hi there we're live at the nasdaq marketsite and look who decided to stick around for the big o.a. hi, guy. guy is here and we're getting ready behind me. here's what's happening coming up on the show >> and i can't deny the fact that you like me >> and there's no denying the fact that investors love netflix, but there's something in the charts that might have you hitting the pause button going into earnings. we will explain. plus -- >> we think the likelihood of this thing being reversed and overturned is really remote.

>> so is that why so many options traders were buying so many calls today we'll tell you where they see the stock going, and what happens when an options legend teams up with cable royalty to formulate one trade? tv history it's time to risk less and make more the action begins right now. >> let's get to it because earnings season kicks into high gear with the first of the bank stocks reporting on monday you're talking, of course, about netflix and despite a 4% sell-off today shares have been absolutely glowing this year and see what we did there shares are up more than 100% in 2018 and this is the stock that tends to move big on earnings and should today's price action be worried ahead of monday's report what are you looking at? >> it depends on this stock and others of this type and it is the growth names that are unto themselves until they're not and

red hat a week or so ago >> 2008 to 2018 and one way you can draw the lines would be as follows. >> we have been in this well-defined wedge and just this year, we've broken out through the top of that and that is a bullish thing and then at the same time often after doing that, you check back towards the top of the breakout juncture so if i were to zero in on this phase, here we go. not the past ten years and just the past two years and this part right here, first, look at the trend line of the past two years. it's very well defined and as we know we have bounced off the line, bounced, bounced and what we know is where the angle was 45 degrees, 45 degrees, 45 degrees. let's zero in on this part right here and so now keep the trend line in and this part right here where it's actually gone, at issue now whether we're at risk

of breaking that very steep, intermediate downtrend line. that's my hunch. >> this has downside risk and it's dodgy there yes, that's some news or a downgrade, but the earnings will have to be just that perfect. >> perfect >> how am i getting roped in to trying to short one of these stocks there might be a way that we can do this without risking a whole lot because what's interesting about netflix is if you go back to july of 2007, this is a stock that a month after they report earnings has been up 66% of the time, up an average of about 11% when it is higher and the rarer cases where it's moved higher, the average is 10% and what i'm looking at is going back to august and i'm looking at the august 395, 370, 350 it's an asymmetric put butterfly and i would sell two of the 370s at $two a piece and buy one 350 for $7 and net-net i'm spending $200, i'm making more money if it runs to 370

it's asymmetric and it's actually not going to lose money if it drops below that lower strike we're basically targeting a downside move to about 370 over the course of the next 30 days or so, and you know, you're only risking five bucks on a $400 stock i would not short this thing, though, given that parabolic move that would be painful. >> we have time on this one. >> this is what i did here i put on my options actions jacket and not withstanding, you and i started the day together at 6:00 a.m. and ending it here now. isn't that -- see -- anyway, netflix. if cpw is right, it might take six or so hours on monday when they report and it was before the bell or after the bell i forget

with that said i've been bullish on netflix and the sell-off over the next day and a half and i can't explain why and a lot of it has to do with the news we heard last night about at&t and time warner. maybe there's some crazy arm and maybe people got long the name and maybe they don't think they're there now. i'll tell you this, it is right over the last five years and i think the quarter will be fine, but maybe too much is priced in. if you do get it down to 370 and hold the trend line it's a screaming buy. >> that's right. >> if we were to go to the major trend line that comes in at 320 and this is a $400 stock that's a huge sell-off and that would have to be the unwinding to some extent of large-cap tech what we do know is this stock has had 30% and 40% drawdowns along the way over the past five years, they've had two of them and is anything perfect forever? that's the risk. >> 98% of all capital, and if you are long only, this is something you might write calls again or trend something like this and that's

the point of the show, but do you blindly stay long believing and the long-term strategy and that's what this is about. >> that's a good point why if you were long the stock, one of the reasons you might not do that is because going into earnings options, premiums are much lower than they have been historically given that hockey stick move is the play in that case to essentially say okay, i think that will make the move and now it will tread water or do we think there's some risk other than the news has been good and it continues the move it's been making and you get a minor disappointment and you can see 10% down side quite easily and i think it's right >> you see a 10% down move and the average move right after the earnings if it does move down. does that mean bad things for them in general and for tech >> it should be -- you would think sense the market has been so narrow in its leadership, it

should mean bad things for tech and more broadly, the broader market yet here we are 2800 in the s&p. i'm not sure what stops the s&p. 10% move gets you to 360 so basically the level in the options strategy carter's right it happens quicker and you see moves a lot faster these days and i'm not certain it would take all that long if he is correct and they do disappoint, whatever they say, the move down to 360 could take place over the course of 48 hours. >> the stock is down 42% it dropped 41% is the stock much higher they have upsets could they be as bad as the red hat? probably not you have a 10% implied move? what if it's not perfect >> i think the key here is that

we are asking a lot of questions and on a $400 stock that's not a lot relatively speaking and if it hit that sweet spot and it runs to 370 or something like that, you're talking about a payoff of four to one. >> from new to old school media. investors hanging up on at&t as they're trading near the 52-week low and this comes as the government challenges at&t's acquisition of time warner randall stephenson had this to say about the appeal on our network earlier today. >> we think the likelihood of this thing being reversed and overturned ask is very remote. to get this thing reversed in any way. the merger is closed we own time warner >> and the options market seemed to agree with that assessment and calls outpaced puts two to one in the series of paces that garnered the amount of attention. >> the calls expire next week and 19,000 of them traded hands.

what do you think, guys? the worst for tee? >> i don't think the worst is over for tee it is down 1.75% and it was traded lower when they're trying to break up this deal. so what is the catalyst to get it higher? you don't really have any earnings growth. you have a lousy balance sheet and greg moffity talks about that all of the time and you have the directv deal years ago that doesn't seem to be paying any real dividend so they seem to be in no-man's-land here. if i were at&t, i would think about if you're changing your business, maybe cutting the dividend entirely. the market might like that and there's a better chance to see 29 in that stock than back up to 25 >> one of the reasons we saw this unusual options activity and the stock's weakness, i think, was supportive of the idea that the latest government

effort isn't going to get anywhere, because if they thought they might break up the deal and the stock would respond in the opposite direction because obviously it was weak when they got the favorable ruling the thing is the july 32 call that you were just talking about, nearly 20,000 of what traded him those are about 15 cents those expire a week from today and buyers of those are essentially betting that the move it made today could reverse in one week and that i think actually is possible technically, and i sat at major desks for many years and this is hovering at well-defined lows at a common level there are intermediate lows and 52-week lows and it has a lot of breakdown potential. i think at&t goes lower. >> it goes lower >> that's what it looks like >> wow do we see any other activity in the space? the ripple effects based on this move by the government would seem to be many. >> most people do not believe that this effort, and this is the last-ditch effort by the government this is a vertical integration not taking on a horizontal partner and that's not a big competition issue. i think that the ruling that they got that judge leon gave was actually -- i read a portion of it and it looked very reasonable we did see an uptick for the first time in mobile phone bills

which is one of the things that's been an overhang for this industry they've been competing and revenues have been entirely flat and the only thing they had going for them was a high dividend yield and if we did see an uptiki think it will be a positive for m & a activities. >> check out our website and optionsaction.cnbc com. rumor has it guy reads it every night before he goes to bed. here's what's coming up next. >> two legends, one trade and a segment that will rock the options world. that's next. >> plus -- calling all options action fans. reach into your pocket, and grab your phone and tweet us your question at options action if it's nice, we'll answer it on air when "options action" returns. (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. tap one little bumper and up go your rates. what good is your 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 on home and auto insurance. call for a free quote today. liberty mutual insurance. ♪ liberty. liberty. liberty. liberty. ♪

i know, right. we are seriously ikeeping up with the joneses.. i know, right. we are seriously keeping with the anderson's. we are finally keeping up with the ford's. keeping up with the garcia's. keeping up with the harvey's. keeping up with the wahh-the-wahh the romeros. carters. patels. the allens. wah... wolanske's. right, them. no one is going to have internet like this. no one is going to have internet like this. gig to more homes than anyone. not just the joneses'. over here. xfinity. the largest gig-speed network. 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 >> no, you're not looking at a scene from a horror movie. you are looking at a chart from general electric and it's been a straight nightmare as the stocks plunged 50% and sitting near its lowest levels in nearly a decade and it could get worse for the company when it reports earnings next week. it is expecting a 4% move in either direction so how should you play it into the event. we're trying something different tonight in kicking it to guy and professor ko with an options action tag team. ♪

♪ >> this is how it's going to work mike will help him make a trade. so guy, kick it off. >> this is tv history, by the way. i know we pointed it out and i would like to point it out, as well. >> why should this nightmare not continue >> think ge has been dead for years. we talked about it on "fast money. i have three reasons why it would continue to go lower >> if ge was a screaming buy, wouldn't you think a high-level activist like a carl icahn or nelson peltz, wouldn't this be the 800-pound gorilla and the white rhino that you'd like to bag and you hear no activist in this name at all gives me caution, gives me pause? >> number two, i think you saw the relief rally and you saw it 12 3/4 to north of 14 in a short amount of time after the ceo made comments a week and a half two weeks ago and that got everybody excited and nothing has fundamentally changed and

they haven't addressed the real concerns about the company and number three, if they report a good quarter, why would they give strong guidance going forward. there's absolutely no upside for them to give constructive guidance they'll give muted guidance because that's the smart thing to do. all three of those things add up to me a stock that will continue its trajectory to the down side. however, in order to put on an options trade. i can't do that myself you know what i have to do, mel? please tell me >> tag team mike >> let's take a look at what we can do from an options perspective and general electric, one of the things that melissa referenced in the beginning of the segment was the fact that the implied move was 4% and that's bigger than the historical move for general electric and it should be because as the stock price declined the company's equity is becoming leveraged and there's uncertainty there and to your point all of those are gone. so those higher options premiums are actually justified

so i think we ought to just keep this very simple and i'm just looking at the july 14 puts and all we're doing here is risking a small amount of the stock price in case the stock goes lower. this stock has been moving around quite sharply is what the probability is that it hit that break point and the fact is that it only needs to get down to 1370 because we're spending 30 cents on that put and the probability is better than 50/50 just in the next five trading days given the that trajectory, and that is 14 puts for 30 times. >> what do you think of ge >> we know it's a disaster we try on the show at one point earlier in the year to look for a bottom and the reality is it continued lower and what we do have is the circumstance where it has not made a new low in the better part of two or three months and the downtrend in that sense is they interrupted. my hunch is that whatever bad is coming, that a great deal of it, if not all of it might well be priced in and there is something

else to keep in mind there is a bit of a history where they stopped from the dow and when you kicked out of school a lot of the trouble has been done and alcoa had one of its best years in the ensuing 12 months and the stock peaked in 2000 and made a lower high and a lower high again two years ago, at some point and it's bottom fishing. it has the prospects that it is putting in a bottom, and that's my hunch >> can i make a quick clarification. i did -- my point is you haven't seen the carl icahns and you haven't seen a lot of noise around the stock other than him and i'm sorry that i misspoke, but my point should still be well taken, i think. >> one other point is that ultimately, when you're trying to make a directional bet in situations like this where it either has reached a bottom to carter's point or it's just

going to continue a lot lower because it really has been moving this is the case when options premiums might be higher than they have been historically and they're still a fair price to buy at this level and that's one of the reasons we're not looking at something complicated like looking at a spread. 30 times is not a lot to risk if you're inclined to make a bearish bet. >> cable tv history in the books, guys. good job >> still ahead, johnson & johnson sinking after being ord order pay out $5 billion in a lawsuit. there's something in the chart that could be signaling a turnaround, we'll explain. >> have an options question for one of the traders send it, if it's a good one and it's nice we'll answer it later on in the show try it out we're live at the nasdaq marketsite in times square

much more options action right after this 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.

okay. your all you can eat ribenjoy. thanks. ♪ ♪ when i touch you like this ♪ and i hold you like that. ♪ it's so hard to believe

♪ but it's all coming back me. ♪ baby, baby, baby. ♪ if you touch me like this ♪ and when you hold me like that. ♪ all you can eat is back, baby. applebee's. eatin' good in the neighborhood. 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? >> welcome back to "options action," time to take a look back at the open trade johnson & johnson was gearing up for a breakout. >> j & j is trading almost

lockstep with beaten down consumer staples and we know they've started to come to life and i think that's exactly what will happen with j & j. >> the 135 call spreads. you can spend $3.15 on the 1:35 call and it's against it for 55 cents. >> you were right, the stock rallying, and although it did sell off after the company was ordered to pay a nearly $5 billion fine to women who said talcum powder gave them cancer what are they doing with that j & j now mike >> we were looking like a hero today we're about break even on this trade and my inclination is to stay with it. >> we still have time until september expiration what are your thoughts >> the damage today, news related, what's contained on the chart, and i think we're okay. >> think it's fine. >> i think the earnings have been pretty strong

make an argument that maybe it's 15 times to get ahead of themselves and i think you would rather compare it to a procter & gamble and if you like procter & gamble close to 19 time, i think you have to like johnson & johnson 15 times and i do think the sell-off on the back of this news was muted, and i think it does rally into earnings and post earnings. >> also last month, dan said shares of cigarette maker philip morris were about to heat up >> we know that this is one of these stocks where it has fundamental headwinds and also this issue of rising rates over the last year or so, so that's 5.5% dividend with the stock down here and that's interesting when the stock was trading around $79.10 and the july 80 and 87 1/2 >> heat up it did. the stock surging 7% from the start of that trade as you might have noticed, dan isn't here today, but don't worry, we were able to catch up with him

soaking up the sun in lake george with a special update on the trade. >> i do want to give a trade when the stock was trading around 79.20 i detailed the trade, buying the 80, 87.5 call spread in july before the q2 earnings and with the stock near 83 that stock is more than double i think it make sense to take profits on that one and not have a risk have a great weekend, guys bye. >> does that make dan skipper or gilligan >> almost. >> it makes him tom hanks in the other dopey movie with the ball. >> we'll see dan next week >> with makeup >> the stock has a horrible drop in gap four or five months ago it's basic, and the basic process has more to go >> this is one of those situations where the options were really inexpensive in stocks like this and if you're going to be making a play directionally, i think the trade that dan looked at made a lot of sense and he gave himself nearly 12% worth of upside and he didn't give himself more to do it if you're making bets like

this >> it's been holding $80 for a while and how long does the market give you to buy the lows? i'm not sure it's giving you all that much time which means you don't have another leg lower and you don't four or five months to buy the lows, in my opinion. >> up next, your tweets and the final call >> welcome back to "options action," time to take your action," time to take your tweets (indistinguishable mut that was. action," time to take your tweets 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.

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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 action," time to take your tweets here's one from suman. how do you determine if the option premium is adequate or not? professor ko >> that could be a complicated question to answer and it varies by stock here's a simple way to think about it i try to get at least 12% at least a year i'm looking to collect on 1% of the stock price.

1%. >> time for the final call carter >> mike? >> ge, the money puts into earnings. >> thanks for joining us >> i love being in '08 and croatia over there, pete >> our time has expired and i'm melissa lee. "mad money" is up next if you are one of the millions of americans who suffer from muscle cramps in your legs or feet, relief is finally in sight. hi, i'm dr. drew pinsky. and today i'm here to share some news that got me excited when i first heard about it. it's called theraworx relief. this life-changing product is clinically proven to quickly relieve the discomfort of muscle cramps and also prevent muscle cramps before they start. now the word breakthrough gets tossed around easily these days, but theraworx relief is the real deal.