welcome to "options action." the dow sinking 572 points sitting firmly in correction territory. down more than 10% there the highs. the nasdaq and s&p falling 2%. all 11 s&p 500 sentors were in the red. seven in correction, including the financials which are kicking off earnings season next week.

the implied moves right there on your screen. how should you play the group heading into what could be a make or break week for the stocks dan? this is a important sector obviously this is one of the first sectors to report every earnings season. i think there has been a lot of bullishness for good reason regarding banks for 2018 expectations are high. look at jp morgan. biggest, best of the frooed breed. still up on the year that said it's down 10% from its highs. citi group is down almost 8% that was one that people were excited about on valuation and potential for capital return you just mentioned three of the biggest holdings, 25% of the xlf that are going to report next friday i think you look at xlf puts as a way to hedge existing holdings or a cheap way to play volatility in a market that is back we have volatility back. if there is any specific data or anything that's going to drive this market lower i expect on

the next leg lower bank to outperform that move. >> volatility does send to be reflexive of meaning as volatility picks up you tend to get more of it afterwards. there are good reasons for that. tim earlier mentioned it as volatility rises, frequently people's confidence and hanging on to their positions, where multiples should be also will tend to decline. so that definitely would be a reason why you could expect some further volatility my counter-point might be that some stocks like wells fargo to me on a valuation basis there was so much bad news in there already unlike some of the two others that you just mentioned, to me i was thinking it might start to bottom here. >> dan, what's your trade? >> i want to look out and let carter talk to the chart i have a one year chart. 27 in the xlf seems to be important near tell technical support. i want to look at expiration of two weeks. that seems to be hedged against bank holdings. april 27th put pieing 2.50

it breaks even down at 2645. and you have profits below that. to me, i think if you think about these earnings next week and they are going to have more banks earnings the following week you have two weeks to trade where you will at the least wiggle out of this. >> financials are the second most important in terms of weight for the market and most important lifeblood. as a group they broke below their february of theth lows that's not the case pour the market or a lot of sethors there is more pressure here already. the presumption is it's going the break past the february low. i think that's what your trade is it is simple as that >> i like the structure of the trade. one of the things that you definitely want to be is an owner of options in circumstances like this. often what will happen, we talk about implied volatility, options we like to sell high and buy low.

when the market itself is volatility times options are relatively underpries in the short-term, you often see that. >> one last point. i think this is a really important sector from a sentiment standpoint i think expectations are high they are going to print good q 1 letters. in jimmy diamond's letter, i think you should expect caution commentary about something going on here. immigration, trade stuff is obviously important. if this group reports good numbers and they can't rally that may spell something worse for the broader market especially because of what carter just said the relative underperformance to the broad market earn canning. >> on a sentiment basis do you think there is validity in terms of what the group reports and how they perform based on what they report will tank -- >> we should look at the sector as a microcosm for the markets in general we often talk about net interest

margins but you have to make loans and to make loans you have to have people committing capital. if people are concerned the outlook is uncertainer the in the going to that. that will impact banks. >> let's get to another sector that was slaughtered today industries dom chu. >> dan nathan just mentioned this idea there is an important seccor in financials for sentiment. another important sentiment indicator about what the market has been doing recently has been the industrial stocks. like you pointed out they have gotten beaten up pretty badly today and have been a barometer or sentiment indicator for what's going on with regard to the progress or lack thereof in terms of trade talks specifically with china. we looked at some of the industrial companies out there that have the most expezzure to china in terms of their business everyall according to data from msci and fact set, deer, 8% revenue exposure to china. caterpillar, 9%. boeing, 11%, 3m, 13%

ford warner on the auto parts side 13% exposure as well. if you look at the charts of some of those stocks today you will see either market perform or market underperform action in those names. many time it's because they are used as gauges of the trade deal or lack thereof with china one other one i want to focus on is general electric. this is a stock obviously that has had its own issues outside of chinese trade talks and whatnot. the stock is hovering near a a 2 week mul year low. but it's also a stock that gets 8% of its revenues from china. its own secular issues its own company specific ones to deal with as well as some of the ones with china, and you have general electric shares also taking a bigger than average hit today as well so industrials overall certainly melissa lee, a huge point of contention and interest for traders in this marketplace specifically as an indicator for china and perhaps others >> thanks dom, have a great

weekend. dom mentioned ge the worst performing industrial name in 2018, down 25% and more than 56% over the past year shedding $145 billion in market cap over that time but chart master here says the bottom could beer. >> carter head over the plasma. >> this is outright speculation, speculation if you think about it is forming a theory without firm evidence. it's just that, going to be all hay wire or quite clever let's figure it out. this is back to the peak in '99. what we know is after these counter-trend rallies they have this plunge that breaks do you know through the thing the counter-trend rally from the lows of '09 up until 'to and we have this plunge i want the use this construct and pull it pk to a little bit longer testimony hering the back to the 1990s one of the great winners of all time it peaks with the market in the.com era and you have these

two counter-trend moves and plunges -- counter-trend moves is plunges keeping an eye on those two plunges watch this this is fun. if you look at the rsi, it today touched to the penny the exact same level as the '09 low. and the stock over the last two weeks is actually holding up a little bit better than the market let me show it to you on a short term basis we might at this point shlg if ge goes to zero or one that the lower path to a lower price or maybe an enduring bottom sets in on the short-term chart here's what is sort of interesting. as again as it's continued lower over the last several weeks and months the actual internals have moved higher i think i want to stick my neck out and take a gamble that this very important, now less important stock is maybe so bad it's good. >> bold call carter. >> it's interesting. so bad it's good this is a company that was

masterful at managing their earnings forever then look at what has happened over the course of recent years. they have missed they have had real big disappointments, things are worse than we thought. rather than being able to reach into closets all over a huge enterprise and find little bagsan money they could bring out on earnings instead skeletons are coming out that's the risk factor of course they have been forthcoming in the most recent case about how disappointing some of that has been and maybe some of the worst of it is behind us and a positive surprise to be on the up side. that said i wouldn't reach out and buy the stock. i think options are the way to play this. i was looking at the june 1415 call spread. you could buy them 50 cent and sell the 15s for a quarter you are spending 25, one quarter of the distance between the strikes. essentially you are making a three to one bet it's interesting you don't need to look at the market to into how volatile things have been

ge has been volatile in relative periods of time. that's the way to make your bullish bet on this i think this it could go to that 15 strike in that time frame. >> >> the professor over here might normally be hesitant to present a trade idea where the break even on the trade is up 10% from where the stock is trading. here's the deal with this thing. it is so oversold. when it bounces if it does bounce you are doing to have a move at least above that breaking level when you think about the trade, as mike just said, a three to one risk reward on something that's so out of favor can so down and out look like a good bet specific because you have two and a half months. >> there is a huge amount of leverage on this balance sheet $2.5 billion worth of debt if you think of the value swinging around 3 or 4%. that's going to swing the equity by a multiple of that. that's how we see that the option koss pay for the leverage. >> as we look at the markets

ahead is ge certainly going to fall >> that's the question whether you are thinking of owning now and hey, should i speculate and take a chance. >> i suspect ge will go down with the market but it probably has had so many people abandon it at this point if money is going to exit the market it's going to be from stocks that held up well. >> atm notion in the market. that's your notion, there is no one left to sell >> there is one fundamental problem in all of that that is one of the things strategically that the company is trying to do is divest assets when you have spin-offs those are the things you should be buying obviously if the market gets disruptive that could disrupt those sales and that fundamentally creates a potential head wind. >> for everything option os action check out our website, while you are there, check out our newsletter over 1 hub,000 of you have what are you waiting for here's what's coming up next -- >> a million dollars isn't cool.

do you know what's cool? >> testifying before angry congressional members of because that's exactly what facebook ceo mark zuckerberg will do next week we will tell you how to protect your shares. plus, calling all options action fans. is the selloff freaking you off? reach into your pocket, ta okeut your phone and tweet us your question if it's nice we will read it when "options action" returns. >> lomical >> "options action" is sponsored >> "options action" is sponsored by think >>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? o >>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. ameritrade.

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so lionel, what does 24/5 mean to you?rade well, it means i can trade after the market closes. it's true. so all... evening long. ooh, so close. yes, but also all... night through its entirety. come on, all... the time from sunset to sunrise. right. but you can trade... from, from... from darkness toight. ♪ you're not gonna say it are you? welcome back to "options action," facebook shares sitting on the verge of a bear market as ceo mark zuckerberg reasons to testify before congress next week julia boor citizen is in los angeles with more on the story. >> mark zuckerberg has a wig

week ahead as he looks to assure regulators that he has the platform under control tuesday afternoon he is testifying before the judiciary and on wednesday morning before the house committee. we can expect him to have to address rightsy concerns and get ahead of potential regulation. resetting privacy settings, redistri redistricting data that apps can collect restricting them and just today launching more steps to make sure ads on pages are legitimate and transparent expanding authorization of just political ads now facebook will require authorization for any issue-related ads. also raring any pages with tens of thousands of followers to be authenticated to be able to restrict the likes of the russian internet agency which used pages to spread fake news

facebook says it is still working out the details on what it will take to authenticate a page or authorize an ad. but mark zuckerberg writing, quote, these steps by themselves won't stop all people trying to game the system but they will make it a lot harder for anyone to do what the russians did during the 2016 election use fake accounts and pages to run ads. consumers can also expect more disclosures identifying political and issue ad with paid for information. back over to you. >> if you own facebook and you are worried about the stock how can you protect yourself dan is over at the plasma with the call to action. >> i want to talk about a caller strategy which is an overlay to a long stock position. it makes a lot of sense. we get questions about stock replacement strategies but a lo of times people don't want to sell their stock for a whole host of reasons and there are strategies uke use to protect your assets.

it is a caller why do you want to do that one of the most important reasons is you want to hedge your stock you want to define the risk to some degree. but the second reason is really important, especially in a city council like facebook right now where implied volatility the price of options has moved up considerably as the stock sold off 20% in the last monday or so you don't want to pay too much for it the most important thing when you are buying a caller versus long stock is that you basically want to have designed risk to the downside but you are willing to give up some potential upside the that let's work through facebook here a little bit and look at some of the inputs that i might consider of how to choose the strikes for this collar. here's the stock today it was trading at about 160. you see this decline that the stock has been in. it has found a bit of a home here around 160. it bounced off of 150 on a couple of occasions. i want to tart this right here this level at 170 was the gap on

this news about cambridge analytic came out. right now i have the stock at 160. i have 150 support and 170 resistance let's focus on those levels right here because the next chart is really important. this may highlight why 150 is so important, why you may want protection below that. look at this chart this is since its aye ipo in to 13 look at the line i will let carter comment on it. but 150 teams like really important long term technical support. so lastly, let's get to to kind of trade strategy options prices nearing multi-year highs that's why we want to sell a call to buy a puchlt here's the trade idea when the stock was trading at 160 you could look out to june expiration and sell 100 of the shares of the june 170 calls for 5 bucks and use the proceeds to buy one of the june 150 puts for $5 you have profits of up to $10 between the current price of 160 and up to 170.

your stock would get called away at 170 you could always buy back the call you have losses peroted below 150. the long put strike. think about the news in the stock, the potential head winds, the technical set up collars could make sense if tur nervous about facebook but you want to hold on to your long position. >> you were talking about the options premium. it's unusual to find situations where you can buy a put that is the same distance out on the money in this case 10 bucks as the call you are selling essentially you get to play within that band without spending any premium so the math on this works out nicely because this is a situation where you would think with all of the news out that those puts would be bid. and they are but the calls are, too and i do think that if there is some risk here, it is of more bad news of some follow-on effects to that news that could influence the company this come months

>> how about those lines the lines are beautiful, right an up trend is an up trend we have a ten bagger 1 thousand in 2013 almost hit 200 now this 23, 20% trau down right to a trend line. almost like the market we are down to a key level are we going to break or bounce? in the first instance we found a home which is what you said the real risk is after backing and filling that it undercuts the line with the market or the equities in general. i'm in the catch that there is more downside than there is up side. >> the most important point is i could not say to somebody you should spend $5 for that june 150 put that's ten dollars out of money this is a way to even it up. it's not costing anything out of the gate but you are giving up up side for downside protection. chip wreck.

have a question for the traders about all the volatility send us a question if it's nice we will answer it before the end of the show much more "options action" right after this. >> "options action" is sponsored >> "options action" is sponsored by think o 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- ameritrade only with td ameritrade.

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 welcome back to "options action," time to look at some of our open trades. two weeks ago dan said chips were about to dip lower. >> look at this chart right here the smh. it really looks like it's going back to that up trend that's been in place. i don't think it's going to crash but if the s&p and nasdaq go back to the prior february 9 lows this thing is going back to the mid to low 90s you could look out to may expiration you could buy the 10595 put spread.

>> since then they fell into correction territory. >> that was a ten dollar wide put spread i think the way the etf is moving you are going to get an opportunity to take this thing off as it goes down another 2 or 3% then i think you want to move out of the it because it's oversold and the risk reward is not great to hold that put spread any longer. >> if you hold that all the way down, what going to happen is you are going to be synthetically short a cheap call spread if the market rebounds sharply that's going to sting you. if you wanted to press your bearish bets you would roll out and down. >> one thing we know is it's well above the february of theth low but the market was right there. in a way it has held up better. >> he is saying i'm wrong. link i think that fundamentally though something might have shifted a little bit in the space. mike makes a great point at some point this trade is more kean a double you roll it out

ta the profits is find a different structure. >> up next your tweets and the final call from the options pit. "options action" is sponsored bs 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. think or switimate. the earnings tool from td ameritrade. ameritrade

so lionel, what does being able to trade 24/5 mean to you? well, it means i can trade after the market closes. it's true. so all... evening long. ooh, so close. yes, but also all... night through its entirety. come on, all... the time from sunset to sunrise. right. but you can trade... from, from... from darkness to light.

♪ you're not gonna say it are you? time for fom tweets. our first fan, ivan the k asks have any market significance to dan's new haircut. >> i could tell you but i would have to kill you it's buntly. he has been doing my hair since 1999 call me. >> our next twitterer asks what is ideal dealt at that to sell options, .15 or .2 this streams professor mike khouw. >> that might be on the low side as far as i'm concerned. i would say you might go out as far as 30 del tachlt we usually talk about it 15 to 30 delta that's the percentage the options price's move it is an intelligent question, the reason is because depending on the tenor and the volatility of the stock it helps you

automatically identify the correct strike 15 to 30 delta. >> perfect for mike. final call, carter >> final call, speculate on ge it's so bad, it's good. >> use call spreads for that >> dan. >> facebook, i like 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 just trying to save you some money. my job is not just to entertain but to educate and teach you so call me at 1-800-743-cnbc or tweet me @jimcramer. listen, there is no all clear signal in this market anymore. it can