hi there we're live at the nasdaq marketsite they're finally back together and getting ready for the big show while they're doing that, here's what's coming up >> social stocks are getting kicked to the curb, but if you own one of the beaten name, mike ko has a way to limit your losses he'll give us the trade. plus -- cloudy with a chance of profits. ♪ i'm singing in the rain >> cloud stocks are on a tear, and dan nathan says there's one name that could be next to break out, and he's got a way to buy it for less, and --

♪ ♪ ♪ feels so good >> energy stocks are this week and they may have gotten so bad they're actually good. we'll tell you how to play it. it's time to risk less and make more the action begins now. >> and we start with the energy space getting hit this week. crude falling 3% taking oil stocks along with it the oih oil services etf falling 7% and the oil and gas etf down 6% and energy was one of the worst performing sectors of the week, but the chart master says the charts of one area of the energy market have gotten so bad they actually look good. let's get straight to carter over at the plasma hi, cater. >> it's a direct opposite trade from what mike and i did three weeks ago waiting for energy overall to plunge. now to some extent that's happened oil service stocks are exceedingly bad, and i think at this point they're so bad they're good xle, you know it it's the etf for all energy and

it's effectively two stocks, schlumberger and halliburton, and you can see the spread, right? you know what this is versus this year to date. moving forward taking a look at a little longer period again, you're talking over 1,000 points have spread over the past 12 to 18 months and at this point, the correlation has broken down, and i think the orange line actually has some snapback potential so let's look at the oil services look how precise we know, y that this is a double top and that's played out. look at how well defined these lows are if i put in the next chart, what we've got is a very precise level. in fact, let's highlight it. you can literally see how precise these lows are and it's my bet that we're going to snap back a bit here. that we're going to throw back

to a level where you're likely to make it back towards this downtrend line let's see if i've got one more here and we will call it a day, in fact, that's it, and i'm thinking it's like this. you get the throwback and at least 4% to 5% move in something that at this point it is so bad it's good, down to multiple, well-defined lows. >> how do you trade this, mike what we're trying to do here and this is a tricky situation and we're trying to catch the falling knife accidental though carter just pointed out, maybe this bottomed out here >> one of the things we want to do is to mitigate the premium, and one other quick point and oih is an etf and when you have situations like that, generally speaking, you're not going to see gap moves. this is a basket of stocks so i think the way to play this is with the call spread risk reversal and i was looking out to october for 21, 23, call spread risk reversal which is on

the money and you can spent 50 cents for that package, and the idea here is that we're going to be collecting some decay on the call that we are short on the upside and that's the 25 strike as well as the 21-strike put on the down side, and of course, if it just stays right here that will mitigate a lot of that and looking for maybe a 10% move, but also getting a bit of a buffer to the down side. if it drops by 10% that's essentially where we would have it put to us >> this is a space where we made it before. i'm individually long halliburton which is one of the index. >> whoa! >> listen, it's an interesting setup. i looked at schlumberger and we were talking about it a couple ever weeks ago and i said that was one of the worst stocks i've seen in my life that approached seven-year lows. i wonder if there was some reason to flush them they might not come back for a long time. you want to define your risk and we talk about defining risk and you'd be long and you define your risk to the premium that you paid and mike's trade he's

selling a down side put less than 1% of the stock price and out in october expiration and that would be the only kind of thing i would say, maybe it's not really worth it. maybe i'd kind of go a little bit further out of the money and widen out the call spread and not have the downside risk >> that's actually a very good point and what i've said before is when i'm looking to sell options on stocks and etfs, generally speaking, i'm looking to collect at least 1% or thereabouts of the premium -- 1% of the stock price on the net short. here's the thing, we're selling both the call and the put. between these two we're collecting 40 cents. the stock can't be both above 21 and above 25 in expiration you can broaden out those strikes very slicely to essentially get that decay that you're looking for because of that if i was only going to be -- if i was just doing a risk reversal or something like that, i wasn't selling the call spread, i might just say instead i'll just buy that call, but here i am trying

to offset det kay and that's how to do it >> schlumberger after that kind of aggressive drawdown, you don't typically get an immediate second run and this is where you have oversight >> right now to the cloud stocks, they're flying high. adobe sales force work day up flying high up more than 40% adobe rors earnings next week, but he brefr prefers's different space. >> let's talk with adobe it's become one of the largest software companies in the world and it has 130 billion in market cap and it's up 200% this was often kicked around as a takeout sort of name from a begger software player not anymore. i have a chart since it started in 2017, just because it broke out to a new all-time high

>> yerng i i saw a whole hell of a lot and the momentum is with these names. work day, service now, sales force have become who of what i named. now -- and those were also -- i happen to think, given the inability to buy u.s. assets we could see some play m and a, they, they reported earnings that were disappointed they pulled down the annual revenue target of a year and a half. >> it makes sense to glow about 20% in sales expected this year.

it's got a $3.1 million market cap and that's easy for someone who thinks this content and storage platform has a nascent a.i. business and there aren't too many ways to do that and to me box could be it it's hard playing for take-out prices and we don't want to be buying calls all over the place so one of the things that i like to do every once in a while is a risk reversal where i define the level in which i can get leverage to the upside and what is the risk reversal might get a call spread with the risk reversal and in situation i look at when the stock was traded at 24.65. i can sell the 2019 strike 20 put. the stock's at 24.65 i can sell that at $24.65 and i can buy the 2019 exploration for 95 cents that trade cost me 30 cent, okay on january expiration the cost is 30.30, i have profits and if it's below 30.30, i have losses.

the probable outcome is nothing happens. what am i trying to do here? i'm trying to put a place holder in a name whery have no idea what the outcome will be and it could be a take-out price candidate, and you will see it back up in the prior high. >> even if it starts to get going without some kind of a bid coming and as you point out, it's a digestible size and although it's a $3.7 billion market cap it does have net cash on the balance sheet so the acquisition cost, if you figure they'll start with 20% premium the thing i will say is this is if the stock does go higher for any other reason you are in between now and the expiration date going to see some profits this is what we call long delta. you are long exposure. the idea here is if it doesn't go in your favor time is on your side, but if it does you will have opportunities to potentially monetize this before the expiration date especially by covering the down side put which might decay to something

very close to zero >> in terms of classic charting, right? this is a sell-off to a level of support where rebound potentially is high. you have a well-defined level, 24 a breakout, it is 30 and it has quietly come back to the level from which it broke out, and from 23% or thereabouts and read the potential high and going lower and i would say lower, one thing i would ask is with volatility probably around 45% this is also a place where i might have considered a call spread risk reversal as well because premiums are high. >> to your point, on a mark to market basis, if this starts moving back to the prior high, that will start to pick up delta and it will be worth more and at that point, maybe i can sell the january 35 call or the 40 call or something like that against it and i would like to give myself more leeway to go back up to the high 20 >> for everything options action

check out cnbc.com and don't forget to sign up for our newsletter it's like you died and went to options heaven what are you waiting for here's what's coming up next >> social stocks are getting slammed, but if you own one of the names, relax mike ko has a way to protect yourself plus, calling all options action fans. reach into your pockets, grab your phone and tweet us your question @optionsaction. if it's nice we'll answer it on air when "options action" returns. 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 the nation's largest senior-living referral service. for the past five years, i've spoken with hundreds of families and visited senior-care communities around the country. and i've got to tell you, today's senior-living communities are better than ever. these days, there are amazing amenities, like movie theaters, exercise rooms and swimming pools, public cafes, bars, and bistros, even pet-care services. and nobody understands your options like the advisers at a place for mom. these are local, expert advisers that will partner with you to find the perfect place and determine the right level of care, whether that's just a helping hand or full-time memory care. best of all, it's a free service. there is never any cost to you. senior living has never been better, and there's never been an easier way to get great advice. call today.

a place for mom -- you know your family, we know senior living. together we'll make the right choice. you know your family, we know senior living. (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. ♪

>> welcome back to "options action." it wasn't cool to be social this week, facebook, twitter getting demolished after they were on capitol hill meantime, facebook and twitter are sitting firmly in bear market territory facebook down more than 25% from its late july high twitter, meantime, down more than 35% from its 52-week high it hit three months ago, closing below its 200-day moving average for the first time in a year so should you expect more pain for the space? mike ko is over at the plaza with the very special call to action >> twitter is one of these names maybe even more so than facebook which has had a sharp pullback and a volatile stock at this point. so obviously, if you're a holder that might be concerning even more concerning is the fact that you point out that it's down more than a third off of its highs in less than three months if you hold this stock and you might be thinking that you want to get rid of it, there might be

another way to deal with that situation and we might be able to put on a trade that can limit some of your downside risk and if we take a look at the stock chart price and you can see the volatility that we're talking about. we've had the huge, almost 40% decline and the one thing i would ask you to keep your eye on is over here and here if you're a holder of the stock you're wondering where exactly is the bottom? well, if we get insurance put on here, maybe we can hold on to the stock and not have such significant concerns specifically, what i'm doing is i'm looking out to december and putting on a put spread. one of the reasons we have a put spread is because the stock is volatile and that is the price of option is elevated. i was looking at the 30 put, which is the $2.85 and selling the two-put against it for 55 cents and net-net, spending $2.30 and that's a quarter of a distance which is a quarter of a

dollar in this particular instance because the stock is moving around so sharply, that's why you see the premiums and we do have earnings coming up in the latter half of october and that was the other reason i was looking out to december to give ourselves enough time in case the stock will rebound you'll have holdings and you'll be able to protect your downside that way and earnings for whatever reason continue to put pressure on the stock you will have insulation below. >> thanks for that, mike what do you think? >> a really interesting sell off. let carter speak to the technicals here and i suspect from a fundamental standpoint when they report that the guidance will show a couple of things and how they're combatting some of the issues that they had from 2016 to the higher, pences that we saw on facebook and there could be a loss of revenue and the other point i would just make and i've said this pretty consistently and i like this company, and i like a lot of the things that they're doing and i think they have a huge user problem that they've not had a reset on yet and i think that's probably coming this fall

if you think about mike's trade and if you're long and its had a massive, massive move over the last year and a half since it bottomed and that makes sense. >> i think we have a slide on it and we can show what the odds are. basically with the volatility that you have right now, the chances that it will go below 30 and below 30 by the 285 and the two and a half that you're spending on this product you are, those odds are pretty good between now and december especially with the upcoming catalyst the other thing i would say is to your point, i don't know that we're completely done with the kind of headwinds that we're facing in terms of scrutiny like the other social media companies. it's a classic chart and we have one on the screen. and you're dropping very heavy volume and you try to recover and you drop and break again this week ask it projects to 25 at a minimum and i would say it's even lower than that. it's not a good circumstance and

facebook is similar. >> how does google look? alphabet, i should say >>, there are three circumstances, one, that even as of now it's microsoft. there's one that have been completely been destroyed and that's facebook and twitter and there are ones that are meddling and am i getting better or am i not? google is the largest. you would assume that alphabet has insulation on the fundamental bases and you are not dealing with the same kind of valuations and google has robust and growing businesses and it's definitely very strong and twitter is more of a question mark and there is a higher valuation and there's more volatility and that makes sense in this environment. >> and it was defensive in a long position and when you think about the premium you're spending and it's a single percent of the stock prices and you like to use long premium put defensive positions tactically,

if you do that too frequently, you will eshg rorode any sort of return >> i think it's relative to how much volatility you see in the stock. what is interesting here, sometimes you will see that options premiums go up sometimes thai don't go up enough just take a look at how much the stock has moved and you spent $2.30, and whatever, that seems like a lot, and this stock has moved close to 40% >> if you're spending 40%, then that could be okay, even when other times spending 3% might not make sense like the s&p over a short period of time so it's all relevant. it was a short week for amazon and it was costing $1 trillion in market cap before falling with the rest of the tech space how should you play it now plus, got a question for one of the traders? send us your tweet, if it's nice

we might read it later in the show we're live at the nasdaq maetten mesqrerksi itis ua much more options action right after this why are you so good? 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.

thanks, janet. it's welcomemy happy place. store. you can learn how to switch to xfinity mobile, a new wireless network that saves you cash. and you can get 5 lines of talk and text included with your internet. and over here i'm having my birthday party. dj fluffernutter, hit it! ♪ dj fluffernutter simple. easy. awesome. ask how to get $300 back when you sign up for xfinity mobile, and purchase a new samsung phone. visit your local xfinity store today. 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 aka action." the amazon' amazing rally still had room to run. the stock is expensive at over $2,000 a share that's 100 shares and it would cost you $200,000 and it's expensive on a valuation basis and it has momentum on its side. i was looking out to october, you can buy the 2500 call spread and that's a $50 call spread and you would spend just $18 for that >> well, it was a wald week for amazon the stock hitting the trillion dollar market cap milestone before closing the week lower by 3% so, mike, what are you doing now? >> this is an interesting one and it's a good illustration for

why they use options in cases like this. the stock was trading around $2,000 it was up money on tuesday before you came out on tuesday afternoon and talked about it potentially running out of gas this was worth $18 in the beginning of the day and it's worth $13 today. this trades down about five bucks from where it was whereas the stock is down 50 so you obviously get exposure to the shares while mitigating significant aam significant amounts of risk, however i will defer to carter >> the point of the exercise on tuesday which is even great uptrends have pullbacks. sell-offs and is it a setback? of course, not does it mean you can't hold this for three years? a lot of people think so overdone day to day, tactically that was the point and probably more downside. >> also, last week, dan said shares of gamemaker electronic

arts were gearing up for a rebound. >> in late july when the company reported they did talk about the effect of fortnite and online sales and the stock sold off after that it was sitting on this one-year uptrend and to me we were thinking about it on the show a little bit and that seemed liking about support today the stock was at 113.40 and that's where it closed and you can look at the 120 risk reversal paying $2.50. >> and he was rate the stock rallied 2% since the trade so, dan, what are you doing with ea now? >> interestingly, the stock sold off a little bit and then it recovered today and it kind of looks like it's putting a near-term bottom and one of the reasons why it was the call, and i wasn't sure where it would bottom out, but if it does get back toward that 120 long call strike, at that point i'm going to think about covering that short 100 put strike and that really is the max risk of this trade. obviously, i spent premium for this thing and i'll look into

the call spread by selling a higher strike call and the same expiration which should be november. >> it's good >> it was 150 to 110 and at some point even if it will get cut in half here, you get it and you might get the sell-off >> up next, your tweets and the final call 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. ♪

today's senior living communities have never been better, with amazing amenities like movie theaters, exercise rooms and swimming pools, public cafes, bars and bistros even pet care services. and there's never been an easier way to get great advice. a place for mom is a free service that pairs you with a local advisor to help you sort through your options and find a perfect place. a place for mom. you know your family we know senior living. together we'll make the right choice. (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," this one is from indy, do you think volatility will increase between now and november, what is with the volatility >> the simplest way to get long volatility, i don't think that's what you're asking if you think volatility will rise you probably also think the s&p will be hitting a rough spot. the easiest way to play this will be to buy in january. >> time for the final call carter

>> oi8 bounce. >> mike? >> going to use a call spread risk reversal. >>a nathan >> think box could be interesting. >> all right that does it for us here on options action thank you very much for watching and seewatching. see you next back friday at 5:30 "mad money" is next. my mission is simple to make you money. i'm here to level the playing field for all investors. there is always a bull market somewhere, and i promise to help you find it. "mad money" starts now hey, i'm cramer. welcome to "mad money. welcome to cramerica other people want to make friends. i'm just trying to make you some money. my job is not just to entertain but to educate and teach you so call me at 1-800-743-cnbc or tweet me @jimcramer. you'd think judging by all the crazy stories coming out of washington that president trump would be totally unpredictable, but not when i