. >> we've been hustling since we were in diapers. we're italian. this is way we are >> there's drama and success. >> staten island hustle, series premiere wednesday at 10:00. >> welcome to "options action" on what was another day for the markets, the dow sinking 572 points sitting in correction territory down more than 10% from the highs the s&p and nasdaq falling about 2% right here. all sectors were in the red today, seven of those in a correction including financials kicking off earning 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 >> this is an important sector this is one of the first sectors to report every earnings season. there's been a lot of buttishness on this heading i 2. jpmorgan still up on the year. down 10% from the highs. citigroup down almost 8% that was one that people were excited about on valuation and the potential for capital return you just mentioned three of the biggest holdings, about 25% of the report next friday you look at xlf puts to hedge existing holdings or a cheap way to play volatility in a market that is back there's a specific data or anything that's going to drive this market lower, i expect in the next leg lower, banks to outperform that move. >> volatility tends to be reflexive. as it picks up, you tend to get

more of it immediately afterwards tim in the earlier show mentioned it which is that 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 further volatility my count ker point might be that some stocks like wells fargo, there was so much bad news in there already unlike two others that you just mentioned, i was thinking i might start to bottom here. >> dan, what's your trade. >> i'll let carter talk to the chart. 27 in the xlf seems to be important near term technical support. i want to look to apexiration. this could be used as a hence against bank holdings. you could buy april 27 put paying 2% of the underlying etf price. it breaks even at 26.45. you have profits below that. if you think about the earnings next week and more the following

week, you have a two-week trade here where i think you'll be able to wiggle out of this one, have a free look on the earnings next week. i like the risk/reward. >> financials are the second most important in terms of it weight for the of market and life blood after the system. the things we know about financials as a group, they broke below their february 9th lows that's not the case for the market or a lot of the sectors there's been more pressure already. the presumption is it's going to break past the february. that's what your trade is. it's as simple as that. >> certainly i like the structure of the trade one of the things that you definitely want to be as an owner of options in circumstance like this. very often what will happen, we talk about the price of options sell when it's high and buy when it's low when the market gets very volatile, sometimes options are underpriced. in the short term you often see that. >> this is a really important

sector from a sentiment standpoint expectations are high these companies will print good numbers. if you think about jamie dimon's letter yesterday, you should expect cautious commentary about some of the stuff going on here, specific comments about immigration. the trade stuff will be important. if this group reports good numbers and can't rally, then that may spell something worse for the broader market because what carter just said, and the relative underperformance to the broad market is concerning > do you think on a sentiment basis there's valid to that in terms of how they perform based on what they perform will taint hugh they strew overall. >> we should look at the market as a microcosm if you think about project finance or commercial loan growth, we often talk about net interest margins you have to make loans and have people come. with capital and fun people are concerned the outlook is uncertain, they're not going to

do that. that will impact banks. >> another sector that got slaughtered, the industrials down dom has the details. >> dan nangt mentioned the idea there's an important sector in financials for sentiment. another important sentiment indicator about what the market's been doing has been those industrial stocks. like you pointed out, they've gotten beaten up pretty badly today and one of those sentiment indicators for what's going on with regard to the progress or lack thereof in terms it of trade talks specifically with china. we look a look at some off the industrial companies can out there you have have the most exposure to china in terms of their business overall according to data from mscky, they're names that you know, deere, 8% revenue exposure to china, caterpillar 9%, boeing 11%, 3m 13%, borg warner also 13% exposure, as well. if you look at some of the charts of some of those stocks,

you see either market perform or underperform action in those names. many times it's because they're used as gauges of that trade deal or lack thereof with china. one other one to focus on is general electric this is a stock obviously that has had its own issues outside of chinese trade stocks. the stock is hovering near a -- a multiyear low. it's also a stock that gets about 8% of revenues from china. so its own secular issues and company specific wants to deal with as well as some of the ones with china and you have general electric shares taking a bigger than average hit today, as well. industrials overall certainly a huge point of contention and interest for traders in this marketplace specifically as an indicator for china and perhaps others back over to you guys. >> you have a great weekend. dom mentioned ge, the worst performing industrial name in 2018, down 25% more than 56% over the last year

shedding some $145 billion in market cap over that ime the chart masser says the bottom could be carter >> this is outright speculation. and speculation if you think about it is, it's forming a theory without firm evidence either this is just that, going to be all haywire or quite clever let's figure it out. this is back to the peak in '99. and what we know is after these count ker trend rallies, you have this plunge that breaks down through the thing a counter rally from are the the lows of '09 till '07 and then we have this plunge i want to use this construct and pull it back longer term here is going back to the 1990s. one of the great winners of all time peaks with the mark and the dotcom era and you have two counter trend moves and 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 stakt same level at the '09 low. and the stock over the last two weeks is hold who up a little bit better than the market let me show it to you on a short-term basis we might at this point, even if it goes zero or one, that the lower path through a higher price or maybe an enduring bottom sets in on the short term chart, here's what's interesting it's copied lower over the last several weeks and months the actual internals have moved higher i think i want to take a gamble that this very important now less important stock is maybe so bad it's good. >> very bode call, carter. do you agree with carter >> it's interesting, so bad it's good this was a company masterful at managing if earnings forever look what happened over course of recent years. they've missed they've had real big

disappointments. things are worse than we thought. rather than being able to reach into closets over a huge enterprise and bring out little bags of money, skeletons are coming out that's the risk. they have been pretty forth coming in the most recent case how disappointing some of that has been maybe a positive surprise could be on the opposite side. i wouldn't reach out and buy the stock. options are a way to play this i was looking at the june 14-'15 call spread you could buy earlier today. you're spending one quarter of the distance between the strikes and essentially making a three to one bet it's interesting you don't need to look at the market to see how volatile things have been ge has been volatile and made these moves in short periods of time that's the way you want to make yourbullish bet. it could go to the 15 strike or beyond it pretty easily in that

time frame. >> the profess per normally would be hesitant top of suggest a trade idea where p with a 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, you're going to have a move at least above the break even level. when you think about the trade, a three to one risk/reward on something so out of favor and so down and out looks like a good bet especially because you have 21/2 months. >> a huge amount of leverage on this balance she the $200 billion worth of debt if you think about the value of the enterprise swinging around by 3 or 4%, that will swing the equity by a multiple of that that's how we see that options could pay for the leverage. >> if you see weakness for the markets ahead, is ge certainly going to fall? >> that's right. whether you own it now or speculate and take a chance, i suspect ge will go down with the

market but it probe has -- so many people abandoned it at this point, if money's going to exit the market, it will be from stocks that held up well because i've got to the keep my gains. >> atm notion in the market. that's your hope, as well? there's no one left to sell. >> there is one fundamental problem in all of that one of the things strategically that the company is doing is trying to divest assets. when you have those spinoffs can, those are the things you should be buying if the market gets disruptive, that creates a potential headwind in all this volatility. >> check out "options action".cnbc.com check out our newsletter what are you waiting for. >> reporter: here's what's coming up next. >> a million dollars isn't cool. you know what's cool >> testifying before angry kong greggs of members. that's what mark zuckerberg lrg do next week we'll tell you how to protect

your shares. plus, calling all "options action"s fans. is the sell yoef freak you out pick up your phone, tweet us your question. if it's nice, we'll read it when "options action" returns. >> logical 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.

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testify before congress next week julia boar sin has more on the story. >> mark zuckerberg has a big week ahead as he looks to assure regulators that he has the platform under control tuesday afternoon he is testifying before the judiciary and commerce committees joint hearing and wednesday morning the house committee on energy and commerce hearing we can expect him to address privacy concerns and get ahead of potential regulation including resetting privacy settings redistricting data that apps can collect restricting them and just today launching more steps to insure ads and pages are legitimate and transparent expanding it beyond authorization of just political ads, facebook will require authorization for the purchase of any issue related ads, those about hotly debated topics of national importance, also prioring any pages, to be

authenticated to be able to restrict of pages which 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 ads with paid for information melissa, back over to you. >> julia boar sin in los angeles. >> if you own facebook and you are worried about the stock how can you protect yourself dan is over at the plaza with the call to action >> i want to talk about a collar strategy which is an overlay to a long stock position. it makes a lot of sense. we goat a lot of questions about stock replacement strategies, how do i replace an economic interest a lot of people don't want it on the sell their stock for a whole

host of reasons. let's talk about collar and what that is. you keep your stock position in place. why do you want to do that you want to hedge your stock and define the risk to some degree the second reason is important especially in a stock like facebook right now where implied volatility the price of options moved up considerably as the stock sold off 20% over the last month. but the most important thing when you're buying a collar versus long stock can that you basically want to have some defined rick to the downside but willing to give up some potential upside to do that. let's work through facebook here a little bit and look at some of the inputs i might consider of how to choose the strikes for this collar. the stock was trading today about $1.60. the stock has found a little bit of a home here around 1.60 it bounced off of 1.50 a couple

of occasions i want to target this level at 1 $.70 was the gap when the news about cambridge analytica came out. i have 1.70 resistance let's focus on those levels right here because the next chart is important. this may highlight why $1.50 is so important, why you may want protection below that. look at this chart since its ipo in 2013. look at this line. i'll let cart ker comment. 1.50 seems important long-term technical support. lastly, let's get to this kind of trade strategy options prices nearing multiyear highs. that's why we want to sell a call to buy a put. when the stock was trading at 160, you could sell one against 100 shares one of the june 170 calls at 5 bucks and use the proceeds to buy one of the june

150 puts for $5. here's what you do profits up to $10 between the current price of 160 up to 170 your stock would get called away at 170. you can buy back the long call losses down to 150 but you're protected below again think about the news in the stock. think of all the potential headwinds and the technical setup. collars could make sense if you're nervous about facebook but want to hold on to your long stock position. >> when you look at collars, you were talking about the options premium. it's often unusual tosh find situations where you can buy a put that is the same distance out of the money in this case ten bucks as the call you're selling you get to play within that band without spending any premium oftentimes you have to sell a lower strike call tighter to the money. so the math on this one works out really nicely because this is a situation where you would think with all the news out that those puts would be bid and they are, buttal calls are, too i do think that if there is some

risk here, it is of more bad news or follow-on effects to that news that is could influence the company in the coming months. >> how about those lines the lines are beautiful, right an uptrend is an uptrend we have a ten bagger it was $20 in 2013, almost hit 200. now this 23, 24% draw down right to a trend line almost like the market we're down to a key level are we going to break or bounce in the first instance we found a home but the real risk is after backing in feeling that it undercuts the line with the market or equities in general. i'm in the camp that probably there's more downside than there is upside. >> and the most important point is like i could not say to somebody you just spend 150 that's $10 out of the money. this is a way to even it up. it's not costing you anything out of the gate. you're giving up some potential down side for potential downside

protection. >> still ahead chip wrecks down more than 13% from their highs last month how much worse can it get? plus, got a question about all the crazy volatility accepted a tweet to aps "options action." if it's nice, one of the traders might answer it later in the show don't move much more "options action" right after this (indistinguishable muttering) 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! mad skills. education to take your trading to the next level. only with td ameritrade. moderate to severe rheumatoid arthritis was intense. my mom's pain from i wondered if she could do the stuff

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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 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 may 105, 95 put spread >> since then the smh has fallen more noor correction territory >> that was a ten dollar wide put spread it's below the midpoint of it. the way this etf is moving,

you're 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's going to happen is you're going to be short a vet cheap call spread. if the market rebounds sharply in that case, that's going to sting you. you would roll out and down. >> it's a beta trade it's well above its february 9th low. in a way it's held up better >> he's saying i'm wrong. >> i know. >> i'm just kidding. listen, i think that fundamentally though something might have shifted a little bit in the space one of the reasons mike makes a great point. at some point this trade is more than a double. you take the profits and find a different structure. >> up next your tweets and the 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.

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 to light. ♪ you're not gonna say it are you?

time for some tweets our first fan, ivan the k asks is there any market signatures to dan's new haircut. >> listen, i can tell you but i'd have to kill you it's bentley doing my hair since 1999 call me, i'll give you his deets. >> our next twitterer asks what is the ideal delta 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 delta. we usually talk about it 15 to 30 delta that's the percentage the options price's move this is an intelligent question. the reason is because depending on the tenor and the volatility of the stock, thaks actually helps you automatically identify the correct strike so 30 to 20 delta would probably be the area. >> 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 collars. against long stock right now >> our time has expired. >> i am melissa lee for "options action." check out optionsaction.com. "mad money" is next. >> this is a paid program brought to you by the international fellowship of christians and jews, presenting the plight facing god's chosen people today so that you can be a blessing to them through your prayers and christian love. >> and it was right here in those ravines jews would be brought. they were walked for kilometers. ♪ comfort my people... >> each of them went through unbearable darkness. ♪ comfort my people...