.50 60 call spread. may a buck for the 60s and sell the 50s for 35 cents so a net of 65 cents. spending just a little over 1% of the current stock price to make that bullish bet. why am i using a call spread? because, you know, there is room for, you know, disappointment here because they have basically been hitting on all cylinders for many of the last eight quarters so if there is risk as i see it you could see disappointment. >> i don't want to say that they are the same kinds of companies but we did get data points. >> yeah. >> some concerns are creeping in about the enterprise markets. >> right to define the risk. >> i think if i'm an investor i want to look out to 2017, a lange time away. that's next year. the year they are expected to get $100 billion in revenues and also a year that they are expected to have mid-single revenue growth and double digit eps growth for the first time in

years. you know what i mean? so if this story is really happening, you could see a bunch of back-end filling and investors may get ahead of that. a couple of disappointments and see things in the low 50s, i think it gets eaten up really quickly. >> so large cap and basically slow moving with a defensive element to it and appeals to me in a tape that's fraught with risk. >> for everything "options action" check out our website and while there sign up for our newsletter. we'll take a break here. here's what's coming up next. when the money is coming your way you don't ask any questions. >> but a crucial question looms for netflix stocks as it reports earnings next week. we'll tell you what has investors nervous and how you can profit. plus -- ♪ >> calling all "options action" fans. got a question on options? send us your tweet and we'll answer it on air when "options action" returns.

i'm here at the td ameritrade trader offices. steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place and 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. td ameritrade.

herthey work hard.ade, wow, that was random. random? no. it's all about understanding patterns. like the mail guy at 3:12pm every day or jerry getting dumped every third tuesday. jerry: 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. td ameritrade. welcome back to "options action. netflix reports after the bell on monday. it's likely to be a roller coaster for the stock. swings on average 12% up or down. cnbc's julia boorstin is in los angeles with a preview of what to expect. hey, julia. >> reporter: netflix is expected to show record revenue and ongoing international user growth as its u.s. growth slows. the biggest metric to watch is netflix subscriber numbers, an indicator

of how investment in original content is helping it to compete with its nearest rivals. netflix projects nearly 81 million subscribers, about 6 million more than last quarter's better than expected number. perhaps the most important subscriber number is the one netflix forecast for its second quarter once its $2 price hike to $10 a month for some long-standing customers kicks in. ubs estimates that roughly 17 million u.s. subscribers will be impacted by the price increase and that 3% to 4% of those will cancel the service. netflix shares are down so far this year but over 12 months the stock is still up over 60%, and many analysts are bullish on netflix' growing assortment of original shows and the fact that it has lower prices than most of its direct consumer rival streaming services. the question is whether all the originals will continue to make netflix a must have, even if it costs a few dollars more each month. melissa? >> julia, thank you. and dan made it over to the smart board and says netflix could see a less than average move on monday. >> yeah.

that's a really interesting situation, mel. like you said, stock long-term average has moved about 13% the day following each quarter over the last ten years which is really a massive, massive move in either direction. this quarter the options market is implying a 10% move and why am i at the smart board here, to kind of answer a question that we get all the time here on "options action" is how do we figure that out? in a situation like netflix there's weekly options, stock trading at 111. i could look at the weekly next friday expirations, 111 straddle, the call premium plus the put premium and that is the at the money straddle, the weekly straddle. you put those together, they were both offered at about $6 when the stock was 111 today. that's $12. that's the implied move. over the course of the week, about 11%, so if you isolate just the earnings event coming monday after the close, the one-day move is probably about 10% here, so that's how you figure out the weekly implied move for an earnings event if you do have weekly options here,

and one of the reasons, i just want to focus a little bit on why that implied move may be a little less than expected. look at back when the company reported in january 19th, the q-4 results. the stock gapped down 10%, but look what it did. it worked the whole way up over the course of the day and basically closed unchanged. option traders got caught offsides. the implied move for that quarter was 14% and the stock ended up being unchanged on the day. obviously it traded down afterwards, but a lot of option traders will -- will work on their positions throughout the course of the day, and if you were long premium, long the implied move, you thought netflix was going to move back in january, you got creamed. so that may be one of the reasons why the stock is not implying that much of a move. and i just want to show you on the chart here, the stock had this run up from 102 over the last week or so. that may be incorporating some of the good news here. so when you think about all the

things that julia just said, think about the implied move being less than it was last quarter and far below the long-term average, my -- i just suspect a lot of news is in the stock. you can see a bit of a consolidation and 10% may prove to be a little high. >> mike, seems like every analyst research report that i've read on netflix the last couple of weeks has been bullish. >> yeah, and, you know, i mean, i don't want to seem too skeptical and always going back to the high multiples and expectations that people have for growth stocks for netflix and one of the things is whenever they have tried to do something with their business model historically, one of the things that can get into trouble, if you start changing the pricing, want to raise pricing, fundamentally that sounds like a good idea and the time when people look at their credit card statements and can revisit it and get pushback. the other thing is, sure, they are creating some content but people know how you can binge consume content on providers like netflix, and i'm not sure that it's quite enough, so i think there's an awful lot of optimism here. i'm not quite as optimistic

where netflix is concerned though i am a subscriber. >> if you look at obviously where this is, right, compared to where it's been which is essentially what charting is, current price juxtaposed against past prices. we know from the december high at 135 to the lows of february of 80 we've retraced exactly the halfway point and sitting here at 110. and it might be one of those moments where maybe not a lot happens, and it just stays range bound. i would rather make that bet than a directional bet. >> what's the number one thing you'll listen for in the conference webcast? >> if you look back over the last five years, and we've talked about it on the desk, massive moves in the after market because of pricing changes, how has it affected subscribers here in a very saturated market that has a lot of competition going on and obviously international ads is going to be really important. listen, you know, i get it. it's got 12% short interest here. it's squeeze, a cult stock, but i don't think you probably buy it after the stock has just rallied about $8, $9 into the print on monday.

i suspect you see some sort of consolidation at mid-point of this 2016 range. >> up next, something curious happened in japan this week, and it has one of our traders scratching his head. we'll tell you what it is, and if you have a question for one of our traders, send us a tweet. we'll answer it later on in the show. much more "options action" right after this. i'm here at the td ameritrade trader offices. steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place and 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. td ameritrade.

herthey work hard.ade,

wow, that was random. random? no. it's all about understanding patterns. like the mail guy at 3:12pm every day or jerry getting dumped every third tuesday. jerry: 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. td ameritrade.

welcome black for "options action." time to look back on the trades that haven't gone in our favor. last week dan thought financials were about to tumble. take a listen. >> i want to look out to september expiration. you need time if you want to make a short on this trade in the bank stocks. i want to look at the xlf, the financial sector, etf when it was trading at 22 today, look out to september expiration and pay $1.20 for the sept 22 puts. those break even, 120 is your max risk. >> financials were the best performing sector this week, but, dan, there's a lot of time in the trade. what do you do? >> that was the point of the trade. hi to give it some time, and we know and i think we talked about it in the package that expectations were low. a lot of companies reporting it already talked down q1 numbers here hand entry points are really hard with trades and that's why sometimes with

options you've got to give yourself a lot of time. i was not going to trade short-dated options on something that i thought expectations were low and the stocks could pop a little bit so i still like the trade and what's really important as we come out of earnings season and get through a lot poverty components of the xlf reporting, let's she how the stocks trade in the weeks that follow. >> you got bombarded with the earnings, so a lot of the banks faded the only thing not as bad about the trade is the one we've got coming up next because that was worse. . >> oh, okay. >> there's quite a tease. let's get right to it. >> dan is not the only one in the hot seat. last week carter made a bearish bet on japan. take a listen. >> we are precariously close to hovering at the well-defined lows at a defined level and we'll break the lows. >> i'm looking simply at the june 11-12 put spread. this is interesting because with the ewj at 11.35 when i was looking at this, you could buy this put spread for over 50 cents, 77 for the june puts and sell the june 11 for 26 and paying a 51 cents for that spread. >> this is what carter was referring to. the ewj was up 4% this week. mike, what are you doing with this trade?

again, you have time on this. >> yeah, we do have a little bit of time. i mean, ewj was up. i mean, it wasn't up huge. this trade is actually still -- that put spread is still slightly in the money. given up half the value of the premium that we spent on this thing. i'm ready to hear what carter has to say. this was a tough week, let's face it, to be short any type of risk asset. there was apparently a lot of bad news built in with financials and the whole market is basically been a buyer are since those news came out so i'm ready to hear what carter has to shay. mime inclination though is to stay with it. >> what's interesting is the nikkei was up almost twice as much which means you have the currency issue and the market and we don't have that problem, but either way, this is -- this is a bludgeoning and we've got our heads blown off here. now the question is whether we have enough time to stay. i don't think it's going to go much further. i don't think stocks in general will go much further but if you're short term you've got to take your loss and move on. >> coming up next, your tweets and the final call from the options pits.

i'm here at the td ameritrade trader offices. steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place and 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. td ameritrade.

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herthey work hard.ade, wow, that was random. random? no. it's all about understanding patterns. like the mail guy at 3:12pm every day or jerry getting dumped every third tuesday. jerry: 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. td ameritrade.

welcome back to "options action." time to get to some of your tweets here. what's the best way to play google on earnings? does it make an all-time high? dan, why don't you take that one. >> well, it's interesting. technically it doesn't look too different than that microsoft chart. >> really, wow. >> and the option market is implying a $42 move in either direction. option prices are generally pretty fair so to me i think if you want to define your risk and you're not there, maybe look to call spreads. >> quickly on the charts, carter. >> it's a prospect of a breakout move to new highs. >> all right. time now for the final call. last word. carter, kick it off? >> go with google and microsoft, play them both. >> mike? >> i like call spreads in both of those stocks into earnings. >> oh, such love on the desk here in san francisco. dan, what do you say? >> i miss you, mike. no. i think back to the bank trade

real quickly. i think if they run out of steam next week, you look to let them out. >> looks like our time has expired. thanks so much for watching. i'm melissa lee. for more "options action" check out the website at cnbc.com/optionsaction. we'll see you back here next monday for "fast money" at 5:00. "mad money" starts now. >> announcer: the following is a paid presentation for the worx air, brought to you by worx. prepare to be blown away. [ whirring ] you're not looking at an ordinary blower. there's no cord. there's no gas. it goes where no other tool could ever go, does things no other tool could ever do. it finds every kind of dirt in every kind of space... and makes your whole home cleaner in just minutes so you get to spend more time enjoying it. the incredible worx air -- so versatile, you'll wonder how you