hey there, we're live at the nasdaq market on this summer, rainy friday afternoon while they're doing that, 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 we'll tell what the options market is saying 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 anymore. under weight energy, shorten 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 because the tech sector just posted its best week since december we saw some pretty explosive moves out of these megacap media surging another 12% just this week. facebook up nearly 6%, and hitting an all-time high today microsoft hit a new high today, up 5% this week. alphabet has been on a tear. let's get in the money right now. dan, what do you say >> i think it makes sense to be careful at this point. like you said, microsoft's up 5% on the week, up 7% over the last couple of weeks here it's right at a new all-time high today, so as we think about what are they anticipating, they're anticipating a grood quarter and good guide dansz it's time to think about the banks option each one had a piece of news and

the stocks were down 2% on the opening. they closed pretty decently. part of this is at this point i think it makes sense to play for continued consolidation. move to the up side might be needed expected good news after good runs and then you could see some pretty dramatic moves to the down side. to me i think it makes sense to be cautiously optimistic. >> the fact that the financials continued to trade decently well into the close speaks well of the market strength. the vix closed 9 spot 51 today excluding a weird holiday week in 1993, that's an all-time low, all-time low there's one thing that we do know, and that is that generally speaking when the market's moves are relatively muted, when the market option is expecting muted move, the market tends to out perform. 30-day returns given a volatility environment like this one tend to be above average i would make that one observation. kind of scary that it's this low

but that's just the fact >> big tech, the interesting thing of course is the sector itself obviously being the most important sector in terms of weight and 23% of the market where it is in relation to where it was in its all-time high. the all-time peak was monday, march 27th, 2000 exactly a month ago we got to that 4re that level within a fraction now we're going back and re-approaching that high 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 tech has microsoft has but others are still below that back off high of a month ago. >> you are looking at microsoft? >> i'm looking at it listen, today the fact that it's one of the few megacap stocks that has made a new high along with apple amazon is not. i have to buy microsoft as part of this q4 report next week, i'd

say, well, there's probably other wasys you can think about positioning yourself there's other ways to sell options to help finance purchases of other options that's what i want to do in a situation like microsoft here. i think you're probably going to get a move that's up or down a couple of bucks. i don't think you're going to get the fierce breakout. there is the potential for the sharp decline. options market is implying plus or minus 4%. it's trading 73. you have to look at a call calendar today you could sell the july 21st next week iks pir rags 75 strike call at 65 cents and buy one of the september 75 strike calls for $1.30. that position would cost you about 60, 65 cents i kind of messed the math up here the idea is you want the stock to go up to the 75 strike over the next week or so. you want it to close below

there. the julys you sell will expire worthless. you own the september 75 strike call for 65 cents. the idea here is you're playing for a slight move upward, consolidation, then you own the cheap prepare zblum entirely consistent with what i was saying the vix which is a measure of the volatility is very low, that tends to mean muted moves, generally moderately bullish here they're above average he's selling that slightly above average premium shorted dated option i like the fact that you're catching september, too, because many people think of october that's a period of a lot of volatility there is a lot of history of volatility spikes after labor day and you're going to own that that's a good setup. >> importantly microsoft is a very defensive offensive stock let's say the whole thing is in trouble. microsoft will hold up better. it has characteristics that will guarantee that if you can say that word at any point in this

bi business there are old time tech names that have had bad patterns and bad outcomes this is a good pattern and i think the outcome will be good. >> i want to make one point about the trade strategy we're not a fan of buying elongated options. this strategy is specifically looking to take advantage of some of the dynamics that mike talked about it's not playing for a massive breakout it's playing for short-term gains to the tune of 1.5, maybe $2, that sort of thing you're financing the ownership, longer dated ones. names have actsed well where they've run into an event. to me, i think you have a better chance being aggressive on the bullish side. let's switch gears here, ennerge zbi stocks down 13% just as the chart mast jer predicted several times on this program and on ""fast money."" energy has been straight down it's the trap that keeps on trapping and people are doing it

again, in my opinion, getting long just because it went up a few days. >> i think cartser has got to come over. >> we have energy down here at 58% compared to the s&p at 210 and it was -- and it's down again this year. i mean, there's something wrong with all of this i think it is the trap that keeps on trapping. i just don't want to be involved long side. >> i want to be under weight energy be shorten energy. >> now apparently after all of that carnage, a bold call to buy. carter, you say something in the charts has changed it's not a trap. >> maybe i'm just the last guy to get into the trap it's come a long way, and at some point you do have a version. i'm going to make that bet let's see if we can figure it out. we have a bunch of charts. okay roll through this first bunch quickly. comparative charts what you have on the top is the s&p and what you have on the bottom is s&p 500 energy

the first one is year to date. now 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. really started to get going about 12 months ago. next one, pulling it back up a bit further. same general circumstance. it's all about this current very sharp decline. we're going to focus on that in more detail. keep going long term, look at this. i mean, at some point, that's kind of either, again, i'm the last guy to get into this trap, it's going to get worse. with a little luck this is where it's going to be -- now a ten-year chart optically it's quite clear we have this where they start to diverge and i tried to resist the temptation of thinking it was cheap and make the buy either i'm falling into the temptation or this is going to be right i want to try to make the bet of

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

something. here's the xle that you would use and the bet is that you're going to pop let me show you one other thing and i'm going to quit. this is the period we're talking about. this is a five-year chart. look at this move from here, to here, and back to there. very tight guess what that is final chart. it is exactly a 50% retracement. 28 bucks up, 14 bucks down i think you have a good bet here for the first time in a long time. >> should we invite carter back? i'm just joking. come on back, carter. >> that's my chair. >> maybe not always. mike, what's your trade? >> you know, this is one of those situations where, you know, we've been talking about the fact we don't like to necessarily go out and buy premium. in this cares i think it does make sense to get into a long premium trade. if we're wrong, we're catching the falling knife. we're not interested in taking a great deal of risk if you're right, we're probably going to gets a fairly sharp upward bounce.

>> i would think. >> maybe 10% or something. >> that's it start with 10%. >> we're usually looking at a 60 to 90 day horizon. buy the september 66 call spread $1.50 is what you would have paid sell the other at 70 cents that's $1.20 the current value etf. every now and again you do need to decide that there is asymmetric risk/reward n. this particular case the options trade is worth that. you're risz being $1.20. if it drifts a little lower it's not going to give up its volume immediately. >> i like the trade idea if you agree with carter's technical call risking 1.20 is okay one of the things that's interesting to me, look at the xle. it looks like it has a little more room to the down side

this trade may take a little time if you believe the correlation to the dollar, that sort of thing. i think this is a pretty reasonable way to play it. the thing underlying it's not been moving a lot which is why options premiums are cheap it feels like it has a little capitulation. >> it's also interesting because that was the s&p 500 energy sector which is down in that straight seven period about 20%. s&p midcap 400 is down 42 and the s&p 600 is down 46 we have had a decimation as everyone knows it's anecdotal and no way to model it people who were quite bullish are buying and you need that you need that. >> i think the big names in the space, the exxons, chevrons, the fact is those are not cheap companies, right they're not really making the kind of investment in their own business some of the others have come too far too fast which is the reason i prefer to play with a more broad sector in the energy etf than to go and reach for the

companies that would be safe because they've paid a big dividend that they can't sustain. i take a look at this, it seems like a good setup. for everything "options action", check out our website, optionsaction.cnbc.com here's what's coming up next. plus, it's the question every "options action" fan wants to know -- >> how much wood would a woodchuck chuck if a woodchuck could chuck wood. >> no, not that question how do i use options to figure out how much a stock will move on erpgs professor co will answer that. tweet us your questio question @optionsaction. if it's nice we'll answer it on air when "options action" returns. >> logical 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.

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." jpmorgan, citi and wells kickin off lower. bob pasani at the nyse. earnings season begins to pick up steam next week. netflix monday tuesday and wednesday more reports from the rest of the big banks. tuesday united health and johnson & johnson. then there's big tech names,

ibm, qualcomm, ebay and you already mentioned microsoft. there could be an updated volatility when all of these names report netflix, for example, is a notoriously big earnings mover the options market is implying a more than 8% move in either direction for that stock that's a big move. ebay is another big one. traders are expecting that stock could move higher or lower by 6% ibm and qualcomm are implying a 4% advance or decline. johnson & johnson and unitedhealth are predicting a 2% move it's going to be a wild week >> thank you, bob. some of the most frequent questions we get from our fans are, one, why doesn't carter have a twitter account that's always asked. two, how do you calculate implied moves? we may never get a straight answer for the first question, but the second one is actually quite simple let's send it over to professor

co with the call to action. >> square root of 2 over pi. skip that. it's not hard to do the back of the napkin calculation you want to take a look at the weekly straddle. take a look at the call option and the put option that are close to the current stock price that expire the following week we take the price of those two options, you add them together and then you divide by the stock price. i want to make a quick point we're going to talk about netflix. we take that call and it's about $14. we divide it by 157, 160, we're getting a move of a little over 8% one of the things about netflix is you see all of these big gaps, all of these big price moves. 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, maybe this time not so

much last earnings we saw relatively muted moves dan actually set up a trade very much like this one that i'm going to use here. i'm looking at the july/september 1.60 call spread. you can pay $9.15 for the september calls, sell the july for 6.45 spending 2.70 to get long. if the stock just sits right here, drifts lower, 2.70 you spent is the most you can lose if it hits, we'll be longer that dated call at a cheap point. i like the setup going into earnings. >> okay. dan, what do you think >> when you do this in a stock like netflix versus microsoft, it's leading to the short side you're playing for that sort of move, you're bullish you're saying, you know what, i think this is probably going to come in. there are other ways to trade it in that scenario his analysis of evaluating the implied move is important. we make this disclaimer all the

time when you trade long premium or into an event like an earning, you need to get a lot of things right. you need the timing. to me i think it makes a lot of sense. don't do a calendar if you think it's going to go up 10% after earnings, then it's the wrong trade. >> the good news, even if it does that, if it goes up 10% or 20%, the risk you're taking here is 2.70, right that's not a lot of risk for a trade that typically has a pretty good probability of success. you know, netflix we do have a little bit of transparency this time around. i think people will have a sense. obviously there could always be a big surprise whether they hit their numbers or not, the stock is trading very close to the highs. it will take a lot to move it higher. >> microsoft is a very low data. it will be aggressive typically despite what the options market is saying.

i think either way i'm bias the up side in this one. its weakness of a month ago is into the -- this was caught up in general tech selling. i think that's a positive. riskier stuff. >> yeah, i mean. 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 very cheap zbli what we do is one more thing i'll tell you why i don't have twitter. where's your facebook page they don't ask that. >> stock predictions, two. >> you got the answers to two things tonight still ahead, sprint spiking on word that warren buffet could buy. plus, hey you out there, yeah, i'm talking to you pull out your phones, send us a tweet @optionsaction if it's nice, maybe we'll read it later in the show we'll find out much more "options action" after this 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. see options data like never before. with thinkorswim only at td ameritrade.

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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 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 to "options action." sprint shares spiked 5% today over reports the company's chairman met with billionaire warren buffet about a potential investment that news sent the market into a

frenzy call was 8 times more out of puts dan actually played the stock for a takeout back in march. >> we could use options to maybe construct a trade strategy that would let you participate in a little move on the up side and on the down side if your long entry isn't great. you can look to january 2018 expectation and sell the 7 put at 80 cents. you can use the 80 cents to buy the january 10-15 call spread for 80 cents, like i said, costs you nothing. >> all right dan, now what? >> the most important fwhing this trade is you were to make a put. if the stock were to go low, that's what the risk is. there's no risk in owning the up side call. at this point the stock is about the same spot. selling some premiums kept you in the game. the news is interesting. the idea that buffet would take a stake, i'm not sure that would send the call up

he's likely to get it at a discount at some point you want to manage the put strike this trade was originally conceived because of the notice of takeout there would be some sort of premium. for me, two different pieces of information. >> critical thing whenever you think there might be a takeout, it's tempting to buy options selling is important when you do have the deals oftentimes the volatility gets taken out. >> up next, your tweets and the final call from the options pit. hey gary, what'd you got here? this 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

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 to "options action." time to take your tweets our first viewer asks, can you tell by the volume on an option whether it's buying or selling mike >> you can tell whether it's buying or selling. it's not the volume. it's the price see if it was on the bid or the ask. on the ask is a buyer, on the bid is a seller. time for the final call. last word. carter >> final call i want to make a bed on energy and take it on the long side.

>> mike ko. >> to do that you're going to want to use call spreads and xle. >> great tag team. >> if you're cautiously optimistic at all-time highs it's time to use the call calendar. i'm melissa lee. have a great weekend have a great weekend and we'll see you back here next friday. - [announcer] the following is a paid presentation from worx. (dramatic music) nothing offends these members of the mount parnassus garden club than a neglected lawn and they're here to do something about it. their weapon of choice, the all new worx gt2.0. the next generation lithium battery powered 211 trimmer and edger that means business.