we're live at the nasdaq market site on a steamy summer friday the guys are behind me in the meantime, here's what's coming up on the big show. >> what's that >> antidote. >> to what >> the poison you just drank ♪ >> chinese internet stocks have gotten crushed, but dan nathan says one looks ready to buy heading into next week he'll give you the name and tell you how to profit. plus, oil is in a correction and the chart master says it's about to really roll over. he will give you the setup and how would you like to make money if the market goes up

or down? >> how is that even possible >> it's not only possible, it's mike khouw's high probability trade, and he'll break it down it's time to risk less and make more the action begins rights now and we start with the chinese internet stock shares of the some of the biggest players have been getting crushed along with the rest of china's mark in the past month as tensions escalate all taking it on the chin, but those names showing some signs of life turning around on a headline that president trump and president xi will meet to discuss trade tensions so let's get into the money. dan, you're focusing on baba >> it reports next week. i want to mention, you just talked about how these stocks caught a little bit. the shanghai composite closed at a 52-week low overnight and down 25% from the 52-week highs it might be one of the

scariest charts in the market if you think about it it's the fifth largest equity market out there to me, baba is down about 18% from the highs, flat on the year, down in sympathy, i think, with chinese equity sentiment, but tencent is down 30% from its high the options market is implying about a 6.5% move. that's double the average move after earnings over the last three quarters about 3.25%. it got me thinking about how poor investment sentiment is with baba despite the fact that analysts are still over the moon, hyped up about this. 48 highs, one buy, no sells. average price target, 240 bucks. you got poor investor sentiment, poor macro sentiment. i think this company, the stock in particular, is banging up against a really key technical support level. i'll let carter speak to that. over the last 18 months it's bounced on of that pretty effectively. the trade i want to look out to, being a bit contrarian, looking

at october expiration, getting this to buy a little bit, i want a call spread, and i want to target a move back to the 200 level where it broke down. today when the stock was trading about 173, you could buy the october 175-205 call spread paying $8 buying one of the october 175 for 970 and selling one of the 205 calls in october at $1.70 it cost 8 bucks. you break even at 183. you can make up to $22 eight is that matched risk eight is an important number that gets you down to $165 to my eye and your eye, carter, if you look at this 18-month chart since the start of 2017, 165 is the level it has to stay down at. >> what do you say, carter >> in this case you're hoping for a super bowl, something that's been pulled down so extremely, 210 to 170 down 20% that you'll get some sort of mean reversion even if ultimately it's going lower. it's as good a technique as any in trying to identify an entry point. >> let's take a look at the

price of the spread you have here and why you might have looked at something like this. the options market, as you pointed out, implying slightly over a 6% move that's approximately how much you're risking spending 8 bucks on this spread but you're giving yourself more time than the short-dated options do, number one. number two, the upper strike target is essentially the highs or very close to it we saw a couple months ago. that's about how much time you actually have until expiration for this to play out when you take a look at the length of the trade going out to october, the amount that you're spending on it, and the fact that options premiums, especially those short-dated ones are slightly elevated, i think the structure makes a lot of sense here. >> the chinese internet stocks as a group, they were almost double the performance of similar stocks in the u.s. last year meaning f.a.n.g. types this isjusta mean reversion, right? they were so ahead, and now they're much further behind. >> right and there's two ways this trade can work out you can get a beaten raise and the stocks work higher

you can also get a surprise announcement about trade tensions easing a little bit this stock will ricochet if that happens between now and october expiration it's a contrarian trade. you're defining your risk and you have to buy into a lot of these concepts to do it. it's not a table-pounding, it's going right back to 205. but i think that things are more lined up to bounce from here than crater. >> it has weighed on energy and crude. oil is down 3% this week on the back of a stronger dollar. and the move is taking some big energy stocks with it. anadarko, phillips, schlumberger all under pressure the chart master says the pain is just getting started. what do you it see, carter >> so, i mean, commodities in general, copper, gold, doesn't matter what it is and oil has resisted the dollar strength but oil is starting to roll on energy stocks in turn or under pressure so here you have a chart no judgments or annotations by me it's simply the crude oil chart in chicago and the futures if we were to simply put in some lines, one thing we know is it has been almost perfectly, as is

so often the case, responsive to its trend line and now instead we have broken trend. and that's really going to be the issue ultimately if and as there's more to come let's -- let's move on here is the etf for xle over the past two, three years. to my eye, what you've got is this you have a well-defined triple top. if i were to keep this exact same setup and pull it back to five years or longer, what you have again is the triple top now put in the following lines and that's ultimately where we can go so what i'm thinking at this point is that these key levels, we failed here three times, and that ultimately we have the risk of going back to trend and that implies about 70. so i want to basically continue to be cautious here.

the bet is that xle is going lower in conjunction with crude presumptively going lower. >> mike, what's your take? >> so, first of all, the two largest constituents of xle are the two big integrated oil companies, exxon and chevron they represent almost 40% of that etf those two names in particular are going to trade essentially in lockstep with crude so if you are bearish on crude, you very likely have to be bearish on at least those two stocks what we've also seen is that some of the names, even names i like, like the oil service company names like halliburton, down 10% since i got in this stock, if something is going to take crude down, it will take the whole space down since we're looking at an etf or the same thing applies when we look at an index, i think what you want to do is look to things like put spreads i specifically was looking out to october at the 71.67 put spread you could buy the 71 puts for

1.65 sell the 67s for 60 cents. that's a net deb it of about 95 cents, alittle less than a quarter of the distance between the strikes. the idea here is a lot of these types of things, etfs and indices, out of the money puts imply higher volatility, we call that skewness. that's one of the reasons these type of trade structures can set up favorably if you're looking at a basket of stocks like this. >> or skewiness on a friday afternoon. no so here's the thing. he's risking a quarter of the risk of the spreads. if you look at the components of the xle, the oil service names are the worst charts in the entire market. they look like they're going much, much lower, massive top. and exxon and chevron makes up almost 40% of the etf, and you say, they're horrible. they're all horrible your call on oil, this makes sense. risking a little less than one for $4 wide that gets you back to the recent support. i like that. >> oil's had its own run we know that as the dollars advance aggressively, every

single commodity, the softs, metals, all under pressure it looks as if oil is starting to succumb that coupled with the fact they've been so poor, the big drillers and exxon, it seems asymmetrical limited ability to go higher and quite possibly in the event of a real drawdown in crude, can energy stocks caught out through the bottom >> is this a fundamental call, mike, the dollar will remain strong or go higher? >> look, we have a couple things that are working in concert. obviously, a strengthening dollar these are by-products of each other in large part. obviously, if we put -- this trade war that's creating its own set of problems, but i you depress asset prices in the second largest economy in the world, like china, ultimately you have to start thinking about the whole global economic picture. you also have to think about the relative currency strength of the dollar we own these things in dollars you put it together and it's hard to see how it could go significantly higher from here. >> for everything "options action," check out our website while there, check out our super cool newsletter. in the meantime, here's what's coming up next.

>> in a world where volatility reigns supreme, one man has found a way to make money if the market goes up, down, or nowhere at all mike khouw has the trade plus, calling all "options action" fans reach into your pocket, grab your phone, and tweet us you question @optionsaction. 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.

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this is moving day with the best in-home wifi experience and millions of wifi hotspots to help you stay connected. and this is moving day with reliable service appointments in a two-hour window so you're up and running in no time. show me decorating shows. this is staying connected with xfinity to make moving... simple. easy. awesome. stay connected while you move with the best wifi experience and two-hour appointment windows. click, call or visit a store today. 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." it's been a wild week for the market but it's been even a crazier year. dom chu is in the newsroom with all the details. hey, dom >> well, melissa, it seems like just yesterday when we were talking about the complete lack of volatility in the market, the vix sub-10 level traders were talking about the lack of action and catalysts to trade. what we didn't get last year we're making up. we look at all the times the s&p 500 made a move of 1% or more either up or down. all of last year there were eight such moves four of them up, four of them down fast forward to today. we're still four-plus months away from the end of the year and already the s&p 500 has had 36 days of 1% plus moves

20 of them to the upside, 16 of them to the downside now, a lot of that happened towards the beginning part of the year during that big pullback in the market that started in early february. at the height, the vix hit 50. we're now back to that 12 to 13 area and there have been no shortage of market catalyst this time around, whether geopolitical, tariff-related, et cetera. so, melissa, is this market setting up for even more volatility as we head toward the midterm elections, any possible breakthroughs or pitfalls on trade? all of those questions remain to be answered. back to you. >> thanks, dom. how do you take advantage of a volatile market? professor khouw with his strategy. hey, mike. >> we'll talk about using an iron condor. we'll be careful how we describe it the first thing i would say is when you use an iron condor, if you're selling one, you're selling a put spread, you're selling a call spread, you're expecting the market is in some

way going to be range-bound. the second thing you're looking at are circumstances where options premiums are elevated. right now we'll be looking at iwm and what we are seeing is that the premiums are slightly higher than they were, say, in september of last year this is a way to look forward to slightly elevated options premiums this is also a trade where you're putting time on your side the idea is you're trying to collect a bit of decay taking a look at iwm, what we can see is certainly over the course of the last couple of months, we've sort of been channeling in this area right here we're going to try to make a bet that this is going to continue and specifically the trade i was taking look at was the october 162, 163, 171, 174 iron condor that seems like a mouthful but very simply what we're doing is we're selling the 163, 162 put spread, collecting $2.10 when we sell the 163 put

paying $190 to cover the downside on the 162s and selling the 171-174 call spread collecting $1.90, paying 90 to cover that upside. so net/net with all of this, we're collecting $1.20 the important point here that i would make, you'll notice the strikes here i've chosen are only $1 apart here, $3 apart there. why would i do that? one of the principal reasons is if it does fall below 163, because i've collected more than the distance between these two strikes, i actually cannot lose money to the downside no matter how far down it goes once i get above here, i will see losses i'm capping those potential losses at 174. one could say this is a trade where we're betting on a range-bound market, but also i'm betting on maybe there's more likelihood we could see the market trend lower rather than substantially higher >> dan, what do you think of mike's strategy? >> really interesting trade because he matches it up with

technical stuff. i'll let him speak to it, but for the last three months, this etf has been trading between 160 and 170. mike skewed a little to the down side, giving him more room for that but he's playing for the next two months we have more of the same this is a good way to collect some premium. >> this is independent of charts we know everyone is waiting for a couple of things most notably, what might go on what's reported by people investigating certain things as well as the election we're in a seasonally weak period, august, september, october. and the market, especially small cap, being up 10% year to date versus large cap it's not consolidated. you get equilibrium after a strong advance we're only two months into it. you can consolidate for another month or two. >> yeah. if you're taking a look -- you know, if your platform allows you to see what the implied volatility is and historical volatility, we can see if you bo back to september, october 2017, iwm, the russell 2000 was seeing

volatility of about 14% to 15% right now the options market is implying somewhere between 16% and 17%. so essentially that difference is the value that you're essentially expecting to get that risk premium that you, as someone who's selling insurance, expects to pay between now and expiration. >> there is this obviously specific to the small cap index,ist almost a double weighting in financials relative to the s&p that's partly of what's going on here it's in response to what's going on outside it. >> yeah. and i would just say as far as selling premium in kind of a low volatile market, mike has done this in a way where the width between the spreads is the max potential loss, which on a percentage basis is very low this is a high probability trade of making a little money at the very least so, to me, i think this really makes sense. for all those people who have been trying to buy calls playing for an iwm breakout, you've lost your money mike's trade may be the way to do it in it the near term. >> next week is a big week for trade, and that could definitely have an impact on the direction

of iwm >> that's right. i mean that's certainly one of the things we have to think about. this is something everybody at home can think about if you have a view different than mine, you can structure your strikes accordingly and try to insulate yourself against a sharp move in one direction or the other. all right. up next, walmart is surging after a blowout earnings report, having its best week in nearly a year one trader is betting it has more room to run that story's next. 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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is that lionel richie? let's reopen the market. mr. richie, would you ring the 24/5 bell? sure can, jim. ♪ trade 24/5, with td ameritrade. ♪ welcome back to "options action." it's time to take a look back at some of our open trades. last week dan said walmart was gearing up for big gains on earnings >> to me, walmart has a couple fundamental issues that if they get going on, it's groceries, it's online, it's kind of better in-store traffic, its margin of improvement, that sort of thing. if they guide to that, this stock is going above that technical level. you could buy the october 90-100 call spread paying $2.90 for that buying one of the october at the money, it's actually in the money a little bit, calls, 90 calls for $3.40, selling on

of the october 100 calls at 50 cents. >> that was a great call walmart soaring on its report, now up nearly 10% since the time of the trade dan, he got dressed up here, put on a tie. >> i did, for you. >> give us an update on the trade. >> here's the deal i think this thing went right to the spot we thought it could go if you had all of those things in line. i suspect it's going to consolidate in the high 90s a little bit, and possibly as it gets into the fall, the holiday selling season is on people's view, you may see another move higher again, they need to keep doing the sorts of things that got it going this way here's the deal, when the stock was trading at 100 yesterday, this trade was worth about a double here. i think you want to sit this out, wait for it to get back above 100, and i think you may have more than a 2-1 payout. >> meaning gap down on march earnings of 105 to 95, we're now at 100, you think probably 105 >> that doesn't have the action of a short squeeze it has action of people playing catch-up >> when you're in a long call spread like this, time is on your side when it runs to the short strike that lower strike option doesn't have a lot of extrinsic premium.

>> your comment last week, why would you sell that 100 call in october for 50 cents and now it's worth $1.80 that's a good point, but i wasn't expecting it to go right to that striking place last week carter and mike said nvidia's hot run was about to cool off. >> and it's already stalling meaning rather than looking like a bounce off the line, meaning a ricochet, a ricochet, a ricochet, it's compressing to my eye, that looks like the beginning of what should be something unhappy. >> specifically i was looking at the october 250/220 put spread you could spend $12, sell the 220s for $3.45 >> the stock sinking 5% just today. carter, what do you think? >> two subjects that i think help determine the way forward what is specific to nvidia and what is specific to semis? almost every major semiconductor

from micron to intel to lrcx, they're all under pressure even today some are down 70% we have pressure on the group. obviously you have the biggest one, besides intel, nvidia falling. i can't imagine that it's going to stop after one day. i would bet further weakness. >> seems like the best performing in the group, doesn't it but actually over the course of the last ten years, when they have disappointed on earnings and stock has been lower, you wait another week, and they're down on average another 200 basis points i think you have a little time certainly if you were thinking of buying it, i wouldn't do that here i think that's more weakness ahead. >> overall semis, you're negative >> i have been negative. this is the one i've been waiting for, nvidia. this is the sentiment leader, we've seen all in major correction territory the sox is down 10% from its high if you lose nvidia, this sector is really going to have a hard time coming back, in my opinion. >> and struggling right at its dotcom high. >> interesting.

up next, i got your tweets and the final call from the options pits oh, and there's the closing bell. (sighs) i hate missing out missing out after hours. not anymore, td ameritrade lets you trade select securities 24 hours a day, five days a week. that's amazing. it's a pretty big deal. so i can trade all night long? ♪ ♪ all night long... is that lionel richie? let's reopen the market. mr. richie, would you ring the 24/5 bell? sure can, jim. ♪ trade 24/5, with td ameritrade. ♪ sharper vision, without limits. days that go from sun up to sun down. a whole world in all its beauty. three innovative technologies for our ultimate in vision, clarity, and protection. together in a single lens. essilor ultimate lens package. purchase the essilor ultimate lens package

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i'm not really a, i thought wall street guy.ns. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation?

it's just complicated. step-by-step options trading support from td ameritrade welcome back time to take some of your tweets our fan macro writes, when is a buy/write a trading strategy mike >> buy being the operative word here, you have to like the stock you're buying. the writing part is selling a call against it, which is generally speaking a good strategy but particularly good if you don't think there's an upcoming catalyst that could propel those shares sharply in the near future. >> how do you -- >> i think the key parts of that is range bound it's a stock you want to continue to own but willing to take yield. last word from the options pits carter >> i think it's right to be cautious with energy, xle on the short side. >> mike? >> put spreads are the way to play your bearish. >> dan >> baba next week will be interesting for this group of stocks that's been beaten down

i think contrarian, define risk ways and baba makes sense. >> all right looks like our time has expired. thanks for watching. for more "options action" check out our website, optionsaction@cnbc.com you also tweet us. see you next week at 5:30. "mad money" with jim cramer starts right now - [announcer] the following program is a paid presentation for the nuwave nutri-pot digital pressure cooker brought to you by nuwave, llc. - wow, look at all this food! ribs, veggies, wings, and the seafood looks amazing! - and my favorite, corned beef and cabbage and sausage and peppers. and all of it was done in this, the all new nuwave nutri-pot digital pressure cooker. now the food on today's program is absolutely amazing, and since it was all made in the nutri-pot, i guarantee you, no matter your experience, you'll be able to make the exact same recipes and get great results in your own home. - so don't go anywhere,