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 okay. 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 have investors 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 the entire past decade, 2008 to

2018, one way to draw the lines is 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. it started to hockey stick. 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. i think netflix has downside risk. it actions was a little dodgy today. 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 spend 12 bucks a piece against it and buy one 350

put for $7. an important point about this. obviously we'll make most money if it runs to 370. because the put fly is asymmetric, it's not going to lose money 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. >> i like your jacket. >> >> 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 last day and a half, i can't explain why, a lot of it has to do with 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 it were to go to that 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. the first thing is this, 98% of all capital is low on long. something like this and that's the point of the show, but do

you blindly stay long believing that ten years from now it's much, much bigger. that's a long-term strategy and that's not 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 or you get a minor disappointment and it has a setback which i can see 10% downside quite easily. >> 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. >> let's put it in context. the stock is down 42%. is the stock much higher, of course, but stocks have setbacks. could it be as bad as the red hat? probably not >> i think the key here is that we are asking a lot of questions and we're asking what if risk 5 bucks on a directional bet on a 400 stock. that's not a lot relatively speaking. if it hits that sweet spot,

you're talking about a pay off 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 ceo 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 is really remote. it's a very narrow path that would have to be traveled to get this thing in 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. there were big buyers of the strike call. 19,000 of them traded hands. what do you think? >> i don't think the worst is over. closed down 1 3/4% today.

the stock traded lower when the deal is finalized and it traded lower when they're trying to break up this deal. 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 i think there's a better chance to see 29 than back up to 35. >> one of the reasons we saw this unusual options activity, the stock's weakness was actually supportive of the idea that this latest government effort isn't going to get any where. because if they thought they were going to break up the deal, the stock would respond in the opposite direction because obviously it was weak when they got the favorabl 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, this stock is hovering at well defined lows at a common level. they're intermediate lows and 52 week lows. i think at&t goes lowe >> 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. >> one of the things i think is most people do not believe that this effort -- this is a last-ditch effort by the government. this is a vertical integration, not taking out a horizontal partner, 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 some uptick in revenues i think that's a space. >> 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 option world. that's next. plus -- >> calling or "options actions" fans. reach into your pocket, grab your phone and tweet us your question @optionsactions. if it's nice, we'll answer it on air when "options actions" returns. 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. 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. ♪

are you ready to take your then you need xfinity xfi.? a more powerful way to stay connected. it gives you super fast speeds for all your devices, provides the most wifi coverage for your home, and lets you control your network with the xfi app. it's the ultimate wifi experience. xfinity xfi, simple, easy, awesome. 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? >> 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. and you made a great point, why should this nightmare not continue i think ge's been dead money now for years. i actually have three reasons why i think it's going to continue to go lower. number one, no activist, if ge was a screaming buy, wouldn't you think a high level activist like a carl icon or nelson peltz, wouldn't this be the 800 pound gorilla, the white rhino that they'd love to bag? gives me caution and pause. number two. you think you saw the relief rally. you saw is from 12 3/4 in a short amount of time. after the ceo made some comments

a week and a half, two weeks ago. nothing has fundamentally changed and they haven't addressed the real concerns about the company. number three, if they report a good quarter why would they give strong guidance going forward? there's no upside for them to give constructive guidance. they'll give muted guidance because that's the smart things to do. all three of those things add up to a stock that's going to continue its trajectory to the downside, however, in order to put on an options trade, i can't do that myself. what do i have to do, mel, please tell me >> tag team mike. >> let's take a look at what we can do, taking a look at what guy was just talking about. general electric, one of the things that melissa referenced at the beginning of the segment was the fact that the implied move was 4%. that's bigger than the historical earnings move and it should be because as the stock price declines, the companies equity is becoming increasingly leverage and i think to your

point, all of those bolsters potential to the stock are gone. those higher options premiums are actually justified. so i think we ought to just keep this very simple. i'm looking at the july 14 puts. you could spend 30 cents to buy those and basically all we're doing here is risking a small amount of the stock price in case the stock goes lower. the important point we ought to make, because this stock has been moving around quite sharply is what the probability is that it hits that break point. the fact is, that it only needs to get down to 1370. the probability of that is better than 50/50 just in the next five trading days. given how volatile the stock has been, given the trajectory that the stock -- i think the simplest thing to do is a really simple trade and that's just buy those 14 strike puts. >> what do you think >> we know it's a disaster. we tried to look for a bottom and the reality is it's continued lower. what we do have is a

circumstance where it is not made a new low in the better part of two or three months and the down trend in that sense has been interinterrupted. my hunch is that whatever bad is coming that a great deal of it f not all of it, might well be priced in and there's something else to keep in mind. there's a history where stock being removed from the dow, by the time you're kicked out of school, a lot of the trouble has been done. the last one was alcoa and alcoa had one of its best years in the ensuing 12 months. yes, the stock peaked in 2000 and in 2007 made a lower high and then a lower high again two years ago. at some point, this is bottom fishing, it has the prospects that it is putting in a bottom. that's my hunch. >> mel, can i make a quick clarification. nelson peltz has been in general electric so i did -- my point is, you haven't seen the carl icons or ackman's. i'm sorry that i misspoke, but

my point should still be well taken i think. >> one other thing we'll just take a look at here and that is 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 is just going to continue a lot lower because it has been moving, this is the case where an options premiums might be a little bit higher than they have been but they're actually still a fair price to buy at that level. that's one of the reasons we're not looking at doing something complicated like buying a spread. 30 cents not a lot to risk. >> all right. cable tv history in the books. good job. still ahead, johnson & johnson sinking today after being ordered to pay out $5 billion in the lawsuit. there's something in the charts that could be signaling a turn around. we'll explain. plus have an "options actions" question for one of the traders. if it's nice because 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 in

market square. 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.

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♪ don't stop it now, ♪ don't stop it no. ♪ don't stop it now, ♪ don't stop it. ♪ keep it comin' love. ♪ keep it comin' love. ♪ don't stop it now, if you keep on eating, we'll keep it comin'. all you can eat riblets and tenders at applebee's. now that's eatin' good in the neighborhood. 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 take a look back at the open trade last month mike and carter sai

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 125/135 call spreads, you could spend $3.15 on the 125 call and sell the 135 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 >> obviously yesterday we were looking like a hero. today we're about break even on this trade my inclination is to stay with it. we still have some 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

you can make an argument maybe at 15 times, getting a little ahead of themselves, you'd rather compare it to a proctor & gamble. you got to love johnson & johnson at 15 times. the selloff on the back of this news was muted and 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 call spread that cost you 1.50 - >> heat up it did. the stock surging 7% from the time of that trade dan isn't here today. we were able to catch up with him soaking up the sun in lake george with a special option.

hi, "options actions" fan. sorry i can't be there. 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 330. you think it makes sense to take profits on that one and not have the risk into the earnings sprint. have a great weekend. >> does that make dan skipper or gilligan >> i think he was the skipper there. >> it makes him tom hanks and that 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 its basing and the basing 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

10% worth of upside and he didn't spend a whole lot to do it. and that's going to decay very little from day-to-day. >> it's been holding $80 for a while but it's the old adage. it has another leg lower. you don't get four or five months to buy a stock at the lows in my opinion. >> up next, your tweets and the final call 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. 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. 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 your tweets here's one from suman. when selling naked puts or covered calls, how do you determine if the option premium is adequate or not >> 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 if i'm selling one month call or

put option, i'm looking to collect about 1% of the stock price or more. >> time for the final call carter >> netflix. >> 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 - [announcer] the following is a paid presentation for the power air fryer oven brought to you by tristar products. we introduce the power air fryer and it finally became possible to enjoy the crispy, crunchy fried food you love, guilt-free! millions were sold and the five-star reviews say it all! people love the power air fryer! now, air frying is taking a quantum leap forward. introducing the power air fryer oven! the full oven that can fry 75% more than traditional air fryers! air fry chicken strips, wings, and tasty sea salt curly fries! and all made with that amazing fried food taste without the guilt!