live at the nasdaq markets 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 the sharp pullback in industrial stocks. he'll tell you what to watch for. plus. >> million dollars isn't cool. you know what's cool >> how about making four times your money in facebook in just three months because that's exactly what dan

nathans options trade 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 ko breaks down his trade. it's time to risk less and make more. the action begins right now. as the s&p posts its best week in two months. one check out the industrials up for seven straight days. it's longest rally since december but could the run be overdone let's get straight to the chart master. >> seven straight days in a row, an area of the makt 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's a very precise level to which this sector is rallied several times before. we closed to the penny at that

line. i think the way to draw the lines after that would be like this. the presumption is we'll get a little down arrow here. let's put them all in red. this is a rally to a difficult level where supply comes into play of the 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 the declining average. let's do it one more time. put those lines together. there's your down trend on 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. here is -- well, i forgot about this chart. this is actually worth looking at. this is important. watch this. this is the seconder itself xli and relative performance to the

s&p. the key here is that we never could make relative highs even as you were going up. watch if i put the lines in, and what we know is that relative performance peaked right after the election and then ever since then the sectors been going out, relative performance to the s&p -- now remember adjusted for risk, it's even worse. to end where we started, let's just look at the following. i'm going to make the bet that this rally, impressive as it is, is probably at a level where the next sequence is likely down not up. >> mike, what's your trade >> what i'm looking at doing here is selling an upside call spread specifically the call spread i was looking in xli was the june 77 call spread. buy the 77s for 45 cents. take a net credit of 30 cents. you're getting a 30 of the distance between the strikes in terms of premium that's a ratio

that we like here. some people will often ask, should i use a credit spread or debit spread credit spread would be selling call spread versus buying put spreads. the thing is belg a call spread is as long as something doesn't happen you'll make money. if it goes sideways or lower, you'll collect that premium and by buying an upside call you're limiting your risk in case you get the bet wrong. if you buy a put spread, you need something to happen. you need it to go lower through the strike you buy by at least the premium you spent on the trade. this is a higher probabliability bet. when you're using credit spreads like this just make sure you balance that risk/reward, collect about a third of the distance between the strikes and i think you'll do just fine. >> the most important point is high probability of success here. we took at xli about a month ago when it was 74.5. 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 down trend. here we have the 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, you get pretty convicted this would be a great level to put that short back out and play for a $4 or $5 move. it's all about sizing and probability. it's a great trend. >> very few sectors really broke below their february low. this was so bad right now we've ricochetted back above it. that's the opportunity to reshort just as we did before. and at seven days in a row, it's a good bet. >> just also taking a look at relative performance. you take a look at the largest constituent stock of this etf which is boeing and this is something that's been going dead sideways and when you have dead money, which you want to be doing is selling some premium against it and that's why i was

taking a look at the short call spread. you know what else has been rally, facebook. praising all of losses since the cambridge analytica broke. the stock now trading just 4% below it's all-time high. it the breakout for real. >> the stock hasn't got be back to those prior all-time highs. we know the stock has been volatile over the last couple months. we have a one year chart here and there's a couple levels we want to look at. there was a gap after they reported their q4 earnings lower, there was a gap on the cambridge analytica back in march and the stock when careening down and it basically bottomed when ceo mark zuckerberg went to congress and started doing his testimony. now we've filled in every gap there is to fill in and now we have to get back to the fundamentals, back to sentiment. fundamentals are great. they just reported a quarter. revenues grew 42% quarter over quarter. their daily active users grew 13% year over year of the they

show no signs of user growth or engagement decelerating from this scandal, except for the fact, sentiment got one way, right? way out of whack for investors and they sold the stock down all the way to 150. wall street analysts never got on board. there's 42 buys, two holds and two sells. here's the thing i'm thinking about, we know there's some european regulations kicking in at the end of this and we're likely to see more chatter out of the u.s i'm not saying that that's going to be the thing that turns facebook but i do think it could keep it range bound and i want to target their q2 earnings which should happen the first week of august here. i want to play for a move back to that 160 level because i think there's potential for some further tick bombs to come out like that cambridge analytica. this is important. when you see how much it spiked into this event and how much

it's crashed back since then, that is almost the opposite situation we were talking about with mike in a way. i'm inclined to be long premium into a period that may be slow. i want to be long options here playing for the move. here's the strategy, the stock closed at 187 today. you can look at august separation. that's going to catch the q2 earnings and you can buy the august 18, 5160 put spread paying $6.50 for that. you could make up to 18.50. i like the range of this trade. it goes back to that cap. i think there's really good support. i don't see this thing breaking out. it's a very different situation than what happened with apple. apple had a phony crisis and they already gave the news. >> it's a heck of a ricochet. back to a close to a formal high, up almost 30% and

inherently is it going to exceed the high at least before contending with it that would be the better bet and that's the bet you're making. >> the other thing we were talking about just a second ago was call spread versus put spread. take a look how this stock has moved very sharply both up and down. and that's when you want to own premium. you 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 do it again. >> the principal overhead supply comes from -- after you drop sharply and recover back to the scene of the crime, but people who endured those losses but didn't book them say this is my chance to get my money back because they thought it was unnerving. i got to book that. you get supply from blow and above. difficult level. >> one last thing. i don't think this stock has ever been cheap -- as cheap as

it is right now. on 2018, analysts express 24rs growth. 2019, 20% expected growth trading 20 times 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 to be no bad effect from this cambridge analytica on q2 earnings. if we get any deceleration people will question that valuation. for everything options action check out our website. don't forget to sign up for our newsletter. you can send it to your mom for mother's day she'll love it. so 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 pass. reach into your pocket and your phone and tweet us your

questions @optionsaction. if its nice we'll answer it on air when options action returns. 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? 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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that's a good one. [ chuckles ] download the xfinity my account app and set a password you can easily remember. one more way comcast is working to fit into your life, not the other way around. (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 to "options action." earnings season may be winding down but we have three big dow names gearing up to report. dom chu is breaking it down.

>> reporter: the sun's getting low and the shadows are getting long when we talk about earnings reports for the like of home depot and cisco. there's walmart before the open on thursday. while cisco shares are near multiyear highs and 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 nearer term uptrend for home depot, but still now 8% below its record high from the end of january, and home depot, of course, one of the big beneficiaries of the rally in the stock market since president trump's election then you've got walmart. with 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 upward or down for cisco. together the combined implied theoretic's market cap move, all three dow stocks is around just $29 billion or so. of those three dow components, a big focus is on the two retailers though, for sure back to you guys. >> thanks, dom dom chu in the newsroom. dom mentioned home depot down 8% from its recent high and a way to make money if the stock goes up down or nowhere at all. is it magic? no it's options mike breaks it down with the call to action. mike >> earnings coming up. when we have catalyst-like earnings, elevates premiums. looking at call spread, one, take advantage of that and look to sell that expensive near-term option premium, and we want to take advantage of the fact the longer dated options probably aren't at elevated turns out, may options trading at 30% implied volatility and

longer data options are 20 rs implied volatility. selling options find the longer dated ones limits our risk a quick look at home depot stock. pointed out, a little over a 3% move in either direction off earnings it's interesting we don't usually get really big moves much more than that. we'll try to make a play staying somewhere within that range, and the trade specifically we're looking at is the may-september 190 call spread. going to sell the may 190 calls, collect $3.45. buy the september for $9.55, net debit of $6.10 and really the idea is, we're expecting the stock to be at least in the near-term relatively range bound coming out of earnings this is a company i really like. definitely favor them over lowes corporation. a situation where longer term we might be bullish then an important point to make here we're improving our odds of

success significantly selling that shorter dated option. one, because if a stock stays put we profit. as it decays more rapidly than the one we own secondly, reduced the cost of that long-dated call doesn't have to rise as high to profit remember, it was going to cost over $9. 82% chance you get to 195. the idea is we have a way to make money in the short-term but also improve our odds of profits longer term as well. >> what do you think of this trade? >> i have to go back ten quarters where this stock after earnings, moved more than 3% the implied move now you look at mike's probabilities. a good probability of success you'll make a little money i like the fact he's selling the weekly that's what the may's are. and give him optionality say the stock is up or down 2% after earnings he's going to be able to say, okay i want to stay long that september, maybe want to turn it into another calendar, diagonal, vertical, whatever it is

to me, a great opportunity to take advantage of the high probability of a range boundery. >> and this is in the middle trying to come back. i think it's the benefit on the long side. it acts so much better than so many other housing-related stocks but i think people treat it as a safe haven who want to be exposed to that area of the market. >> interesting, too, the space in general doing well. in a previous earnings season one of the things i did long home depot and short lowe's as a pair. i should have been long both. home depot is the better operator of the two but clear both face a good tailwind. >> are we in a market when this stock to gap up? >> sure. seen a lot of gapping. always get that. shows how hard to predict earnings if there's going to be a gap, i would think it would be up. >> all right

>> mike, last word >> and this is the way to play it i'm not expecting a big move to the up side but want to be long and longer term. coming up, mike made a bullish bet on nvidia last week. he's made nothing on the trade. now it's worth 7 bucks. how did he do it plus a question for one of the traders who sent a tweet if you're lucky, we'll read it later in the show. live in new york's times square. much more "options action" still ahead. 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

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be the readiest. 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. well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings

estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back to "options action." time to look back at open trades last week dan said disney was gearing up for a breakout on earnings. >> here's the trade specifically targeting earnings next week really, playing for a move up to about 105. when the stock was traded about 101 you could sell the may, two weeks from now, expiration 105 call add 80 cents and use that 80 cents to help buy the september 100 call, okay for 580. >> well, it was a shaky week for the stock but still less since the time of the trade. what are you doing with disney now? >> a pretty good scenario.

it would be better if the stock was at 105. i would still have to wait for the next week's explanation. the call i sold at 80 cents offered at 20 cents. the september, longer dated call has appreciated because the stock is up about $1 picked up deltas you have an opportunity where you could cover that may for 20 cents and you could look out to june and do this again and sell the june 105 call at $1.20. you'll take in another dollar. you'll further reduce the price of that long dated september 100 in the money call now. so i would keep chipping away at that and over the next month, if it mows to 105. then we look to turn it into the a vertical. i like setting up long for this one. >> a stock stuck between 98 and 100 for six, seven weeks straight sometimes stocks belong where they are they're fairly priced. disney's one of those. sits here, belongs here. also last week mike bet nvidia would rip higher off its earnings report. >> looking at a move up or down of about 7%.

the other thing you'll notice, probably some level of support here, resistant there. i was looking at selling the 220 may put for $4 buying it close to at the money. two 45 calls and selling for $250, 7.5 calls. and concern about a slow down in crypto mining are up more than 9% since the time of the trade. what do you do know? >> anybody following us on twitter. you will we update trades, already knows what we're going to do we're advising you roll this trade out and up this is pretty much hit all of our numbers perfectly. in fact, actually hit above the 257.5 strike right before earnings actually the time we recommended adjusting your trade. >> as inflection points go, a breakout is what it is this broke out to a new high at 260, backed away today, but a very constructive setup.

not a range-bound stock. a stock acting better than the semiconductor index and you want to stay long. >> this stock had massive gaps on earnings. the fact that it had this run in with earns. does that change your view of the breakout because it didn't do -- >> that's right. sometimes you have head fakes or breakouts that trap people they're bull traps and they fall back. could that be this sure. the fact that it's so robust relative to other semis i think the bias is still or the benefit of the doubt 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 as if the market started to anticipate what they were going to say and it seems to digested it just fine. i think the story is pretty good here. >> all right of the. up next, tweets and the final call. 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? 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. (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 to "options action." first tweet is from jerry. how do you figure out the probability of success for a trade? what do you say? >> a lot of brokers' platforms actually offer you statistics. those could be a big help if you have access. if you don't, one of the things you can do, look at the delta of an option giving you a back of the napkin way to figure out the probability that that option is going to end up in the money on its expiration date. a good place to get started. >> what is delta for the novices out there? price of range, a 30 delta, 30% rate of change in the price of the option relative to the underlying stock. >> so in he's element when he's explaining it. >> loves it. >> i love this stuff. >> time for the final call. >> i want to make the bet industrials, gone too far selling xli. >> mike khouw?

>> sell call spreads and happy mother's day to my lovely wife, holly. >> my wife and my mom happy mother's day, there big guy. facebook, you think options are setting up pretty interesting complacency by august. our time has expired. "mad money" is up next. happy mother's day. (upbeat music) - [speaker] the following is a paid advertisement for the worx hydroshot featuring long time worx expert and seasoned do-it-yourself-er, paul ganus. the worx hydroshot. the world's first portable power cleaner that lets you clean anytime, anywhere. fueled by a 20 volt max lithium battery, it's self-contained and pressurizes any fresh water source. just grab and go to clean anywhere and everywhere, leaving dirt an grime where it belongs. you can even use your normal hose and boost its pressure up to 10 times. don't let messes build up. quickly and easily maintain your outside spaces and gear all year with the worx hydroshot.