hi there, we're live at the nasdaq market site the guys are getting ready behind me. while they're doing that, here's what's coming up in the show >> when the money is coming your way, you don't ask any questions. >> except one. how can i buy surging shares of netflix for next to nothing? plus here's what chip stocks have been doing. we'll give you one name options traders say you can still buy. and deal talks between sprint and t-mobile continue to heat up. >> can you hear that >> you bet we have a way to buy one of those names for under two bucks. the action begins right now.

let's get right to it because chip stocks have been ripping. the smh se hchlh semiconductor n explosive moves higher, nvidia, amd, and micron all up over 100% >> a really nice breakout today, carter can speak to that obviously it consolidated a little bit above that prior high some of the stocks have been powering nvidia, we talk about it every night on this desk. that stock is up 70%, maybe about time to consider other names in the sector. for me, to all intents and purposes, it's a constructive chart. the smh is up, i can't tell you nvidia is a great buy but there's other opportunities in the space. >> obviously it's roaring times

for the industry nvidia, i agree, has priced that in already this is one of those things. people seem to forget there is some cyclicality in this business >> it is about the cyclicality these stocks are trading the same as they were 20 or 30 years ago. semis, having done nothing since june, are now for the first time playing catch-up with the broader market and breakouts are breakouts. whether it's nvidia-based or others contributing to it, it continues. >> do you believe there's more consolidation in the space that's part of the reason -- >> that was a huge driverin 2015 and 2016. there are over $200 billion worth of announced deals we're waiting for the qualcom n qualcomm/nxti deal to happen nvidia has a $100 billion market cap, trades at over 12 times

sales. 10 times sales was the number where a lot of these deals got done if you like nvidia, you like it for autonomous driving, crypto mining, all that kind of stuff you have to look at amd, this is a company that has about $5 billion in sales, half of nvidia's next year they're expected to grow 10% a year. that's what nvidia is expected to decelerate to, 10% growth next year. i'm looking at amd as a stock that trades at 2 1/2 times sales. i'm looking at aslightly constructive chart here, carter can speak to that, it's only up 17% on the year. they're expected to report q3 earnings the week of october 16th, 17th, that sort of thing i bought the stock earlier in the week, i talked about it on "fast money. there was a rumor earlier in the week that possibly they were going to get business from tesla. i wanted to look at a trade, a defined risk trade i wanted to target that earning event, target the potential for a move back to prior highs just

below 16 i want to give myself a little room down to that up trend we just showed, implied volatility is off the 52-week lows. i'm targeting october expiration the stock was trading today at 1320 you could buy the 13 1/2 call in october, that breaks even at 14.05 and give me room back up to those prior highs if you get a little movement here, because the smh is consolidating at prior highs, the whole sector gets back on their horse prior to earnings season, this thing will appreciate 55 cents is a good risk/reward here you could easily double your money. >> i could imagine 55 cents on a $13 stock seems like a lot of

premium, options are expensive in amd, there's a reason for that the stock moves around significantly as a percentage of its own value. as high as those options premiums are, they've come down from much, much higher levels. this is the lowest they've been in two years it's ironic that people would get hyped up that they're in tesla, then be concerned they're not in it. if you're dealing with auto, you would deal with one that has higher unit sales than that does >> the way dan started this, we know the group is strong there's two things you do in that situation do you find a laggard and play it for catch-up, or is it lagging because something is wrong? that's not known either technique is right, to stay away from laggards or make a bet as to which will ultimately catch up. now it's a question of, do you get the earnings related pop if you do, you will likely not only move to the top of the chart that you've cited, but prospectively a breakout to new highs.

>> 7 and 20% annual year on year revenue growth for this company, maybe not as exciting as the others, but not fundamentally broken >> october options are pricing about a 10% move between now and october expiration which incorporates an earnings event this is the sort of trade, if you were long these calls and had to move back to 14 1/2 or so prior to earnings, you could sell a higher strike call, create a vertical call spread, reduce the premium at risk again, we all know this, that being long premium, directional, into events is a tough way to do it i like the fact that the smh is consolidated >> check out the high flying f.a.n.g. stocks, the tech darlings stalled in the last month with the exception of netflix, shares are up 10% carter, break it down. >> this is a little bit the opposite, trying to favor a name that's been good in a group that's been a little squishy, believing the reason it's good is because things are better

umm, netflix so we're going to go through a few charts and then at the end just talk about its relative strength to other high fliers. you can see the chart, no judgments, annotations by me let's zero in on these gaps over and over and over. here we go okay what i've got here, the frequency. october 18th, three months later, january 18th, april 18th, july 18th. these are earnings for the most part, netflix continues to beat on its earnings, which is to say it gaaps up over and over and over and over now, the bet is, at least what i can see, is that we'll do that again. we want to play this, if you want to take the risk in earnings for a gaap up all right. get rid of that. let's just look at the chart how to draw the lines. i think you can draw the lines like this. it's a well-defined channel, literally. and this is just parallel lines right off of a computer.

we've responded to these levels over and over and over this is not sort of random stuff here and i'm thinking at a minimum we're going to make it back to the high at the channel. we're literally in the absolute midpoint so that not overbought you have the earnings prospects to get you higher. we want to make that bet, especially in the context of the following. look at this performance over the last 12 months, as basically all the others have stalled. this, while it's up, it's not up any more than the market if you look down at the bottom half of these high fliers, it's starting to be down. down one, down two i like the relative strength of netflix compared to its, quote, peers, if you call these stocks peers, they're of a type i want to make the bet you get a beat on earnings >> mike? >> this is a critical time, of course, because we're going to see what their subscriber ads are.

we've got the quarter ending end of this month. they've been doing pretty well so far on pace to have more subscriber ads this year than they did last year last year was a 25% growth year. that's obviously pretty outstanding. looking at basically the bottom of that channel, i thought the way to play this was to look at the november, 170, 190, 200 call spread reversal. if you bought the 190, 200 call spread and sold the 170 puts against it, you collected 25 cents. it's done about 10% this year. if it fell back and traded flat, you'll lose nothing. on the other hand, if it moves to the upper end of that channel, make ten bucks. that's the way you want to play this one >> what do you think >> how do you -- >> dan, it's just going to get down to earnings >> and it is it's at that prior high. it actually did -- the stock did sell up from 195, almost down to 162. now it's come all the way back

up to me, you really need that raise for the stock to gap up 10% like the market is going to expect if you have a miss, you're going back to mike's 170, put strike short. if you were going to buy the stock, why not but remember this, you only have $10 of potential gains in that call spread, right and you have a lot more potential losses to me, to my eye, this has a whiff of going down to 160 >> the downside risk is that you put the stock at 170 if you think it goes down to 160, what's your risk, $10 if it goes up, $10 it only has to go up for $10 and down $28 for you to lose the other 10 >> you have to go all the way back >> after it gaps up. often you get reset, that people sell into that because they were anticipating it. that low volume giveback is the bounce or prospective bounce for the next gap up. here is the issue. and it is just this.

if they miss, but then "if" is not a part of investing. the precedent is that something's going on here. the final piece of information, which i think is important, all the others are under pressure, apple getting walloped and amazon, but somehow netflix holding up >> the reason we're putting it on options trade, we have 10% of free move to the downside before we get move by november expiration >> check out our website, optionsacti optionsacti optionsacti optionsactioncnbc. here's what's coming up next let's make a deal. >> that's what investors think sprint and t-mobile will do. we'll tell you how high we see it going and reach into your pocket, grab your phone, and tweet us your question @optionsaction

if it's nice, we'll answer it on air. when "options action" returns. >> logically 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.

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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." t-mobile and sprint are rallying again on reports the two mobile carriers could be close, sending the telecom industries surging this week, we break it down with dom chu. dom? dom? >> reporter: all right, melissa, we're seeing a surge in activity around sprint and t-mobile shares no surprise, given all that renewed deal chatter over the past week we've seen around five times the average

weekly call option trading volume for sprint. and we've seen around six times the average trading volume for call options contracts for t-mobile usa all of this as more reports surface around whether a possible tie could be agreed upon any potential tie is going to be pretty heavily scrutinized by regulators but still, it's a part of that broader theme of outperformance by the telecom sector this week. we know that neither company is in the s&p telecom sector. still, some stellar performances by both at&t and verizon this week have made the sector the best performing one in the entire s&p, even though it is the smallest sector by market cap weighting and number of constituent stocks, there's only four in the entire sector. still, melissa, the sector has a 2% weighting in the index. it has been the second worst performer this year, down by almost 8%, but a star performer this past week

>> thanks, dom dom chu in the newsroom. mike is at the plaza with his call to action >> he was talking about the options action we saw the october 9 calls being bought, and sprint and the november, 70s in t-mobile take a look at a call spread instead of those trades. a couple of reasons for that one, higher profit probability second, a lower rate of decay. what's going on here if we take a quick peek, i'm looking at specifically at t-mobile the chance of the stock moving this much are obviously greater than of it moving that much. so we're going to try to take advantage of that. specifically what i'm looking at is the november 65.70 call spread in t-mobile you could spend $1.45 for that, basically a 37% chance the stock is going to get to here which is where you need it to be before you see profits. that's less than a 20% chance if all you did was buy that call. actually there's only a 10%

chance that call will beat this if the stock goes higher this is a higher probability way for you to make a play let's bear in mind, these companies are talking about a merger, not a cash takeout the chances of a move higher will likely be more modest, not a big, sharp spike >> shall we invite mike back just kidding come on back >> i love his description of what's going on there. a lot of the activity looked like like lotto tickets. this is how option traders get bailed out a little bit sometimes. mike probabilities. this would be a heavily indebted entity the economies would be interesting. you want high probability chances if you're making -- >> the higher margins that companies like verizon sees relative to t-mobile and sprint is largely because it's more premium brand, they make higher margins. heavily capital intensive

businesses like this, you would like to see mergers. if they really want to see broader margins, they have to start competing more directly with verizon that's what people must be hoping for >> it's what led up to this point. we know last year, sprint was up some 135, 140%, in the s&p 500 top five not quite as good as nvidia. then for the past eight, ten months, very dormant, very quiet. quiet periods, quiet markets last, but not forever. something will come along to unlock this. it might well be the things you're talking about as a bet, if you look at telco in general, not only is it down. it's down substantially. it's matching other sensitive parts of the market. >> if you look at a one-month option call in t-mobile, it costs 80 cents if you buy november's the call spread is a little over a dollar the rate of decay for that call

spread, all else equal, will be slightly lower if the stock does essentially nothing, you're better off with the call spread. still ahead, super and cereal stocks getting creamed this year. is this more pain in store for the so-called safe sector? dig into those pockets, grab ee ler iones, we're taking your twtsatn the show much more "options action" still ahead. 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 my "business" was going nowhere... so i built this kickin' new website with godaddy.

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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." some news out of d.c., kayla tausche is there with the story. kayla? >> reporter: melissa, if you want to know where the white house stands on that no vote this afternoon from senator mccain on graham/cassidy, they think passage is difficult but not impossible they say, we're only two votes

away, we'll continue to try to get the votes of collins and murkowski. i asked him specifically about what the white house could do to win over these senators who are on the fence susan collins has said she's leaning against. he wouldn't discuss that specifically i asked about a sweetener for alaska as had been reported yesterday, that potentially there were some kickbacks for the state that would help get murkowski on board he said, verbatim, there isn't such a thing in this bill. finally i asked him about the prospects for a by partisan effort to take shape after this bill at some point ends up going away he said it's too soon to talk about that at least from the white house perspective, melissa, despite the fact that john mccain is a no, rand paul this morning is a no, the white house still believes there is a very slim chance here. back to you. >> kayla, thank you, kayla tausche in washington for us mike, we did see health care stocks rally when we first got initial indications that this would not pass this also has implications potentially for tax. >> it does, certainly.

i don't think this thing is going to pass, it's basically a last ditch effort because they want to do this during the reconciliation budget process, and basically repeal is dead on the table after that the move that we saw in the health care stocks, i would say that's the way you want to play it time to look back, last month dan made a bearish bet on beaten-down staples stocks >> option prices are low, implied volatility has ticked up off 2017 lows. you could look to an in the money put spread, when the stock was trading at the xlp, underground pay 1.30 disregar$1 put spread >> dan, what do you do next? >> that was one of the reasons why i looked at it in the money put spread i want to give this some time. we're all in agreement on the desk that this is not a great looking chart of this etf. so when you think about rates going up, you saw how some of these stocks that actually had decent yields performed.

i think you want to stick with this and just remember, this was a put spread i was targeting 50 on the downside i'm not expecting 50 i have some time for this thing to play out. i'm going to keep with this one. >> i definitely think you want to stick with this with the etfs, things like put spreads are the way to make the direction play they don't have the idiosyncratic risks that single stocks too i would definitely stay with that trade >> just what dan said, the chart is broken. fundamentally they're expensive. what's the upside potential? it seems very limited. >> up next, your tweets and the final call from the options desk 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. see options data like never before. with 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." time to take your tweets so this is one from mike meyer i got micron january 19 calls,

i've got close to a double able stock is going to 40. what would you do before earnings mike >> i would certainly roll up those calls. one of the reasons you want to own options is so you have lower risks to the downside. but you're basically sharing the same risk as the equity. the only reason you wouldn't do that, possibly tax related if you have short term gains and trying to prevent that from happening, that's a separate reason but on strict trading basis, i would roll up. >> earnings are next week. this is one where the stock has moved a lot. so mike's point is if you own deep in and you're sharing risk to the downside on the gap, you have one for one risk to the upside take some of those profits, roll them out define your risk for further gains. this stock is up 33% for the last month time for the final call. >> netflix long going into earnings, a new high in days and weeks ahead.

>> call spreads in t-mobile. >> semis, if you think they've held in here, amd, i like it to the upside >> it looks like our time has expired. i'm melissa lee. thanks so much for watching. ckr more options action, che out ourweekend meantime, "mad money" with jim cramer starts right now. my mission is simple to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere and i promise to help you find it. "mad money" starts now hey, i'm cramer. welcome to "mad money. welcome to cramerica other people want to make friends, i'm trying to save you money. my job is not just to entertain you but educate and teach. call me at 11-00-743 cnbc. or tweet me @jim cramer. i like the attention