hello there. we're live at the nasdaq market site the guys are getting ready behind me. here's what's coming up on the show >> life comes down to a few moments. >> it all comes down to earnings for the banks next week. we'll tell you which stock traders see having the biggest move right now we're the best gm ever >> right now gm shares had their best week in five years. but there's something in the charts that suggests now might be the time to tap the brakes. we'll explain. and -- so just how low can the vix go

the answer might surprise you. it's time to risk less and make more the action begins right now. let's get to it because the number of big banks kicking off earnings season next week, jpmorgan, citigroup, bank of america, and wells fargo all set to report. the options market is implying some sizable moves for these stocks the numbers are all right there. take a look. this as the sector hits its highest level in ten years today. how do you play it let's get in the money mike, you're looking at jpmorgan why? >> first of all, this company is the best of the sector for sure. but the important point is that we've seen volatility has been exceptionally low. we've seen the market rise up until today, basically in a record stretch it would be very difficult to go into earnings at this stage, after the run these things have had, without trying to mitigate the risk by using options. they're not that expensive

i'm going to get to the trade and we can talk about the banks in a second. but i'm just looking out to december i was looking at the 97.5, 105 call spread. you can spend $2.80 for the 97.5 that's $2.20 to make your bet. it doesn't take much of a move to make these things profitable. if these things don't turn out so hot, that's all you're risking. >> i agree with mike it's great to be on the 08 i don't know where dan nathan is sorry, dan, just kidding jpmorgan is best in breed. it's also the most expensive in the space as well. you're talking about a stock that's probably closing in on about 1.8 times or so priced to book i think that's expensive in the environment that we find ourselves in not to suggest it can't go higher from here but i think there are better places to be i would tend to favor citibank at these levels, that's the cheapest in this space >> dan, would you put on a

bullish trade like mike? >> i've said this over the last few months, even when jpmorgan was trading at 90, if the market is going to go higher, if rates are going to go higher, this stock is going to trade $100 mike's trade is setting up for a breakout above $100. he's basically risking one to make two with the earnings catalyst in the next week. so to me, i like the risk/reward of the trade i actually don't think you'll see a scenario just on earnings where jpmorgan is just going to fall out of bed. i don't know if we have a one-year chart this stock just ran 10% since the start of september what happened in the start of september? we started to get some increasingly better economic data we started getting more confidence about the potential for tax reform in 2017 and rates started rising so an interest rate hike at the december meeting is now a near certainty. there's a lot of good news in the stock. this is one of the reasons why i like mike's trade. if you're inclined to be

bullish, you're defining your risk, options premiums are low, and the stock has already run. to me, this sets up pretty decently if you're worried about downside >> a couple of quick points. first of all, with respect to tangible book value, it's definitely true, this is a stock if you take its peak valuations and then the trough valuations, the mean tangible book has been about two times -- and we're getting very close to those numbers now. that's a little bit of a challenge. the good news for jpmorgan, they're growing their tangible book value faster than the banks, 10% per year. that's why they justify a slightly higher multiple on that metric the other thing, yellen saying maybe she's going to look at pulling back regulations, big deal jamie dimon himself said there's probably $2 trillion in u.s. mortgages that didn't get issued that probably should have. loosen those regulations just a little bit think about this also. assets under management are probably going to double in the next ten years the number of billion dollar companies is going to double in

the next ten years those are long term tail winds, probably won't be reflected in earnings >> what about guy saying he would rather be in citi? >> i still think you always have to buy the best one in the space. and again, you have to think about the multiple in context of growth and growing tangible book faster than citi is >> that is true. just to back up mike's point, i guess, not that he needs me to help him, everything going on with wells fargo right now, wells fargo is going to lose everybody that mike spoke about. people have long memories. you might see people, mortgage origination, they might move from wells fargo, which has historically been the dominating bank a lot of the things ailing wells could help the others. >> general motors surging 20% to a new all-time high as ford, toyota, and fiat chrysler are up around 7%

gm rallying 11% and getting $5 billion in market cap. dan, i think it might be time to put on the brakes on gm. >> no doubt. mcc, this stock is up, today closing at an all-time high from its post financial crisis ipo highs. up 29% 25% has come since late august last month we saw deutsche bank basically get really excited about the potential with autonomous driving, electric vehicles and the like. and kind of raised their rating on the stock then today, citibank is saying they think that this company, given some of the technology drivers they have, should possibly get a multiple of 15 times earnings currently it's trading seven times. they see a path to $134 in the next few years to me, i just think it's gone too far, too fast. a lot of transition will take time if you think about from an earnings standpoint, earnings are expected to climb year over year this is a cyclical story there's huge secular headwinds in the near term, we have

earnings on october 24th i think it sets up as a trade to consolidate at the recent breakout level i want to look to november expiration, playing to the breakout level, down near 40 when the stock was trading $44.80 today, you could buy the november $44.40 put spread, paying 80 cents for that, that breaks even at 3.5% to the downside you could make profits down to 40, that's your max gain, that's down about 10% here's the setup for this trade. i'm risking 80 cents, a little less than 2%, to make possibly $3.20 if the stock were to retrace that move. i think earnings could be that callous. i think investors have gotten be a little ahead of themselves here they may get some guidance that makes them consider being more sober about the recent move here i like this trade as a checkback to that breakout to 40 bucks >> mike, do you like the trade >> i definitely like the trade

structure a great deal going into a catalyst like this. it's interesting, when you look at a company like general motors, these are companies that tend to have a little more leverage they're a much more cyclical industry here he's able to put on an options trade going into a catalyst at a very reasonable level. that said, i'm a buyer of general motors long term when people think about the secular headwinds the domestic automakers face, they should be looking at miles traveled rather than whether millennials will run out and buy the car. i think the car business is trading at a big discount to where i think it deserves to be. >> i agree with that as well it is trading at a discount. but there's a long way from where gm currently trades 15 times towards multiples, when you talk about a company that will make close to $6 this year, $6 or a tad less next year i understand the tremendous tail winds they seem to be enjoying and kudos to karen finer and tim

seymour who on "fast money" have been all over this for some time we're right above levels we saw at the end of 2013 this might be the most important quarter. i think it comes on october 26th in the history of now not your father's gm, your son's gm, which has been a publicly traded company for the last five or six years, extraordinarily important. >> dan, i look at the one-year chart and it looks parabolic, to your point about it moving fast. >> if you agree with everything these guys said about the fundamentals with gm, in a lot of ways you love to see this stock pull back and consolidate. if it goes straight to 50 bucks here, it's discounting a lot of stuff that has to happen in 2018 to me, if you miss this move, i think buying it at 45 is not the right trade. wait for a consolidation, if you're a trader, back to that breakout level, they're at 40. then it sets up for a good play into 2018. >> got it. much more "options action," she tried to say, still ahead. here's what's coming up on the rest of the show

>> hey you want to see something really scary? >> then look at the so-called fear index, because it's plummeting but that might be a frightful thing for your portfolio we'll break it down. plus calling all "options action" fans reach into your pocket, grab your phone, and tweet us your question @optionsaction. i think it's terrific. your kids go to college and you start trading. >>yeah, 5 years already. 5 years, hmm. you ever call your broker for help? >>once, when volatility spiked... and? >>by the time they got me an answer, it was too late. td ameritrade's elite service team can handle your toughest questions right away- with volatility, it's all about your risk distribution. good to know. >>thanks, mike. we got your back kate. >>does he do that all the time? oh yeah, sometimes he pops out of the couch. help from real traders. only with td ameritrade.

well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade.

welcome back to "options action." i'm dominic chu. we saw the vix close to historic lows on thursday that means so far the vix has closed below the 10 level for 29 days if you include today, it's traded below the 10 level on an intra-day record for 53 readings this year. but there is a sense that folks are betting on higher volatility in the coming weeks. according to the data from the cboe, open interest for call options is for calls than puts put options 10% below the market

228 levels were trading around 90 cents it costs a lot more on a relative basis to protect more than a 10% drop than to protect against a rise in the s&p. michelle, to be fair, downside protection costs more than upside protection. still, with the vix at these levels, some traders may be looking at buying some relatively cheaper insurance back over to you guys. >> thanks, dom, good run down. if you can you tell if options are expensive or cheap how can you buy protection mike is at the plasma with the call to action >> really there's two types of volatility that you want to concern yourself with if you're trying to establish whether or not you want to be a buyer or seller of options. the first one is implied volatility this is what you figure out if the options market is expecting the market to do in the future so when options premiums are

high, you're expecting greater volatility this is what the market actually delivers we can take a look here, both are actually quite low this gap that you see right here represents essentially how expensive options are. are they pricing it a lot more volatility than the market is actually experiencing? right here we can see there is a bit of a gap however, i do think we've hit pretty much a floor. i think with the markets at these highs, the best way to make a play right now is to look out to january i was looking at this today, with the spy trading, you could buy that put for $5.25, 2% of the underlying spy is also due to pay $1.35 dividend this is really a very cheap way to get some protection if you don't have any position on, i wouldn't even mind being long s.p.y. right here and buying this put as a very cheap call option. >> got it. nathan, dan nathan, what do you think of mike's trade here

>> all right, caruso-cabrera, it's on here i think it makes perfect sense, what mike is saying. the spread is making options look attractive in an index like the s.p.y. i look at that chart, it broke out at 250 it's gone straight up five bucks. mike is looking at a put that expires in january that is the width -- or it's the amount that it gained over the week, the s.p.y. to me the breakeven, if we get a correction in 2017, we're going straight back to 240 this is protection you would want to own against a portfolio of stocks. one more point about this sort of, you know, put trading against a portfolio, you want to be tactical about it, you know we're at all time highs here sentiment is bullish and complacency seems high the timing makes sense >> i have a question which i want to pose to my man guy adami. that will cost ten bucks what are the chances that s.p.y.

could move $10 up or down by january expiration >> excellent i would put the chances north of 50%. why do i say that? we don't have enough time to talk about my dislike for our federal reserve. i'm sure mcc is in that camp as well although she won't say it what they've done over the last year, in their eight years, they're the ones that have taken volatility down. now as they unwind things, i think volatilities will start to creep back into the marketplace. as we get into another fed meeting, fed starts to raise, they'll pull back that balance sheet. volatility will return to answer your question cogently, i think the chances are excellent. >> satisfied, mike >> i'm absolutely satisfied. i'm glad you support this idea i definitely think these options are a buy. >> what's that smug look on your face, dan? >> guy just said that his explanation was cogent sitting out here in front of the bay bridge, i wasn't feeling cogent i'm just telling you that.

>> what about his underlying premise that as the fed unwinds, volatility has to come back? >> i agree mcc, we talk about this every day on the desk. no one can think of a reason why the s&p will go down ultimately there will be a reason, that's as good as any. the main premise of mike's idea is that option prices are cheap, and this is a really good way to get protection netflix surging more than 8% to new all time highs. that's great news for mike ko who may have put on one of the best trades ever in the long and illustrious history of options action if you have a question, please send us a tweet, if it's nice, we might read it later in the show i think it's terrific. your kids go to college and you start trading. >>yeah, 5 years already. 5 years, hmm. you ever call your broker for help? >>once, when volatility spiked... and? >>by the time they got me an answer, it was too late.

td ameritrade's elite service team can handle your toughest questions right away- with volatility, it's all about your risk distribution. good to know. >>thanks, mike. we got your back kate. >>does he do that all the time? oh yeah, sometimes he pops out of the couch. help from real traders. only with td ameritrade.

well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back to "options action." time to look back at some of our open trades. two weeks ago ko and carter said netflix was going to break out >> this is a well-defined channel. this is parallel lines right off the computer

i'm thinking at a minimum we'll make it back to the high >> i thought the way to play this was look at the november, 170, 190, 200 call spread risk reversal when i was looking at this, if you bought the 190/200 call spread and sold the puts against it, you would collect 25 cents >> well, netflix soaring since then stock is up 6% since the time of that trade and hitting another record high today. you may have noticed carter isn't on the desk today but he sent us a postcard from exotic salisbury, connecticut he writes, the presumption is there is more to come from netflix, stay long, be long, see you guys next week congratulations, mike, good trade. what's your next move? >> my next move actually would be to take profits on this options trade and take a portion of those and just roll out and buy an upside call spread. i'm not that comfortable being short puts anymore actually, that was a fair point that dan made last week. but it worked out for us this time i'm not going to continue to risk that downside any longer. >> you're highlighting in a very

nice way that dan nathan was critical of that trade last week >> no, just of one component of it i think they had the direction right. i guess they said if you're wrong it complicates things. i like the way mike is managing this trade >> the quick point is that although options premiums are very low in a lot of places, netflix wasn't one of them that was one of the reasons why i was looking at that call spread and also selling that put. for those watching and wondering why sometimes it seems like those trades are slightly complicated, it's because that implied volatility could be high in some stocks like it was in this one >> great job, even dan, i'll say this, it's a good idea by michael to be taking money off the table in earnings on october 16th, when as we know, anything can happen still a bull but nothing wrong with booking profits especially in this quarter. moving on, a month ago dan nathan bet that the greenback was headed higher. >> to me, let's just look at the

uup chart, it got almost as close as 27, bounced off 24. that was the double bottom i want to look out to january expiration you can buy the january 24, 26 call spread. >> the dollar has been rallying, hitting its highest level since july today so, dan, what do you do now? >> well, this is an interesting setup, mcc two months has elapsed here. the etf is not much higher than where it was the $2 call spread is basically trading at the level at which i bought it. implied volatility in the price of options has been remained cheap. but because of the slight move upward, the trade is still very much in play because we have until january expiration, i think you leave it on it's a near certainty the fed is going to raise in december here. i think you can see a bounce in the dollar, retrace a bit of the move from the highs earlier this year so maybe you see 25 1/2 over the

next couple of months, then i take this thing off. >> after a long down trend, the dollar is starting to move in dan's direction, i absolutely agree, you should stick with this trade and give it time to play out >> i think there's a chance it gets to 25 but if you look at the uup, we're still in a well-defined down trend if i were looking at it, i think a close above 25 1/2 suggests we break out to the up side then all bets are off. i think it stalls at 25, though. next, your tweets and the final call don't move i think it's terrific. your kids go to college and you start trading. >>yeah, 5 years already. 5 years, hmm. you ever call your broker for help? >>once, when volatility spiked... and? >>by the time they got me an answer, it was too late. td ameritrade's elite service team can handle your toughest questions right away- with volatility, it's all about your risk distribution. good to know. >>thanks, mike.

we got your back kate. >>does he do that all the time? oh yeah, sometimes he pops out of the couch. help from real traders. only with td ameritrade.

>>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back to "options action." time to take your tweets our first fan chris says, someone tell guy to take off his tie. >> listen, i'll do it. i generally don't do things like this >> you have to keep the mike up so we can hear you

>> how's that, dan or fan? how's that >> don't play any music or anything >> thank you >> our next fan asks, i own 500 shares of gm at 35 bucks it's a long-term investment. should i do a covered call, if so, what surprise and expiration dan? >> listen, here's the thing. you're deep in the money now, you basically own this stock the idea of maybe possibly rolling that premium up or selling some calls against it. but i suspect because it's outperformed so dramatically, you think it's going to continue to do so you have a lot of optionality here break open mike's options. there's a lot of things you can do to get you deep in the money calls. >> let's move to the final call, the last word from the options pit. dan? >> gm, i like the put spreads in november >> mike? >> with options as cheap as they are, you've got to buy those puts in s.p.y. january.

>> guy >> isn't it fun being with the "oa" guys with mcc >> it's great. >> this has been a gas. >> a gas >> big week for financials >> looks like our time has expired. i'm michelle caruso-cabrera. we'll see you next week at 5:30. don't go anywhere right now because you know what begins right now? "mad money." the following is a paid program for the kitchenaid artisan stand mixer and attachments. - [woman] stay tuned for the newest offer to try the kitchenaid artisan stand mixer and select attachments, in your home, risk free. if you're passionate about preparing, enjoying and sharing great food; if you love being creative in the kitchen then come along with us for the newest edition of every day with kitchenaid. today we'll visit the kitchanaid culinary center showcase events in cool and vibrant southern california; soulful, spicy new orleans and the tropical paradise of florida. come watch along with other passionate home cooks like you, as kitchenaid demonstrates how