welcome back. still live at the nasdaq market site, freezing outside. but don't worry. we have got warm wishes for you. here's what's coming up on the show. >> money has got to be the shoes! >> shoes. >> sure, shoes. >> 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's something wrong with the chinese markets. >> the point is -- >> and 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're worried that the run is done, we'll show you how to protect yourself. the action begins right now.

all right. and welcome. we do have a sledgehammer of a show tonight. let's get right to it. because china's stock market is falling. the china etf, the fxi, falling to its lowest level ins early august. this as the country's bond market basically crumbles. no other way to put it. is china the biggest threat to this epic rally we have been on? let's get in the money. dan. >> it could be. if you look back to 2015, we sue a huge ramp-up from the 2013 lows, up 2% and then crashed. the lows this year down about 50%. and when you think back to that period of time, the summer of 2015, major palpitations in our markets and then again early this year, january and february, there was a lot of concerns about global growth, maybe credit bubble over there coming undone. and that's really been the source of our volatility. if you think back to the last year-and-a-half. so when you see the shanghai composite down 5% in a week, overshadowed by a market about

to trade at 20,000 in the dow, you have got to start thinking about where the volatility is going to come from. >> the depreciation, at some point you reach a tipping point. we also know they're trying to lower leverage ratios, cool the property market. we don't know at what point that all unwinds. >> trying to control the credit bubbles they have in the housing market is one piece of it. we know they have a housing bubble and we know a housing bubble can cripple an economy. it did here. and they have one. but, of course, their credit bubble is larger than that problem. their foreign exchanges reserve have declined from $4 trillion to $3 trillion and having a hard time containing. >> it's tough to defend china. i will say, carter, you mentioned you want depression. i hear you. let's not forget, the majority of the market is in a fixed range. are you talking about the offshore part of the currency market, which is small? >> you don't know when you reach the point at which that -- the tail wags the dog.

and a lot of people are in that. and the question is, if you get a pylon effect. >> basset calling for 30 to 40% depreciation. >> that's economics and also politics in the news regarding china this week. really important stuff went on. we know that president-elect had targeted china on a whole host of issues. geopolitical and economic during the campaign. what did we see this week? we saw him question the one china policy that had been in place for almost four decades, that sort of thing. we saw the -- also the situation with a chinese official suggesting that they may find an unnamed u.s. auto. what did they do? they flew in a nuclear bomber in the south china sea, took one of our drones. >> but their own economic risks are probably bigger than anything trump can do, i'm sure. >> all the macros are out. >> right. >> how are we trading, if at all? >> i don't like depressed shorts after you have a move like we had this week. if you got a bounce in the fxi, the listed etf, the large cap

stocks in china, look at that. that's the fxi right there. it just this week broke that up trend that had been in place from the january/february lows. i think you're going to see lower lows. i think you could target low 30s in this thing over the next couple months. i want to do this on a bounce. but today when the xfi was trading 35.5, you could buy the february 3531 put spread, buying one of the fed 35 puts for $1.25 selling one of the 31 puts at a quarter. your max risk is that dollar between 34 and 35. above that, you lose it all. you make up to 34 and 31. i like the technical ranges. i like the risk/reward of the trade. >> i like using spreads -- implied volatility is not that high. but two ways to win. one is the economic issue and flat out just dollar one fluctuations. this isn't a currency hedge etf. both could propel further to the

down side. >> quick comment on the charts? >> correlation between copper and the chinese market. copper had a very bad week. i would keep an eye on that, as well. >> all right. thank you, guys. shifting gears. the peter lynch investing model famously suggests you simply buy what you know. shares of companies that make the things you like to buy. that adage has not worked out this year. household names like disney, coca-cola, nike are among the worst-performing stocks in the dow. so chart master, you see more pain for some of these stocks in particular? >> well, nike is the subject of the day. let's look at the charts and put this in perspective. obviously, one of the greatest operating businesses of all-time. just as you say, brian, a household name. and so forth. i just wanted to sort of put this in perspective and start with the chart of the s&p. going to move quickly here. chart of the s&p since 1990. now let's put in something that's blown that away. disney. let's put something that's blown disney away. mcdonald's. let's put something in that's blown mcdonald's away. phillip morris. let's pick another one. nike. no.

it doesn't mean it has to end just because it's so good. but you go back, you say, wow, i mean, you know, this is killing this, and yet to put it in perspective, this has been one -- only apple has kept up with that at that rate. now, the chart of nike itself. take a look -- first at the performance, the figures i was just showing you there. i mean, this is -- this is epic. so the question is, if you have a great period of outperformance but then recent underperformance, that's a bad 1-2 punch. here is the long-term chart of nike versus its own earnings, meaning price per share, earnings per share. that's also something to consider. now, the stock itself. how do you draw the lines? draw them any way you want. you can draw them this way, head and shoulders top. you can draw them this way. a break in trend. you put your head and shoulders top back in. but the key is, after outperforming over a multiyear period, we know the stock market has gone on and done this. so you have the problem of massive outperformance long-term

and recent underperformance. this suggests much more to go. we close around 51. i think we're going down to 46. >> you know, this has an interesting situation. we have earnings coming up. they have disappointed three of the last four that they have reported. options markets expecting a 5% move, slightly bigger than the 4.8% move they have averaged. fundamental, this stock is not overwhelmingly expensive on a trailing basis. trading anywhere from 10 to 15% does have modest, you know, single digit revenue growth. when you look at valuation, it's kind of hard to say i want to get short the stock here. but it really has disappointed. they have been trying to restructure their business. they have eliminated, as we previously articulated in one of the shows, they got rid of that gulf business. the way you want to play this is simply to go out to january and look at the 50/40 put spread. we're going to be turning 47.5, i don't know how that worked for you.

down about 7% or so from where it was when i was looking at the earlier stock, actually traded off pretty weekly at the end of the day here. so i think that's a way you could make it -- >> how much is that risk on that trade? 65 cents. that's it. and it could be worth as much as 2.5. so spending approximately 25 distance between the strikes. >> your charts there, what do you think? >> i like it. here's the thing. this is a really important point. 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. dollar is up, the dixie up 8% since late september. that is really -- >> the stock market is ripping post election. no one buying nike? the inability to bounce. >> and on the foreign currency exposure issue, do hedge some of their dollar exposure. they say, look, we're going to have reduced risk but not -- >> can i comment on the trade? i think 50/47.5, is being gentle. if they really guide down for the rest of the year or for 2017, i think it's going to the

mid-40s, easy. >> but you guys, we talked on "fast money," and not to step away from the charts, but 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 through the united states, particularly from asia, than nike. so perhaps there is a tax issue here that goes outside of the fundamentals on the charts. >> also a group issue. crocs doesn't act well, skechers doesn't act well, underarmor doesn't act well. and not nike specific. >> a touch on the fact it could go down more, and maybe not making an aggressive enough bet to the down side. about 30% of the time, you'll see moves of about this magnitude on the down side coming out of earnings. you know, if you wanted to try to make more, you might trade two of these instead of one, rather than, you know, going out and trying to buy a flier. >> and by the way, moving away from the trade, if you're looking for a christmas gift for somebody you care about, shoe dog, the biography of the founder, phil knight, one of the best biographies and business books i've ever read, period. highly recommend the book "shoe

dog," i have no stake in the book. as if you had to be told that. for everything "options action," check out our website, "options action".cnbc.com. before you rush to go there, here is what is coming up next on this tv program. missed the rally in the banks? >> oh, for god -- oh. >> well, relax. we have a way to get long in bank of america for under a buck. we'll explain how. plus, calling all "options action" fans. reach into your pocket, grab your phone. and tweet us your question at "options action." if it's nice, we'll answer it on air when "options action" returns. 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.

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. but some worry this big run has left a number of stocks trading at extreme and maybe unsustainable valuations. let's go back to dom chu in the cnbc newsroom, breaking it down. >> statistically improbable, what a lot of stocks have done to the up side. it doesn't happen very often when we see these kinds of sharp parabolic, if you will, moves to the up side. so we took a look at the s&p 500, guys. and look at the stocks that have the most extended moves to the up side above their 200-day moving average, that 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 for you right there. you'll notice a lot of banking-related names. goldman sachs, zions, regions, comerica, citizens, bank of america. seven of the top ten all financials in some way, shape or form. the others are semiconductor. brian, what this does is give an idea of what stocks are the most extended to the up side. it's not to say that these up side trends cannot continue. but markets rarely, we all know, go in a straight line. so are we due for a mine reversion? that's the question for a lot of traders. back over to you. >> all right, dom. thank you very much. so what should you do if you are long one of these stocks? all right, mike, is at the smart board with the call to action. >> one of the things you can consider, look at a substitute for your long stock position. when you want to stay long, that's one of the things you want to take a look at. has the stock you're long 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, you might be risking a pullback. and you want to move options. if we take a quick peek here, if we can use this chart, there we are, we're looking at bank of america. we can see the stock has gone up. one of the important things here is that this is really just an increase in valuation. this is priced to earnings. but if we look at price to book, another commonly used valuation metric, we see the exact same thing. so what's the trade? very simply? you can take a look out to february and by the 23, 25 call spread, that's going to cost 70 cents. obviously all you're risking here. and you still have some up side to about the 25 level, up almost 10% from where the stock is currently trading. obviously, if it does pull back, you're not going to be exposed to the same level of down side

risk. one point. this is going to offer a significant amount of decay relative to the option you're buying. this is the reason we're actually going to do this spread, usually we like to look at up side calls. as we can see here, they're kind of expensive in this case. >> dan, what do you think? >> i like the idea of doing a stock replacement. obviously, you may want to consider waiting to do that until 2017 for tax purposes. you know, i would be very surprised to see a stock like bank of america that's gone up in a separate line, 25%, give too much of that back between now and the end of the year. i am less optimistic these stocks continue to go higher, especially when you consider the move in rates and likelihood they consolidate now that we have a lot more information. but i would say in a stock like bank of america, it finally broke out around 18, i would consider a trade i'm not sitting on premium and having it decay. i may sell a down side put and -- >> one quick point. the reason we're looking to a call spread is so we actually do recapture the decay. not everybody will have the same tax situation. if you're in a taxable account, we're not going to provide tax advice. there are people who own this, and iras where you are eligible, that's not an issue.

>> think about the movement of stocks post-election. most of the movement is news-related. biotech has been hurt because there were tweets from the president-elect or we know banks are going up because of the perspective change in rates or industrials because of this great spending. the thing that's moved the most, obviously, is financials, period. and dom just outlined that. at this point, the nasdaq bank index is trading farther above trend than any point since 1991. that's an overbought condition. and the same for the bkx. too much, they're probably discounting three, four bumps. >> but you've got to be careful, do you not? although higher rates tend to help financials, the key, as i understand for financial and bank stocks, the difference between the short and longer date on the yield curve, and that is actually flat. so if you're just buying financials because rates are up -- >> that's a great point. go back to the taper tantrum back in 2013. where did the ten-year yield go? it was at 3%. where was the two-year yield?

60 bips. look at it now. two years at what? >> yeah, i mean -- >> and we're at two-and-a-half? >> so one point, though. you were talking about potentially selling a downside put to offset decay. this stock took off from 17 bucks. so that's down three. which one would you be interested in selling? if we do get a pullback, we get back to the valuations. i would actually be looking at selling a put at that point to help finance the call spread i had already bought. if you're trying to press a long bet here, a pretty risky thing to do and selling down side puts in the financials. after the run we have had. >> and the question is bac and you could have picked because they're all the same. it could be goldman sachs or jpmorgan. but they're unsustainably steep and presumably all of the good things.

>> not all the same. when you think about it, bank of america still trading below book value, okay? and we know that goldman is at one-and-a-half or -- jpmorgan -- wells fargo is one-and-a-half. to me, there has been a discount placed on these money centers who are the next to go during the last financial crisis at citi. >> if 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 fixed income instruments. so we are always looking in the rear-view mirror when we're looking at those valuations. we are here, and i think that is one of the reasons why you might think it's come too far, too fast. >> next, the one well-known technology stock that dan says is about to break out. who is it? you've got to stick around to find out. ♪ 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.

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. all right. time now to look back at some of our past trades. last week, dan said alphabet. you know it as google, was about to break out. here is proof. >> when the stock was trading about 805, you could sell one of the february 760 puts at $13.50 and use the proceeds to buy one of the february 850 calls for $13.50. >> now alphabet relatively flat since then, dan. what is the new strategy, if you need a new strategy? >> you really don't. one of the reasons i like the

selling the put, buying the call, the stock at 5% on the week, didn't like the idea of chasing it, still think there is a good chance of breaking out and makes a new high. at least this strategy lets me stay in the game and my worst-case scenario, down about 6% from here, if there was a large gap. >> i think you've got a hedge wind, if the market were to be in trouble, google is going to outperform. >> is it that much of a sure thing? >> in the sense this is the largest defense in any ways, as cheap as it's traded maybe ever. and if it ultimately is going to break out, you get your result. but if the market is in trouble, probably not going to get hurt. >> now to visa. 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. and this closed higher than that, and i think you get a good trade on the short side. >> specifically, i'm looking out to march, looking' 75/65 put spread when i was looking earlier today.

you could buy the 75 puts for 34 a, sell the 65s for 80 cents. >> now visa shares along with pretty much every or financial we have talked about, up a little since then, carter. >> right. this is very early in the trade. i think we've just -- nothing has happened from the point of view of the charts and we would press it. >> yeah. we gave ourselves time all the way out to march for this one. so we certainly have time for this trade to work out. >> you're sticking by. >> the spread -- >> the stock is up almost 3 bucks, our put spread down about a buck. we're not risking a whole lot at this point. >> you're sticking by it. >> the risk/reward relationship -- >> here is the most important thing. this stock down since the election. and in a market that's gone straight up. i'm just going to give it to you. >> so you guys all agree. >> i think it's a great press. i think you guys identified it at the time. you didn't think it was a great press when it was close -- in the mid-70s, get a little bounce and this is where you lay into it. if it breaks 75, that put spread is going to be in play and

you've got a lot of time. >> all right. sort of a rare total -- gop trifecta up here. we control the house, the senate and the white house. dan, i just put you in the white house. steve eisman will sit down exclusively with the "squawk box" crew monday morning, 7:00 a.m. you've got to be sure to tune in for that one. up next, your tweets and the final call from the options pits. 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. into showtime, time to take some of your tweets. the first is from fjb. power speck. who asks, what strategy should be best to protect a merging market position down from owning eem. >> well, first of all, we kind of covered this at the top of the show. the top ten largest components,

fxi are the same companies. the same thing you want to do. i would look to put spreads. >> our second tweet from annie. she says, carter you said to sell invidia, time to buy it back? question mark. >> you're very kind. this is the worst single thing i've laid my hands on this year. it was 70 bucks and now 100. at some point, it's the mechanical stop loss, whether you use 6 or 8 or 12. you cannot let something go and go against you. do something. >> time for the final call, carter, we start with you. >> nike, i want to sell it short. >> mike. >> i think the way to do that is using a put spread in january. >> dan. >> i like their nike spread. i think you spread it out, give yourself more time. and i also like my xfi trade, and it's good as a short. >> china, the most important thing to watch, going forward, yes or no? >> i think for volatility, that's the thing that could

spook markets as we get into the new year. >> dan, mike, carter, as always, thank you for taking it easy on me and might go my job easier. for more "options action," go to "options action".cnbc.com. melissa and the gang back next friday. have a great night. following is a paid advertisement from star vista entertainment and time life. >> ♪ you're the meaning and time life. in my life ♪ ♪ you're the inspiration >> ♪ that's how much i feel >> ♪ feel for you, baby >> ♪ how much i feel >> ♪ well, i need your touch >> intimate moments, cherished memories, unforgettable romances, the language of love can be spoken in many ways. and nothing ignites your emotions like the per of ys love yo♪