the guys are getting ready behind me to clear it all up for you. here's what's coming up on the show talk about a face slap shares of facebook are experiencing a rare down day but something in the charts suggest now is the time to buy and -- one tech stock had a massive run in 2018. and the options market is pointing to a big breakout when it reports earnings next week. we'll give you the name. plus -- it's the second worst performing sector this year and here's a hint -- we'll tell

you how to cash in it's time to risk less and make more the action begins right now. and let's get to it. facebook is facing the music the stock having the worst day since november 2016. down 5%. this after the social media giant says it is revamping the news feed so users see more post from friends rather than other content. of course this stock has been on a huge rise despite all the controversy. it is up 42% in the past year, gaining $160 billion in market cap. so could this be one of your best chances to buy this stock the chart master carter worth is saddled up and ready to go >> sure. thanks buying weakness has its risks. and often certain weakness gets more weakness and sometime it's the best thing you can do. i'm in the cam thp is weakness to take advantage of let's try to answer the question why. what we know is that this has

been a very orderly uptrend. you can see it here. i have the channel on it and it is remarkable how precise this asset has responded to its trend on over and over and over and over and then we blew out through the top. the top of the channel then becomes support. and there is not that much room between where we are now and the top of the channel so you got some pretty good support coming in on the long term chart on the day to day chart, over the last year or two, here's the trend line put it in. and we also are looking at this kind of thing. we're getting into a position where -- again, it comes down to whether you believe it's the beginning of long term trouble or whether it's just another selloff. news related or not. okay here's the really sort of here and now chart. this is, what, six months? i think one line you can draw is what is called the internal trend line that is along the top.

it's very precise. you can see that very precise and it responded to it you can also put in this line which is the prior high, exactly the prior high and we're back to that level i think it's going to be contained. again, we've got this trend line my hunch is that it's weakness to take advantage of rather than weakness to stay away from i want to step up and buy some facebook >> all right so carter likes it right here. he thinks it's an opportunity. dan, do you think there is a longer term impact by changing the feed here? >> i think there are definitely is i think it is a smart move on their part i think it's a smart move how they're releasing this information before the earnings come out this is not going to be something that changes overnight. it's going to be a story that progresses over 2018, possibly into 2019. we're not going to seat results of that. i actually like the chart work i think that what the company is doing makes a whole heck of a lot of sense this stock was up 55% last year. it's got a $530 billion market cap. if you're going to make big

changes about how you're going to get new subscribers or new users to your network after you have two billion monthly active users, you have to figure out new things that's what they're trying to figure out >> i think wall street likes this from the long perspective from the more media term perspective, could it have a hit on revenue therefore, how do you trade this >> i think it could have an impact on revenues i think that's one reason the stock got hit today for sure when -- this is one catalyst earnings coming up are another catalyst one thing you ought to think about, does this improve user experience i think this does. and if you think about it in a longer term sense, then absolutely i think this is a go thing that this is happening now. they're getting a lot of scrutiny this is an opportunity too for us to use a type of trade we don't that often, i'm looking at selling a put spread in facebook trying to take advantage of the fact that february options are slightly elevated because of that upcoming earnings and looking at selling the february

180, 175 put spread when they were selling around $180 that is almost half the value of the spread you could have the stock put to you at that $180 level but protected at $175. the idea is maybe it's going to bounce if it doesn't or if something that comes out on the earnings call is viewed unfavorably, you have protection to the down side >> carter? >> i think one thing also to consider is when do you have a major reset like a breakout or a drop in gap like this, how big a gap is it? it's only 4%, 5% if it were really trouble, it could easily drop 8% or 12% or something very down. it seems contained for now >> yeah. >> again, i like the way they gopt the news out before the earnings when you think about it now, the stock was trading yesterday very near all time highs. and now expectations have come down so now the onus is on the company to actually put up a beat and raise if they just do a little less than that, the stock is not going to go down too much barring some broad market thing. to me, i like mike's change. short premium, option premiums

are elevated so if the stock does nothing, he's going to make money if it goes up, you're going to make the full difference between the width of the spread and credit. >> what is the one concern you might have, especially as earnings sort of overlap here? >> for one thing, you could reasonably suggest that this is a stock that is not going to linger right here. it is either going to bounce the way he suggesting or more news will come out and people -- sometimes you see bad news come out, stock trades down and then proceed to trade down even further for two or three more days as people begin to digest that people who didn't see it today, for example. we might see that. of course, if that's true, you'll be able to take advantage of that on monday. if it opens at 175 dl$175 you'le selling that >> what do you say about that? >> it has to be contained. so far it is one thing that we can also sort of hang on to for now is that this is a type of stock. it'streated the same way apple is treated or amazon and they all held up very well right?

there was no spillover of course there wasn't spillover. there is a facebook story. if there real worry, then people go into other names like it and do trimming. >> earnings season kicking into full gear next week with a slew of big names we'll hear from big blue known as ibm the dow stock has been on a terror as it moved into block chain technology this could be the sleeper pick for next week. why? give us the trade. >> a couple things going on here obviously this massively underperformed and it was one of the worst performing stocks in the dow. some of the early year performance, maybe it's associated to a dow. obviously two-thirds of the sales come from outside the u.s. the dollar, you have seen the dollar index it is making multimonth lows here last quarter in q-3, october 17th, they put up a quarterer that surprised people. the stock gapped 9%. some of the strategic comparatives, the faster growing things like cloud and wattson did better than people expected.

the stock was up 9%. and now it's back above the levels to me, you mentioned one word which is block chain block chain services and some hardware related to it is a 70, $700 million business in 2017. some research companies estimate they got 30% of it by 2022 some research companies are expecting this to be almost an $8 billion business. ibm seems well positioned here i don't think you're going to get a heck of a lot of answers right now about, you know, block chain and what that means for it but i think if you get some of the strategic comparatives doing well for the second quarter, these guys already have a low tax rate so this new tax reform is not a huge deal. this stock is going to gap up. it could fill a gap from last april. i think you just play this with a call spread. define your risk you're going to target that gap. really, if you are -- if you agree and think there is a chance and you get two consecutive better than expected quarters, this stock is going to go back above $170, possibly $175 today when the stock is at $164,

you would buy the february $165 call spread paying $3 for that buying one of the $165 calls for 415 and $1.15 you break even at $168 and make $7 and then the match risk is the $3 in premium you paid and you lose all of it >> that's a the love numbelot o. one of the reasons is we point out before catalysts you're going to see elevated options premiums that's why you want to look to spread trades like you're doing here ibm, unlike a lot of other stocks, still had as to show us that they can deliver. despite the fact that their presence in things like cloud, that's a growth industry, are they going to be the key player? same thing with block chain. that is a growth industry. i think earnings may reveal that this is a good low risk way to make a bullish bet >> it has all the bearish to bullish reversal

we have dan's chart there. some people might call that a head and shoulders bottom. but what we do know is that it has the potential to fill the gap that dan is citing the down gap from april of last year and this stock gaps on the earnings three out of the past four quarters. there is every possibility that it gaps yet again. >> and lastly, the implied month move is only 3%, below the long term average to me, the way i think about this is you're risking 2% of the underlying stock price you get the direction right, you're going to make money on this trade but you have to have conviction about the fundamentals >> got a question? send us a tweet. check out our website and while you're there, check out our newsletter what better way to spend a three day weekend than cuddled up next to a roaring fire reading the calming worlds of mike co. what you are waiting for here's what's coming up next

it's one of the worst performing sectors this year but something just happened that suggests now might be the time to buy we'll explain. plus, calling all options action pass. reach into your pocket, grab your phone and tweet us your question. @optionaction. if it's nice, we'll answer oint air. see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from 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." call it a rotation, call it what you like, what we've seen happen in interest rates and the related moves in the stock market have been dramatic over the last few months. u.s. government bonds have been selling off across the yield curve and, yes, some maturities more than others but as those prices have fallen and yields have risen, we've seen some market underperformance in sectors that are considered interest rate proxies. ten year u.s. government bond yields have been trending higher over the last three months, the lagging sectors in the s&p 500 have been higher dividend paying staples, it's up 4% in that time frame against the s&p 500's 9% gain telecom services also up around 4% as well meanwhile, real estate has actually lost 5% in that span and the worst performing sector has been the utilities down around 7% now all four of those sectors are currently the worst performing sectors so far this year as well meanwhile, over the last three

months, the more cyclical and economically sensitive sectors like consumer discretionary, energy, technology have posted double digit percentage gains. so melissa, if interest rates keep rising, will traders keep selling off those interest rate stocks back to you. >> thank you, dom. have grate long weekend. all right. so is the safety trade really in danger chart master carter worth is back over at the plasma to break it down for us >> there are different parts of the safety trade there are two stocks, tmvz, rates, of course, what i want to focus on is two of the oldest indices known to market, the dow jones industrial average, 30 stocks, and the dow jones utility average, 15 stocks what you have is a one year chart. comparative chart of the two instruments and you can see the lines such as i can. you can see one is going this way and one is going that way. in fact, what i want to focus on is this spread between the industrials and the utilities.

one year chart, five year chart. it's all about this divergence 20-year chart. here we go again this is becoming interesting for a setup by my work let's look at some stats on this here's the here and now chart again. i want to focus on the 40-day spread over the last two months of trading, the numbers and stats are as follows going back to 1929 this has happened eight times this is the eighth time. that's an incident rate you may as well call it zero it is so rare as to be exceptional. and what has happened whether this has happened in the past. now what this is industrials versus utilities after, yes, after a 40-day spread of 20% or more, and what happens is the odds of industrials outperforming are low, low, low and then industrials one week, two weeks,

three weeks. this is a trade for the weeks ahead, no not years. industrials underperform this chart is utilities outperform. not only odds of it happening but the actual gains relative are what they are. here's the decline you can see in just quick order you're talking about a plunge of 12.5%. where is this move in the context long term chart? here's the long term chart since the absolute low in '09, let's put in the line. and i'll be darned, it's sitting on the line. so you can make your bet that it's going to bounce that's mine. or you can make the opposite bet. i'm going to make the bet it's going to bounce. >> i love whether you reveal it. it's like he was surprised himself. >> can i ask a question though >> okay. >> carter? >> that's not what we were going to do. >> real quickly though, when it broke the one year trend line from the lows, it went much

lower. why can't it do the same thing on the ten year? >> it can. but when you first approach a trend line, you have a really good rebound potential you can see that here. let's say it just hesitates and then ultimately breaks and you're in the cam thp that rateg to 6%. i get that but on the first approach to that line, i want to make the bet that it has rebound potential. or differently, everyone's out of this and into the dow, it seems very lopsided. >> so the nice thing about utilities, very low volatility typically. when they get into a trend they can move over a lot over a short period like we just saw here you can buy the march 51 calls for under a dollar 2% of the current price of xlu, you get until march expiration to make the bet. this thing dropped $6.50 in a comparable amount of time to the down side. so any bounce could be repaid quickly. it could be the 4% dividend that draws people in.

the rates could stop rising. it could be a host of things it could easily move a dollar or more >> and to put that drop in perspective, a 12.5% drop over a week or two for something that has a beta much lower in the market, it's a much bigger drop, right? so again, if you're in the camp that rates are going high eastern all games, you don't want to be in utilities. even if they're going lower, i make the indication they're going louer through a higher price. they have rebound potential. >> if you agree with the technicals, mike's trade, the options set up perfectly for you. you really break even at $52 that's writ was ten days ago when it bro he cke the last tra. you have two months for this thing to play out. so as far as i'm concerned, you're going to get a low from a higher level >> with valuations where they are and industrials, where do you soo that he? >> right >> you want to put that on a

ra rate that's so rare it's exceptional. and you could take the other side and say you want to trim the industrials. >> you could sell call spreads in that etf if you chose to to finance this trade up next, j.p. morgan surging after the earnings report. that is bad news for one of our traders. we'll explain why right after this two,that was awful. why are you so good at this? had a coach in high school. really helped me up my game. i had a coach. math. ooh. so, why don't traders have coaches? who says they don't? coach mcadoo! you know, at td ameritrade, we offer free access to coaches and a full education curriculum -- just to help you improve your skills. boom! that's lesson one. education to take your trading to the next level. only with td ameritrade. we rbut we are not victims.ack. we are survivors. we are survivors. we are survivors. and now we take brilinta.

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i'm not really a, i thought wall street guy.ns. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade

time to take a look back at our open trades. last week carter said jp was headed for a breakdown >> yes, it's gone up of late but it's not participating with the general market and overall, it's made no real relative results in about two years. i don't want to be overweight banks here i don't think j.p. morgan is any different than the group at large. >> i think the way to play this, i was looking to march you could buy the 105, 100 put spread for $1.15 >> well, j.p. morgan just reported better than expected earnings this morning. the stock is up 4% since then. so carter? what do you say? >> it is up. that's right i think we got some time here. we want to stay with this. in the sense that the relative is still the problem in fact, if you do it relative to the peer group, the stock is

straight down on the chart relative to its peers. that's a problem >> you know, the put spread, the 105, $5 spread is worth 50 cents right now. if it did hit that would pay off about 9-1. you wouldn't sell it to initiate a trade here so obviously stay with it. >> all right let's move on. small caps were going to break out. >> we got the breakout we've got the check back wi we have this checkout and put back i think you can put the next green arrow in and make the bet that iwm goes higher i want to be long. >> i was looking at the february you can buy the 152 call spread and spend $3.80. >> a good call it is up more than 4% since then now what >> i think can you actually take some profits on that one and rollout and up i would go out to march at this point. >> what is your take

>> rolling out, meaning you're going to continue with this trend. carter is just talking about this melt up in industrials and we think about the beneficiaries of obviously tax reform, you know, possibly infrastructure, that sort of thing the domestic companies should benefit. to me, why shouldn't you have a meltup in the iwm? this is an index down on the year in the summer >> yeah. it needs to. because here too, while it is up absolute, it is massively underperforming the s&p 500. >> yeah. i mean the move is actually still not that significant obviously, we were right and we had a relatively tight call spread and so this is one reason we can take the profits and take the profits, push it out and you're going to be playing with house money as we like to say. >> all right up next, final call from the options pits well, it's earnings season once again. >>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.

two,that was awful. why are you so good at this? had a coach in high school. really helped me up my game. i had a coach. math. ooh. so, why don't traders have coaches? who says they don't? coach mcadoo! you know, at td ameritrade, we offer free access to coaches and a full education curriculum -- just to help you improve your skills. boom! that's lesson one. education to take your trading to the next level. only with td ameritrade. welcome back time to take your tweets the first question is from john who is wondering, when do you use a bullish call spread versus

a bullish put spread >> if you think the move is going to be big and buy a call spread for less than 30% of the distance between the strikes, go with a long call spread. if you think it will be modest and collect at least 30% of the distance between the strikes, sell the put spread. >> that is a function of how options are priced if you thought options were priced cheaply, you want to buy that call spread if you think you're expensive, sell that put spread >> the second tweet is from zack he said i bought intel for $1.42. what do you think? >> that's a tough one. we knows this was a newsy couple weeks for intel. the options market is prying about a 4% move. that's what you're risking right here you have some time for this to play out so if investors like what they have to say, you're going to have this stock back above $45 in my opinion over the next month. so this trade works okay i like a risk here it is at key technical support level. >> time for the final call >> final call, i want to be long utilities for a bounce and

facebook as well >> mike? >> utilities, by the march 51 calls for $1 >> dan >> yeah. ibm i think you want to make a bullish bet. i think you want to define your risk, so february call spreads >> our time expired. i'm melissa lee. check out the website for more option action. "mad money" is up next - [narrator] the following is a paid advertisement for the 3 week yoga retreat. brought to you by beachbody. - are you a woman of a certain age? if you are, pull up a chair and sit with me, because this is for you. i'm leeza gibbons and it was a big year for me, i turned 60, and i'm all about aging gracefully with empowerment, and all of that, but let's be real, there are some parts about getting older that are just hard. - all the symptoms of menopause from a to z, i have them. - my body is changing. - i'm not as flexible as i used to be. - i'm anxious, i don't sleep.