hey, there, we're live at the nasdaq market site on a beautiful friday afternoon the guys getting ready behind me while they're doing that, here's what's coming up on the show >> we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex >> and according to carter worth, investors need to be on guard against a sharp pullback in industrial stocks he'll tell you what to watch for. plus -- >> a million dollars suspect co - isn't cool you know what's cool >> how about making four times your money in facebook in just four months.

that's exactly what dan option's trade on facebook can do he'll give us the details. and how would you like to make money if home depot goes up down or nowhere at all on earnings >> everybody getting this so far? >> you will once mike khouw break down his trade it's time to risk less and make more the action begins right now. >> let's get right to it, because the s&p posts its best week in two months, one sector is on a stealth winning streak check out the industrials, up for seven straight days, its longest rally since december but could the run be overdone? let's get straight to the chart master standing by carter >> that's it seven straight days in a row, back to an inherently different level. an area of the market that's down on the year, trailing the s&p by a considerable amount and let's look at the lines. the lines are already on here. that is a very precise level to which this sector has rallied several times before and in fact, we've closed to the

penny at that line i think the way to draw the lines after that would be like this the presumption is that we're going to get a little down arrow here let's put them all in red. so i'll make the bet that this second consecutive rally to a down trend line is a rally to a difficult level, where overhead supply comes into someplacplay let's draw the lines like this something of a head and shoulders top. not great. let's draw the lines like this, with the moving average. we rallied right to exactly the declining hundred-day moving average. let's do it one more time. put those lines together, there's your down trend line critical juncture, critical. trend line, moving average i'm going to make the bet it's going to fail here let's end where we started hear here is -- actually, i forgot about this chart this is what we're looking at. actually, watch this this is the sector itself, xli, and relative performance to the

s&p. and the key here is, of course, that we never could make relative highs, even as you were going up so watch if i put the lines in and what we know is that relative performance peaked right after the election and that ever since then, essentially, the sector has been going down, relative performance to the s&p now remember, adjusted for beta or risk, it's even worse. so to end where we started, let's just look at the following. i'm going to make the bet that this rally as it is is probably at a level where the next sequence is likely down, not up. >> mike, what's your trade >> so what i'm looking at doing here is selling an upside call spread, specifically the call spread i was looking at in xli was the june 76, 77 call spread. you can tell those 76 calls for 75 cents buy the 77s for 75 cents, taking a net credit of 30 cents you're getting approximately a third of the distance between the strikes in terms of premium.

that's a ratio we rather like here and some people will often ask, should i use a credit spread, a debit spread credit spread would be selling call spreads if you're making a bearish bet versus buying put spreads. and they obviously have a lot in common, but the thing about buying a call spread, as long as something doesn't have happen, you'll make money. by buying that upside call, you're limiting your risk in case you get the bet wrong if you buy a put spread on the other hand, you need something to happen. you need it to go lower and go lower through the strike you buy, by at least the premium you spent on the trade this is a higher probability bet and you know, the key thing, when you're using credit spreads like this is just make sure you balance that risk/reward, collect about a third of the distance between the strike when you sell these credit spreads and you'll be doing just fine. >> the most important point is a high probability of success. we take a look at the xli about a month ago on the show when it was about 74 1/2 and i did a long put spread at the time

and i was targeting 74 back to about 70 in a way, because i really thought it would get rejected at that downtrend so here we have that situation again. the stock went all the way down to 70. now it's back up, above my prior level. and it's a matter of conviction. when i look at carter's charts, i get pretty convicted this would be a great level to put that short back out and play for a $4, $5 move. what mike's doing, it's all a matter of sizing and probability. and it's a great trade it just depends what you're trying to achieve. >> and very few sectors really broke below their february low this was so bad, right, while we've ricocheted back above it, that's the opportunity to re-short, just as we did before. and at seven days in a row, it's a good bet >> but also just taking a look at relative performance. you take a look at the largest constituent stock of this etf, which is boeing. this is something that's basically been going, you know, dead sideways. and when you have dead money, what you want to be doing is selling some premium against it. and that's why i was taking a look at the short call spreads

>> let's move on here. you know what else has been rallying facebook the embattled social media giant is embracing all of its losses since the cambridge analytica scandal broke. the stock now just trading 4% below its all-time high. is the breakout for real dan, you've got a trade. >> here's the thing. so the stock hasn't gotten back to those prior all-time highs and we know the stock has been really volatile over the last couple of months i think there's a couple of levels we really want to look at there was a gap after they reported the their q4 earnings lower. there was a gap on the cambridge analytica news back in march and then the stock went careening down and it basically bottomed when ceo mark zuckerberg went to congress and started doing his testimony. and then there's that other gap on their earnings. so now we've kind of filled in every gap there is to fill in. and now we have to get back to the fundamentals we have to get back to sentiment. here's the thing fundamentals are great they just reported a quarter, revenues grew 42% quarter over quarter. their monthly active users or their daily active users grew 13%, year over year. they showed no signs of user

growth or engagement, decelerating from this scandal except for the fact, here's the deal, sentiment got one way, right? way out of whack for investors and sold the stock down all the way toll 1 150 here's the thing, wall street analysts never really got onboard. there's still 42 buys, two holds, and four sales. as we go into the summer, we know there are going to be some european regulations kicking in at the end of this month and we're likely to see some more -- just more chatter out of the u.s. and i'm not saying that that's going to be the thing that turns facebook, but i do think that it could keep it range bound. and then i want to target their q2 earnings, which should happen the first week of august here. and i want to play for a move back towards that 160 level, because i think there's some potential for some further bombs to come out like that cambridge analytica. this is implied volatility, the praise of options in facebook. when you see how much it spiked into this event, when the stock

was careening lower and how much it's crashed back since them, that is almost the opposite situation of what we were talking with mike in a way i'm inclined to be long premium, into a period that maybe slow, for all intents and purposes i don't know, but i want to be long options here, playing for the move so here's the strategy the stock closed at 187 today. you can look at august expirations, that's going to catch their q2 earnings in the first week of august and you could buy the august 185, 160 put spread, paying $6.50 for that your break even is down at 178.50 you can make up toll 118.50. i like the range of this trade it goes back to that gap back in last month, where i think there's really good support, and i just don't see this thing breaking out. i think it's a very different situation than what happened with apple apple had kind of a phony crisis and they already gave the news this one, who knows? >> it's a heck of a ricochet, right? back to -- close to a former high, talking about up almost

30%. and inherently, is it really going to exceed the high before at least cop the endi incontendt backing away that would be the better bet and that's the bet you're making >> and we were talking about call spread versus put spread. take a look at how this stock has moved and moved very sharply, both up and down. and that is when you want to own premium. when things are really moving. that's where you're going to make the money i really do think that a long put spread is the way to make a bearish bet in facebook, which is obviously able to move and on another catalyst like any of the ones we've seen, will likely do it again >> the principle overhead supply or supply of any kind comes after you drop sharply and recover back to the scene of the crime. people who endured those losses but didn't book them say, wow, this is my chance to get my money back, because that was unnerving. and there are people who bought on the low who have a huge gain now, up 25, 26 points. saying, i have got to book that. inherently difficult revlevel.

>> i don't think this stock has ever been cheap, as cheap as it is right now in 2008, analysts expect 24% epps growth. it's trading 24 times. 2019, 21% expected growth. for a company that's growing sales the way they are, that's really cheap when the company reported this last quarter, they didn't know -- they basically said there was going no bad effects from this cambridge analytica. on q2 earnings, if we get any deceleration, people will start questioning that valuation >> for everything options action, check out optionsaction.cnbc.com and don't forget to sign up for our newsletter you can send it to your mom for mother's day, she'll love it, really what are you waiting for here's what's coming up next >> there's no place like home. there's no place like home >> and there's no cooler trade than mike's strategy for home depot heading into earnings. he'll break it down. plus, calling all "options action" fans reach into your pocket and your

phone and tweet us your question at options action. if it's nice, we'll answer it on air when "options action" returns. >> logic 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 your insurance on time. tap one little bumper, and up go your rates. what good is having insurance if you get punished for using it? news flash: nobody's perfect. for drivers with accident forgiveness, liberty mutual won't raise your rates due to your first accident. switch and you could save $782

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simply say, "vote for the voice" or your favorite artist's name into your x1 voice remote. come on! 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." earnings season may be winding down, but we still have three big dow names gearing up to report next week

.c dom chu is breaking it down. >> home depot will report its results on tuesday, ahead of the open cisco systems will be on wednesday after the close. and then there's walmart, which is going to be before the open on thursday. while cisco shares are near a multi-year highs and have been trending positively as of late, the same can't really be said for the other two. now, to a lesser degree, you've got a nucleearer-term uptrend fr home depot it's still below its record high for january, and home depot was one of the beneficiaries of the rally in the stock market since president trump's election then you've got walmart, with some serious work to do. it's a negative trend, since its own record high from january, and it's been down pretty much ever since, shedding a quarter of its value might that possibly mean more volatility around earnings so right now, the options market is pricing in a 5% move up or down for walmart stock, about a

3% move up or down for home depot for earnings, and the options market is pricing in a 5% move up or down for cisco so together, the combined implied theoretical market cap move of all of these three dow stocks is around just $29 billion or so. of those three dow components, a big focus will be on the two retailers, though, for sure. back over to you guys. >> thanks, guys. dom mentioned that home depot was down but professor khouw will tell us how to make money. >> the reason we're looking at a call spread, number one, is we want to take advantage of that and look to sell that expensive near-term option premium and we want to take advantage of the fact that the longer-dated options are probably not as evaluated. as it turns out, the may options are trading at about a 30%

implied volatility and longer dated options are at about 20 implied volatility and the other thing we want to do, selling options, buying those longer dated ones limits our risk if we take a quick look at home depot stock, probably looking at a 3% move in either direction off earnings it's interesting, we don't usually get really big moves, so i think we're going to try to make a play it will stay somewhere within that range. the trade we're specifically taking a look at is the may/september 190 call spread. so we're going to sell the may 190 calls, collect $3.40, buy the septembers for $9.55, and really the idea is that we're expecting the stock to be at least in the near-term, relatively rangebound coming out of earnings. but this is a company i really like i think i definitely favor them over lowe's corporation. so longer term, we might be bullish.

and we're improving our odds of success significantly when we sell that short-dated option number one, if the stock just stays put, we'll profit as that decays more rapidly than the one we know. secondly, because we reduce the cost of that long-dated call, it doesn't have to rise as high for us to profit so 82% chance that you can get to 195 versus only a 65% chance of getting to 200. the idea here is that we have a way to make money in the short-term, but we also improve our odds of profits longer term as well. >> what do you think of this trade, mike's trade? >> o so i have to go back ten quarters where this stock after earnings mutual fund more thove% so there's a good probability of success that you're going to make a little money. i like the fact that he's selling the weeklies let's say this stock is up or down 2% after earnings, he's going to be able to say, okay, you know what, i want to stay long that september. maybe i want to turn it into another calendar, a diagonal, a

vertical, whatever the heck it is to me, i think this is a great opportunity to take advantage of the potential -- the high probability of range-bound trade. >> this is a marquise name and as opposed to certain other marquise names that have struggled or are clearly out of the woods, this is in the middle and trying to come back. it acts so much better than so many other housing-related stocks, that i think people treat this as a safe haven, who want to be exposed to that area of the market. >> you know, what's interesting, too, the space in general has been doing really well in a previous earnings season, one of the things i did is i was long home depot and short lowe's as a pair. i probably should have been long both home depot is definitely the better operator of the two but it's clear that both are facing a pretty good tailwind here >> are we in a market where this stock could beat up? >> sure, we've seen a lot of gapping. and you always get there with earnings, it just shows how hard it is to predict earnings.

but if there is going to be a gap, i think it would be up. >> mike, last word >> i think this is the way to play it. i'm not expecting a big name to the upside, but i want to be long the name, longer term >> mike made a bullish bet on nvidia, made nothing on the trade, but now it's worth seven bucks. send us a tweet and we might read it later in the show. much more "options action" still ahead. 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?

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holiday inn express, does it look like i'm done?yet? shouldn't you be at work? [ mockingly ] "shouldn't you be at work?" todd. hold on. [ engine revs ] arcade game: fist pump! your real bike's all fixed. man, you guys are good! well, we are the number-one motorcycle insurer in the country. -wait. you have a real motorcycle? and real insurance, with 24-hour customer support. arcade game: wipeout! oh! well... i retire as champion. game hog! champion. (indistthat was awful.tering) 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. welcome back the "options action." time to take a look back at some of our open trades last week, dan said disney was gearing up for a breakout on earnings >> here's the trade specifically, targeting earnings next week, and really, i'm playing for a move up to about 105. when the stock was trading about 101, you could sell the may two weeks from now expiration 105 call at 80 cents and you could use that 80 cents to help buy the september 100 call, okay, for 580. >> well, it was a shaky week for the stock, but it's still up since the time of the trade, so what are you doing with disney now? >> this is a pretty good scenario

it would be better if the stock was at 105, but i would have to wait until next week's expiration here is the deal the may 105 call was sold at 80 cents. it's picked up some deltas there. you have an opportunity where you could cover that may for 20 cents and look out to june and do this again and sell the june 105 call at $1.20. you're going to take in another $1 you'll further reduce the price of that long-dated september 100 in the money call now. i would keep chipping away at that, and over the next month, if it moves to 105, we move to turn it into a vertical in september. >> this is where you had to use options. it's a dormant stock this is a stock that stuck between 98 and 100 for six, seven weeks. sometimes stocks belong where they are they're fairly priced. i think disney is one of those it sits here, it belongs here. >> also last week, mike bet nvidia would rip higher off its earnings report. >> we were looking at a move up

or down of about 7%. the other thing you'll notice, there's probably some level of support here, resistance there i was looking at selling the the $2.20 may put and then selling the 257 for 250. >> concerns about a slowdown in cryptomoney taking the stock down today but it is up more than 9% since time of the trade. so mike spent nothing on this trade and it's now worth seven bucks. what do you do now >> yeah, anyone who's following us on twitter already knows what we're going to do, because what we're advising is that you roll tlad o a trade out and up this thing pretty much hit all of our numbers perfectly in fact, out actually hit above that 257.50 strike right before earnings that was actually the time we recommended adjusting the trade. >> as inflection points go, a breakout is what it is this broke out to a new high, hit 260, backed away today, but

this is a very contradistructiv setup. not a rangebound stuck stock, it's acting better the semiconductor index and the presumption is you want to stay long >> this stock over the last two years had massive gaps on earnings, so the fact it's down 2%, it's a rounding error for pall intent and purposes, did that change your view of the breakout >> sometimes you have head fakes or breakouts that trap people. could that be this sure but the fact that it's so robust, relative to other semis, i think the bias is still, or the benefit is given >> this is a stock that's up 12.5% in two weeks going into earnings it's only fallen off a very little bit it's basically, as if the market started to anticipate what they were going to say and it seems to have digested it just fine. i think the story is still pretty good here >> all right up next, tweets and the final call 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 ♪ with expedia you could book a flight, hotel, car and activity all in one place. ♪ at crowne plaza, we know business travel isn't just business. there's this. a bit of this. why not? your hotel should make it easy to do all the things you do. which is what we do. crowne plaza. we're all business, mostly.

crowne plaza. 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 take your tweet. our first tweet is from jerry who asks, how do you figure out the probability of success for a trade? professor, what do you say actually, these days, a lot of brokage platforms will actually offer you these statistics and that could be a really big help if you have access to it if you don't, one of the things you can do is take a look at the delta of an option, and that gives you a back of the napkin way of figuring out what the probability is that that option is going to end up in the money on its expiration date that would be a good place to get started. >> delta is the rate of change in the price of an option for a given move in the underliunderlr >> so in his element when he explains it. >> i love this stuff time for the final call. carter >> i want to make the bet the industrials have gone too far, selling xli. >> mike khouw?

>> sell call spreads and happy mother's day to my lovely wife, holly. >> dan nathan? >> i'll one up you, my wife and my mom, happy mother's day there, big guy but listen, facebook, i think options are setting up pretty interesting complacency by the august call spreads. >> our time has expired. "mad money" is up next happy mother's day the following is a sponsored program paid for by my pillow do you find yourself sleeping too hot or too cold, not getting the support you need to help relieve painful pressure points or struggling just to get comfortable? then get ready for a revolutionary, new sleep experience. introducing the my pillow mattress topper, the next generation in sleep innovation from the company that brought you the world's most comfortable pillow. [applause]