>> hello, welcome back. it is freezing outside, but don't worry, we've got warm wishes for you. here's what's coming up on the show. >> marty, it's got to be the shoes. >> the shoes. >> the shoes. >> are you sure it's not the shoes? >> actually, it's the charts. because they are looking bad for nike shares. we'll explain. plus, there is something wrong with the chinese markets. >> the poison. >> it might just be the thing that takes out the rally. we'll tell you how to protect your portfolio. here's what shares of bank of america have done. if you are worried the run is

done, we'll show you how to protect yourself. the action begins right now! [ music playing ] >> all right. welcome. we do have a sledgehammer of a show tonight. but let's get right to it t. china stockmarket is falk. the etf, falling to lowest levels since early august this as the bond market basically crumbled. no way to put it. is china the biggest threat? let's get in the money. >> if you look back to 2016, we saw a shanghai composite from one point up almost 200% and it crashed and the lows this year was down about 50%. when you think back to that period of time, the summer of 2015, there was major palpitations in our mark and then again early this year january and february, there was a lot of concerns about global growth, maybe that credit bubble over there coming undone. that's really been the source of our volatility. you think back to the last year-and-a-half. when you see the shanghai

deposit down 5% a week, overshadowed by a market about to trade at 20,000 and the dow, you got to start thinking about where does this volatility come from? >> some of us talked about for a long time. at some point you will reach the tipping point. we know they are lowering level ratios. you don't know what point that unwinds, too. >> trying to control the credit bubbles they have in the housing market is one piece of it. we know they have a housing bubble. we know a housele bubble tripled in the economy this year. they have one. it's a little larger than that problem. their foreign exchange have declined pretty significantly about 4 fromle to 3 trillion, even so, they're having a hard time to defend. >> hard to defend china. carter, you mentioned, you wanted depreciation, i hear you. let's not forget the majority is protected in a fixed rate. are you talking about the off shore part of the currency market? >> you don't know when you reached the point in which that

t is the sort of the tail wag of the dog. a lot of people are in that bet f. you get a pile on -- >> a pile basket. 30 to 50% depreciation. >> here's the thing. that's economics. okay. there is also politics in the news regarding china this woke. really important stuff. we know president-elect targeted china on a whole host of issues, geopolitical and economics during the campaign. what did we see this week? we saw him request ethe one china policy that had been in place almost four decade, that sort of thing, we saw also the situation with chinese official suggesting that they may find an unnamed u.s. auto. what did they do? they flew a nuclear bomber in the south china sea and took our drones. >> but their own economic risks are probably bicker than anything zplchlt all the macros are out. we are trading it, if at all. >> i don't like the press shorts. after a move we had this week. if you have a bounce, that

itself the eighth share, track some of the biggest harm cap stocks in china him look at. that just this week broke that up trend in place from the january/february lows. i think you will see lower lows. i think you can target low 30s in this thing over the next couple months, i would do this on a bounce the today i was trading 35.5. you could buy the february 3531 put spread. buying one of the fed 35 put for $1.25, 31 at a quarter. your mask risk is at a dollar. above that you lose it all. i like those technical ran hges. you do, too. >> one is the check issue, and flat out dollar yuan fluctuations. so both of these could propel it further. >> a quick comment on the charts? >> there is a correlation on the

copper and the chinese mark. copper had varied that week. i was keeping an eye on that as well. shifting gears the peter lynch famous model suggests you simply pie what you know. share the things that you like to buy. that addage has not worked out this year, disney, coca-cola, nike are among the worst performing stocks in the dow, chart master. we see more pain for some of these stops. >> nike is the subject. let's look at the charts and put this in perfect e specttiperspe. a household name and so forth. i want to put this in perspective and start with the chart of the s&p since the 1990. let's put in something that's blown that away. disney. let's put something that's blown disney. mcdonald's. let's put something that's blown mcdonald's away, philip morris.

let's pick another one, nike. it doesn't mean it las to ended because it's so good. you go back, you say, wow, i mean, this is killing this. and yet to put it in perspective, this has been one of the only apple has kept up with that at that rate. now, the chart of nike, itself, take a look first at the performance, the physicals that i was just showing you there. this is epic him so the question is if you have a great out performance and that's a bad one-two punch. here's the long-time chart of nike versus its own earnings. price per share, earnings per share. that's also something to consider. now, the stock, itself, how do you draw the line? can you draw it anyway you want. you can draw them this way, head and shoulders tops. can you draw them this way, breaking trend. you put your head and shoulders top back in. the key is after outperforming over a multi-year period, we no ethe stockmarket's gone on and

done this. so you have a problem with massive outperformance long term and more recent honor performance. this suggests much more to go. we close around 51, i think we go out ought 46. >> this is an interesting situation. so we have earnings coming up. they've disappointed three of the last four that they've reported. "options action" markets are expected a 5% move, bigger thatten the moves they've averaged. fundamentally, though this stock is not expensive on a trailing basis t. thing is, trading anywhere from 10 to 15% cheap to its own historical numbers, does have modest, acceptingle digit revenue growth. when you look at valuation, it's hard to say i'd want to get short in the stock here. but it has disappointed. they have restructured their business. they've eliminated as we previously articulated the fact they got rid of that visit. i think the way you want to play this is simply to go out to january and look at the 50, 47.5 put spread.

we're going to be turning 47.5. yen how that works for you, down about 7% from where it was. the earlier stock traded off weekly at the end of the day here. so i think that's a way you can make a risky trade. 65 cents. it could be worth as much as two-and-a-half. are you spending approximately 25% the district of the strike, which is the math on put spreads. >> and that cart there, what do you think? >> i like it. here's the thing, since the company last guided the dollar, they get 50% of their sales or more from overseas. it's a really important point for growth. dollars off the dixie is up 7%. >> it's ripping elections. no one is buying nike. it's the inability. >> on the foreign currency exposure issue, they do hedge some of their dollar exposure. only some. you read the annual report, they say we will have reduced risks. >> they trade one second. i think 50, 47-and-a-half that's being gentle. i think this thing, if they guide down the rest of the year

for 2017, i think it's going to the mid-40s easy. >> you are talking "fast money," to talk about the risk of people that import, companies that import a lot of foreign-made goods, perhaps no company is importing more from around the world to the united states, particularly from asia, to nike. so perhaps there's a tax issue here that goes outside of the funding. >> there is also a group issue. skechers. adidas, under armour does well. this is not just nike specific. >> very quickly to touch on the fact that it could go down more, maybe at not making an aggressive enough bet to the down side, 30% of the time you will see moves about this magnitude coming out of earnings. if you wanted to make more, you might trade two rather than going out and buying a flyer. >> moving for the trade, if you are looking for a christmas gift for something you care about. shoe dog, the biography of the

foir founder phil knight. i have no stakes by the way in the book. as if you had to be told that. for everything "options action," check out our website optionaction@cnbc.com. here's what's coming up next on this tv program. missed a rally in the banks? >> oh, darn, darn, darn. >> well, relax, because we have a way to get long in bank of america for under a buck. we'll explain how. plus, calming all "options action" fans, reach into your pocket. grab your phone, tweet us your question@option action. if it's nice, we'll answer it on air, when option action returns. hey nicole. hey! i just wanted to thank your support team for walking me through my first options trade. well, i feel pretty smart. well, we're all about educating people on options strategies. well, don't worry,

i won't let this accomplishment go to my head. i'm still the same old gary. wait, you forgot your french dictionary. oh, mucho gracias. get help on options trading with thinkorswim, only at td ameritrade.

tadirectv now. stream all your entertainment! anywhere! anytime! can we lose the 'all'. there's no cbs and we don't have a ton of sports. anywhere, any... let's lose the 'anywhere, anytime' too. you can't download on-the-go, there's no dvr, yada yada yada. stream some stuff! somewhere! sometimes! you totally nailed that buddy. simple. don't let directv now limit your entertainment. only xfinity gives you more to stream to any screen. oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades

with market professionals and thousands of other traders? i know. your brain told my brain before you told my face. mmm, blueberry? tap into the knowledge of other traders on thinkorswim. only at td ameritrade. >> well, this really is now. officially the biggest post-election run for stocks ever. some are worried this big run has left a number of stocks printing extreme sustainable valuations. dom. >> statistically improbable. that's what a lot of these stocks have done to the up side. it doesn't happen very often when we see these sharp arabolic if you will loo lose to the dwrup side. we took to the s&p 500, guys, looked at the stock with the most extended upside behind the average price for the longer

term. 14 stocks are at least 40% or more higher above their 200-day moving average. we put the top ten on the board right there. you will notice a lot of banking-related names, gold man sax, zions, region, citizens, bank of america. you named it. seven of the top ten are financials in some way, shape or form. the others are conducting companies and united and continental on the airlines as well. this gives you an idea of what stocks are the most extended to the upside. it's not to say these trends cannot continue. markets rarely we know go in a straight line. are we due for a meaner version? back over to you. >> all right. thank you very much. so, what should you do if you own one of these stocks? is that a martboard with a call to action? >> one thing you can consider is looking at a substitute for your long stock position. if you want to stay long, an outperformer, there are quite a few.

that's one of the things you want to look at. has the stock moved too far too fast? it's very hard to say, okay, this is the top. but if it has had one of these parabolic moves, it might be risking a pullback. if you want to define your risc, you might want to use an option. we take a peek, if we can. we are looking at bank of america. we can see the stock has gone up. one of the important things here, is this is an increase in valuation. this is priced earnings. if we look at price to book, which is another common metrix, for banks, we see the exact same thing. so what this trades, very simply, you can look out to february by the 2325 call spread, that will cost 70 cents. that's all you are risking here. you are upside to the 25 level up almost 10% from where the stock is trading. if it does pull back, you will not be exposed to the down side risk. one quick point, this is going to offer a significant amount of

decay. so this is the reason we are going to do this spread. usually we look at outside calls. as you can see, they're kind of expensive in this case. >> dan, what do you think? >> i like the idea of doing a stock replacement. you may want to do that until 2017 for tax purposes. i would be surprised, bank of america is off in a straight line, 25%. you give too much back, i am less opt mick these stocks continue to go higher, especially when you can tr move-in rates the likelihood it consol dates, now we have a lot more information. i would say the stock at bank of america, i might consider a trade that i'm not just sitting on premium and having a dekachlt i might sell a down side put and not do a call. >> one quick point, the reason we are doing a call spread is we recap cure that decay. not everyone will have the same tax situation. we will not find that, that's a separate situation. but there are people that own

iras, where you are eligible to trade "options action." that will not be an issue. >> if you think of the movement of stocks post-election, most of the movement is related. biotechs, there were some tweets from the politic. we know that banks have changing rates, industrials because of the great spending. the thing that's moved the most of course is spending. at this point, right the nasdaq bank index was trading farther above trend than any point since 1971. >> that is what the condition s. we have the same circumstances. it's too much. they're probably discounting three or four bumps. >> but you got to be careful. do you not? because although higher rates tend to help financials. the key as i understand it from financials and bank stock is the difference between the short and longer date on the spread. >> the yield curve. >> the yield curve. that is actually flat on financials because rates are up. >> go after the paper tantrum back in 2013. where did the ten-year yield go?

it was like 60 bits. look at it now, two years at what? and we're at two-and-a-half? >> at one point you were talking possibly selling it down side to off set the decay. this stock took off from 17 bucks, it's down three from here. which one would you be interested if sell something if we get a pullback. we get back to things trading 14 times earnings. i would be looking at that point toed a have aens the call they had already bought. if you are trying to press a long bet here, that's a pretty risky thing here in selling down side puts after the run we had. >> the question, if you put it there, they're all the same, they're all up, it could be goldman sachs, j.p. morgan. but they're deep and presumptively all of the good things and none. >> but they're not automatic same. when you think about it, bankle of america is trading below book value. j.p. morgan is one, wells fargo,

to me, you think about i want, there has been a discount place for the money centers, who are the next to go since bank of america. >> you look at it. >> what is happening to that book value, by the way, as rates rise, i mean so what is on these balance sheets? we have a lot of fixing instruments, you know, we are always looking in the rear view mirror when we are looking at those valuations. we are here. that's one of the reasons. >> good discussion there. up next the one well known technology stock that dan says is about to break out. who is it? you got to stick around to find out.

. >> all right. time now to look back at some of our trade, last week, dan put alphabets. you know it as google, was about to break out. here's proof. >> well, the stock was trading about 805 you could sell a february 7th put at $13.50. use the proceeds to buy one of the 850 calls for $13.50. >> the alphabet relatively flat since then. dan, what is the new strategy if

you feed a new strategy? >> you really don't. one of the reasons i like selling the put, buying the call, stock rallied 5% in the week. i feel it's a good chance it breaks out, maybe that comes in the new year. at least this strategy left me stay in the game. my worst case scenario is down 6% from here. >> i think you got a hedge wing tail in the sense if the mark were to get in trouble. right. >> is it that much of a sure thing? >> in the sense that this is a large defensive, in many ways. it's the cheapest it's traded if maybe ever. if it breaks out, you get your result, if the marks are in trouble. >> to vis za, carter and mike predicted the stock was a bit overdone. here's what they said. >> to my eye, we're going to come down and basically touch even if you wanted to say this could be moved up a little bit. but we're looking at another, i would say 70 bucks. it's close to higher than that. i think you get a good trends

big time. >> i am looking at march, when i was looking at this earlier today, can you boy the 75 puts. sell it for 80 cents. now cyst sa shares, pretty much the financials are up a little bit since then, carter. >> it's very early in the trade. i think nothing has happened from the point of view of the charts. we would press it. >> yeah, we gave ourselves time out to march for this one. we have time for the trade workout. >> you are sticking with the brands "options action" it's up 3 bucks. the put spread is down about a buck. we are not ricking a lot. >> it's harder. >> the risk reward relationship of that put spread. >> this stock is down since the election. it's gone straight up. >> there you go. i will give it to you. >> so you guys all agree? >> i think it's a great thing. i think you guys identified it at the time, you didn't think it was a great threat, it was close. get a little bounce. it's a break 75.

>> that put spread will be in play you get a lot of time. >> all right. a rare toll as we get, gop trifecta. the senate and the white house. dan, i put you in the white house. crisp programing note, steve eisman will sit down exclusively with the "squawk box" crew, up next, your tweets and the final calls for to the "options action" pit. hey gary, what are you doing? oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders? i know. your brain told my brain before you told my face.

mmm, blueberry? tap into the knowledge of other traders on thinkorswim. only at td ameritrade.

♪ guyhey nicole, happening here? this is my new alert system for whenever anything happens in the market. kid's a natural. but thinkorswim already lets you create custom alerts for all the things that are important to you. shhh. alerts on anything at all? not only that, you can act on that opportunity with just one tap right from the alert. wow, i guess we don't need the kid anymore. custom alerts on thinkorswim. only at td ameritrade. >> end of show time, which means it is time to take your tweets the first is from fjb, powerspec, which asks, what strategy would be best for down mark positions? only oem. >> we kind of covered this at

the top of the show. fxi and eem are kind of the same companies. i think this thing you want to do here i would look to the put spread. >> annie asked a while back, carter, you said to sell invda, it went up. time to buy it back question mark? >> this the probably the worst single thing, this was 70 bucks, now it's 100. it's at some point a mechanical stop watch whether you use six, eight, do something. >> final code, last word, carter, we'll start with you. >> nike i want to sell it short. >> mike. >> i think the way to you do that is using a put spread in january. >> i like the nike spread. i think you spread it out a bit. maybe give yourself time. i like my fxi. >> probably the most important thing to look forward, yes or no? >> i think for volatility that could spook market as we get

into the beginning of the year. >> thank you for taking it easier on me, i'm brian sullivan in for mel liss sachlt for more "options action," go to optionaction@cnbc.com. have a great night. >> announcer: the following paid presentation is proudly sponsored by samsung, delivering you innovation and technology and quality connected home electronics, appliances, televisions, computers, and tablets. samsung -- bring it home. how would you like to come home to a house that is fresh and clean? it just feels brighter and fresher. how would you feel about your home if it always seemed housekeeping just left? happy? relaxed? how about if your carpet and floors were vacuumed automatically or even on-demand? the future is here. >> as a mom and as a woman who's in charge of keeping her house