on this rainy friday afternoon, the guys behind me are getting ready. here's what's coming up in the show >> when the money's coming your way, you don't ask any questions. >> well, frank, we do have just one question how much will netflix move on earnings next week plus, microsoft just hit an all-time high, but if you missed the move, we'll show you how to buy the stock for less than a buck >> are you kidding me, sir >> no, we are not. dan nathan will break it down. and, he correctly called the decline in oil >> i just don't want it. i want to be short energy.

>> but now the chart master sees something different and he's ready to make an even bolder call the action begins right now. ♪ ♪ let's get right to it. the tax sector just posted its best week since december nvidia surging another 12% this week facebook up nearly 6% and hitting an all-time high today microsoft also hit a new high today, up 5% this week apple and alphabet have been on a tear so should you buy any of these names as we head into earnings season let's get in the money right now. what do you say? >> i think it makes sense to be careful at this point. microsoft's up 5% on the week, up 7% over the last couple weeks here, right at a new all-time high today so as we think about what are they anticipating? they're anticipating a good quarter and they're anticipating good guidance. i think it makes sense to think about the bank stocks reaction today where there was some news about what their quarters looked like from a trading standpoint

each one of them had some news that i think surprised investors a little bit they were down 2% on the opening but closed decently. i think it makes sense to play for continued consolidation. the moves to the upside might be muted when there's expected good news after the runs and then you could see dramatic moves to the downside if you were to see disappointment so to me, it makes sense to be cautiously optimistic. >> the fact that the financials seem to trade decently well into the close speaks well of market strength the other thing, the vix closed at 9.51 today. excluding a weird holiday week in 1993, that's an all-time low. all-time low there's one thing we do know that generally speaking when the market's moves are relatively muted when the options market is expecting muted moves, the market tends to out-perform. 30-day returns in a volatility environment like this one, tend to be above average. so i would just make that one observation. it's kinda scary that it's this

low, but it's just the fact. >> something will happen >> but big tech, the interesting thing is the sector itself, being the most important sector in terms of weight at 23% of the market and where it is in relation to where it was in its all-time high we know the all-time peak was a monday, march 27th 2000. and a month ago we got to that level within a fraction and it backed off aggressively, 5 or 6% now we've gone back and we're approaching that high on a different level. so within tech, it depends on which stock you pick because most stocks, unlike microsoft, which has, most stocks have not made the new high facebook has, microsoft has, but others are still well below that back-off high from a month ago >> so you are looking at microsoft? >> yeah, i am. it's one of the stocks that's made a new high. i think it's kinda interesting i think if you're like, i have to buy microsoft in front of

this q-4 report next week, i'd say, there's probably other ways you can think about positioning yourself mike just mentioned the vix is closed even in a low vol environment, there's opportunities to sell, options to help finance purchases of other options that's what i want to do in a situation like microsoft i think you get a move up or down a couplebucks over the next week. i don't think we'll get a fierce break-out. i think there is the potential for a sharp decline. here's the trade in microsoft, trading around 73. i think you want to look to a call calendar if you want to position the longer dated call sell the july 21st next week expiration strike call at 65 cents and buy one of the september 75 strike calls for $1.30. that would cost you about 60, 65 cents. but the idea is, you want the stock to go up to that 75 strike over the next week or so you want it to close below

there. the julys that you sold will expire worthless and then you own this september 75 strike call for 65 cents. and the idea here, you're playing for a slight move upward, a consolidation, and then you own this cheap premium -- >> it looks entirely consistent with what i was just saying. when the vix, which is a measure of the volatility of the broad market, it's moderately bullish for the market in microsoft's case, they're above average. he's selling that slightly above average premium shorter dated option i like that you're catching september. many people think of october, it's a period of volatility. but there is a lot of history of volatility spikes after labor day. and you're going to own that so i think that's a good set-up. >> and importantly, microsoft is a very defensive, offensive stock. let's say the whole thing is in trouble. microsoft is better, it's has characteristics that almost guarantee that if you can say that word at any point in this

business but also, it's important that it made a new high. there's a lot of old-lying tech names with bad patterns and outcomes this is a good pattern and i think the outcome is going to be good >> we're not fans of buying long dated options and holding on to them and hoping the stock goes in that direction. this strategy looks to take advantage of the dynamics that mike talked about, it's not playing for a massive break-out, but playing for short-term gains to the tune of 1.5, maybe $2, that sort of thing and you're financing the ownership of the longer dated one. i like those trades in names that have acted well i think you have a better chance of con selldation, especially on the bullish side energy stocks down 13%, just as the chart master predicted several times on this program and on "fast money." >> energy's relative performance to the seap has been straight down it's the trap that keeps on

trapping and people are doing it again, getting long because it went up a few days we've got energy down here at 58%. compared to the s&p at 210, and it's down again this year. i think it is the trap that keeps on trapping and i just don't want to be involved the long side. i want to be short energy. >> but now, apparently after all that carnage, a bold call to buy. carter, you say something in the charts has changed, it's not a trap anymore >> well, maybe i'm the last guy to get in the trap [ laughter ] but it's come a long way and at some point, i'm going to make that bet. let's figure it out together i've got a bunch of charts and i'll tell you what i'm thinking. okay, roll through the first bunch quickly. comparative charts what you have on top is the s&p

and the bottom is the s&p 500 energy the first one is year to date. that's no joke okay, moving on. next comparative chart is a one-year chart again, quite shocking. and we see where the divergence took place it really started to get going about 12 months ago. next one pulling it back a bit further, same general circumstance. it's all about this current, very sharp decline keep going okay, long-term, look at this. at some point, and that's kind of -- again, the last guy to get into the trap and it's going to get worse. or maybe with a little luck, this is going to be where you can get a bit of a -- ten-year chart. it's quite clear we have this, where they start to diverge and i've tried to resist the temptation to think it was cheap and make the buy. either i'm falling into the

temptation or this is going to be right i want to make the bet with energy zero in on the here and now. so this is the s&p 500 energy sector and it's a well defined series of lower highs, lower lows there's no other way to characterize it. if you draw trends, it's right up against the trend line. my thinking here now, we'll talk about why, is that for the first time now, in exactly seven months, we'll poke up above the top, and it's based on the following. now here's the same chart, and what's important here is this. this again is the period we just looked at, the straight-down, very orderly seven-month decline. and this is the relative performance to the s&p meaning it's been going down absolute and more than the market but watch this, if i draw lines here, this is key. we made new lows on the actual price, bup we didn't make new lows in relative even as it's going lower absolute, it's starting to

out-perform the market that's important i think it's the beginning of something. here's the xle, the vehicle you would use. one other thing and then i'll quit this is the period we're talking about, a five-year chart look at this prove from hemove her and back to here it's exactly 50% i think you've got a good bet here on the language side of xle. >> should we invite carter back? i'm just joking, come on back, carter >> that's my chair >> maybe not always. [ laughter ] >> mike, what's your trade >> this is one of those situations where we don't like to go out and buy premium. but in this case, i think it does make sense to get into a long premium trade first of all, if we're wrong, you're catching the falling knife. so we're not interested in taking a great deal of risk. if you're right, we're probably going to get a fairly sharp

upward bounce, right maybe 10% or something like that >> that's the thinking >> we're looking at a 60 to 90-day time horizon. you could buy the september 66 calls. sell the 70s for 30 cents. look, every now and again, you do need to sort of decide that there's asymmetric risk-reward in this case, the options trade by itself, you're risking $1.20, if it drifts lower, it's not going to give up all of its value immediately. >> what do you think, dan? >> i like the trade idea wishing wishing 120. one of the things interesting to me, look at how the xle has tracked the dollar index it closed badly today.

that looks like it has a little more room to the downside. this trade make a little time if you believe the correlation to the dollar, that sort of thing so i think that's a reasonable way to play it it's not been moving a heck of a lot. which is a reason why options premiums are cheap but it almost feels like it's got a capitulation coming. >> what's also interesting, that was the s&p 500 energy sector. the s&p mid cap 400 is down 42, and the s&p 600 small cap energy is down 46 we've really had a decimation. the final thing is anecdotal people who were quite bullish have finally given up and you need that. >> i think the big names in the space, the exxons, the chevrons, those are not cheap companies and they're not really making the investment in their own business some of the others probably have come a little too far too fast which is the reason i prefer to play with a more broad sector in the atf energy space than to

reach for the companies people thought would somehow be safe because they paid a big dividend that they probably can't sustain in the long-term i look at this and it seems like a pretty good set-up you can check out our website, while you're there, sign up for our super cool newsletter, makes for a great weekend read, especially when it's rainy out what are you waiting for here's what's coming up next >> the question every "options action" fan wants to know. >> how much would would a wood chuck chuck if i wood chuck could chuck wood >> no. how do i figure out how to move on stock on earnings plus, calling all "options action" fans, reach into your pocket and tweet us your question @options action if it's nice, we'll answer it on air, when "options action" returns. >> logical 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. what if we could bring you by having better values? at blue apron, we work directly with more than a hundred family farms. so instead of spending on costly middlemen and supermarkets, we can invest in the things that matter most: making farmland healthier. cutting down on food waste. and bringing you higher quality, fresher ingredients for less than you pay at the store. because food is better when you start from scratch. get $30 off at blueapron.com/cook

the future isn't silver suits anit's right now.s, think about it. we can push buttons and make cars appear out of thin air. find love anywhere. he's cute. and buy things from, well, everywhere. how? because our phones have evolved. so isn't it time our networks did too? introducing america's largest, most reliable 4g lte combined with the most wifi hotspots. it's a new kind of network. xfinity mobile. hthis bad boy is a mobile trading desk

so that i can take my trading platform wherever i go. you know that thinkorswim seamlessly syncs across all your devices, right? oh, so my custom studies will go with me? anywhere you want to go! the market's hot! sync your platform on any device with thinkorswim. only at td ameritrade welcome back to "options action." wells fargo trading lower today, but the real action comes next week when more reports start to trickle out. bob has what you can expect. bob? >> reporter: melissa, earnings season really begins to pick up steam next week. now, we have netflix on monday, but tuesday and wednesday, we'll see more reports from the rest of the big banks also on tuesday, united heajt and johnson & johnson. a handful of names like ibm,

qualcomm, visa, ebayand you already mentioned microsoft. there could be an upstick in volatility when all these names report netflix is a notoriously big earnings mover the options are implying an 8% move in either direction tr that stock. ebay is another big one. traders are expecting that to move higher or lower by about 6% meanwhile, johnson & johnson and united health are both applying a more than 2% move. we don't know which direction this could shake out, but it's going to be a wild week. melissa, back to you >> some of the most frequent questions we get from fans, one, why doesn't carter have a twitter account? always asked and two, how do you calculate implied moves. the second one is quite simple, so let's send it to call to action

>> we need the square root of 2 over pi. all right, that's the hard way to do it skip all that. it's actually not that tough to do a back of the napkin calculation for the future price moves. you want to look at the weekly straddle that means the call option and the put option that are close to the current stock price that expire the following week. you take the price of those two options. add them together and divide by the stock price. i want to look at netflix here so we do that math, we take next week's call, next week's put, add them together, it's about $14. divide it by the stock price and we're getting a move of a little over 8%. one of the things about net flick, you s flicks, you see ul the big gaps, all of that came from earnings this stock is about three times as volatile around earnings as it is all the rest of the time thing is, this time maybe not

quite so much. last earnings, we saw relatively muted moves. dan set up a trade like this one here i'm looking at the july/september, 160 call spread. you can pay $9.15 for the september calls, sell the julys for $6.45, spending less than three bucks, $2.70 if the stock sits here, the $2.70 that you spent is the most you can lose if it sits here, it will be a longer dated call at a very cheap price. >> dan, what do you think? >> when you do this in a stock like netflix versus microsoft, it's almost leaning to the short side when you're playing for not that sort of move, but you're bullish, you're really saying, you know what, i think it's probably going to come in, and there's other ways to trade it in that scenario his analysis of evaluating an implied move is really important. we make this disclaimer all the time when you trade long premium or

directionally into an event like an earnings, you need to get a lot of things right, timing, direction, and magnitude of the move what mike's trade is doing, trying to give you an edge on some of that i think it makes a lot of sense. but don't do a calendar if you think it's going to go up 10% after earnings, then it's the wrong trade. >> good news is, even if it does that, if it goes up 10% or 20%, the risk you're taking here is $2.70. that's not a lot of risk for a trade that typically has a pretty good probability of success. netflix, we have a little bit of transparency this time around. i think people have a sense. obviously there could be a big surprise, but whether they hit their numbers or not, the stock is trading very close to the highs. it's going toic ta a lot, i think, to move it sharply higher from here and i'm not expecting it >> it's a whole different kind of thing in terms of microsoft, which is a low beta, a steadier eddie. this is going to be aggressive

typically despite what the option market would say, i think either way i'm biased to the upside in this one because its weakness is not idiosyncratic. this was caught up in general tech selling and i think that's a positive, but riskier stuff. >> yeah, i mean, put very simply, if we get anything that looked like the moves that we saw in the previous two quarters, you're going to end up owning that longer call at a cheap price. >> what would we do with one more thing >> i'll tell you why i don't have a twitter, it's like people asking where's your facebook page, they don't ask that anymore. sprint spiking today on reports that warren buffett could invest in the telecoms giant. sending the market into a frien frenzy hey you, send us a tweet, if it's nice, we might read it later in the show. find out

much more "options action" after this 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. see options data like never before. 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. welcome back sprint shares spiked 5% on reports the company's chairman met with warren buffett about a

potential investment that news sent the market into a frenzy call volume was eight times that of puts. dan actually played the stock for a take-out back in march >> we could use options to maybe construct a trade strategy that would let you participate on a move to the upside and give you room on the downside if your long entry isn't great look to january 2018, sell the seven put at 80 cents and use that to buy the january 1015 call spread. costs you nothing. >> all right, dan, now what? >> the most important thing about this trade, you are naked short a put. if the stock goes below that price, that's what your risk is. at this point, the stock is about at the same spot selling some premium to the downside kept you in the game here the news today, the idea that buffett would take a stake i'm not certain that would send the stock up through the long

call strike. he's likely to get it at a discount so manage the put strike this trade was originally conceived because of the notion of take-out and there would be some sort of preem-up. to me, it's two different pieces of news. >> it's tempting to go out and buy options. selling options is really important, because when you do have those deals, often times, the volatility drops and the premium gets sucked right out. >> up next, your tweets and the final call so that i can take my trading platform wherever i go. you know that thinkorswim seamlessly syncs across all your devices, right? oh, so my custom studies will go with me? anywhere you want to go! the market's hot! sync your platform on any device with thinkorswim. only at td ameritrade

steve, other than making me move stuff, i'm here at the td ameritrade trader offices. 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. see options data like never before. with thinkorswim only at td ameritrade. welcome back time to take your tweets first, can you tell by the volume on an option whether it's buying or selling? >> you can tell whether it's buying or selling. but it's not the volume that reveals the answer it's the price take a look at where it traded and see whether that was on the bid or the ask at the time of the trade. that's how you know. on the ask is the buyer, on the bid is the seller. >> time for the last word. carter >> final call, want to make a bet on energy and take it on the long side.

>> mike? >> to do that, you're going to want to use call spreads and xle. >> nice tag team dan? >> microsoft, if you're cautiously optimistic, makes sense to play for consolidation with call calendar >> i'm melissa lee thanks for watching. meantime, have a great weekend and we'll see you back here next friday (male announcer) right now, it's all new. a paid presentation from meaningful beauty by cindy crawford. (female announcer) with special appearances from some of your tv favorites sharing their number one skin saving secrets. (male announcer) plus, a stunning before and after story from today's special guest, lori loughlin. (female announcer) at age 52, the star of full house and much more says her skin seems to be looking not older but younger thanks to friend and supermodel cindy crawford. (lori) i really do feel like my skin has been restored and i've traveled back in time.