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 the decay 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 earnings next week, but he 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 >> 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. the stock sold up. i think it makes sense to look at this thing right now. they're growing sales at about 20% a year they have about $600 million in sales expected this year $3.7 billion market cap and that's a really easy one for

somebody who thinks that this content and storage platform has a nascent a.i. business and there's not too many ways to do that and box could be it so to me, it's really hard playing for takeouts and we don't want to be just buying calls all over the place one of the things is a risk reversal what is a risk reversal? in this situation, a look out to january expiration the stock is trading at $24.65 i can sell the january 2019 strike 20 put. i can sell that at 65 cents and buy one of the calls for 95 cents. that trade costs me 30 cents so on january expiration, the stock is above 30. i have profits the highest probability outcome

is nothing happens and i lose that 30 cents. what am i trying to do here? put a place holder in the name that i have no idea what the outcome is going to be but it could be a take out candidate and you're going to see this thing back up in it's prior highs. >> even if it starts to get going without a bid coming in. and although it's a $3.6 billion market cap it does have the balance sheet so if you figure they're going to throw a 20% premium on it isn't quite as high as you might say. the thing i will say is this, if it does go higher for another reason you're going to see some profits. this is what we call long delta. so your long exposure so the idea here is that if it doesn't go in your favor, time is kind of on your side, but if it does, you'll have opportunities to monetize this before the expiration date, especially by covering the down side put.

>> this is a sell off to a level of support where rebound potential is so you have a well defined level. a break out. and it's quitely come back from the level from which i broke out. premiums are high. >> to your point, if this stock starts moving back toward the prior highs, the 30 call that i'm long is going to be worth more and then at that point, maybe i can sell the january 35 call or the 40 call or something like that against it so i'd like to give myself a little more leeway to trade this thing on a move back up to the high 20s. >> for everything options action

check out options action.cnbc.com while you're there. it's like you died and went to options heaven so 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 has a way to protect yourself plus, calling all options actions, reach into your pocket, 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. 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 does it look like i'm done?yet? shouldn't you be at work? [ mockingly ] "shouldn't you be at work?" todd. hold on. [ engine revs ] arcade game: fist pump! your real bike's all fixed. man, you guys are good! well, we are the number-one motorcycle insurer in the country. -wait. you have a real motorcycle? and real insurance, with 24-hour customer support. arcade game: wipeout! oh! well... i retire as champion. game hog! champion.

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. ♪ >> it wasn't cool to be social this week. getting demolished after facebook and twitter got grilled about privacy concerns on capitol hill snap sinking to an all time low broke below $10 a share for the first time ever. meantime, facebook and twitter are sitting firmly in bare market territory twitter meantime down more than 35% from the 52 week high hit just three months ago so should you expect more pain for the space? mike has a very special call to action take it away. >> so twitter is one of these things maybe more so than facebook which also had a really sharp pull back. very volatile stock at this

point. so obviously if you're a holder that might be concerning more concerning is the fact that it's down more than a third off of its highs in less than three months there might be another way to deal with that situation we might be able to limit your down side risk and if we take a look at the stock chart price here we can see the volatility that we're talking about obviously you had a huge doe kline and if you're a older of the stock you're wondering where exactly is the bottom? if we have a little bit of insurance here maybe we can hold on to the stock and not have such concerns. the stock is volatile and elevated i was looking at the 30 put which is at the money.

$2.85 and then selling the 22 put against it for 55 cents. spending .30 that's a little over a quarter of the distance between the strikes which is $8 so normally we'd be looking to spend about $2 but in this particular instance because shock is moving around so sharply you can see the elevated premiums. we do have earnings coming up in the latter half of october so that's the other reason i was looking out to december. give ourselves enough time in case the stock is going to rebound. you're going to be able to protect your down side that way and if earnings for whatever reason continue to put pressure on the stock you'll have some insulation below. >> thanks for that what do you think? >> a really interesting set up but i suspect from a nindal standpoint that their guidance is going to show a couple of things how they're combatting some of the issues from 2016 it's going to be higher expenses and it can also be a loss of

revenues and the other point i would just make is i said this consistently, i like this company. i like a lot of things they're doing. they have a huge, huge fake user problem that they have not had a reset on yet and that's probably coming this fall if you're long, the stock is still up for the year. it's had a massive move since it bottomed it made sense to hold on to your long position. >> also i think we have a slide on it. we can even show what the odds are. basically with the volatility that you have right now, the chances that it's going to go below 30, even below 30 by the 282 that you're spending on this structure, those odds are pretty good between now and december the other thing i would say is to your point, i don't know that you're completely done with the head winds that they're facing in terms of scrutiny, they like the other social media companies are facing. >> and again, a classic chart.

have one up on the screen, very heavy volume to try to recover it it projects 25 minimum so it's just not a good circumstance and facebook is similar. >> how does google look? alphabet i should say? >> think about it. there's three distinct circumstances. there's ones that even as of now, that's adobe and microsoft. there's ones that have completely been destroyed and that's facebook and twitter and then there's am i getting better or am i not? >> you would assume that alphabet has some insulation just on a fundamental basis. you're not dealing with the same kinds of valuations and uncertainties. google has robust and growing businesses their cloud business is definitely very strong so twitter, i think there's more of a question mark. there is a higher valuation and more volatility and that makes

sense. >> so on a trade like yours it's was really obvious when you think about the premium it's high single digit percent of the stock prices there's a rule that you like to use. you like to use long premium put, defensive positions tactically if you do that too frequently you'll erode any sort of returns. what sort of premium level do you like >> it's relative to the volatility in the stock. what is interesting here is sometimes you'll see that options premiums go up sometimes they don't go up enough just take a look at how much this stock has moved so you spend $2.30 that is whatever, 8%, close to it of the current stock price. that seems like a lot but in a comparable amount of time this stock moved close to 40% so if you're spending 8% in terms of premium when a stock is moving 40% that can be okay even when spending 3% might not make sense like on s&p over a short period of time so it's all relevant.

>> still ahead, a big short week for amazon the stock crossing a trillion dollars in market cap for the first time on tuesday before falling with the rest of the tech space how should you play it now the traders have clues plus a question for one of the traders, send us a tweet if it's nice, you might read it later in the show. more options action after this (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'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 we're okay making a bullish bet. out to october you can buy the 2050, $2,100 call spread and you expend $18 for that. >> it was a wild week for amazon before closing the week lower by nearly 3%. so what are you doing now? >> this is an interesting one and probably as good an

illustration of why to use options in cases like this of anything that i've seen. so the stock was trading around about $2,000 this was up on tuesday before you came out and talked about it potentially running out of gas this spread was worth $18. it's worth about $13 today this trades down about $5 from where it was where as the stock is down 50 however i'm going to defer to carter. >> even great up trends have pull backs is it a set back that's permanent? of course not. i think probably more. >> also dan said shares were gearing up for a rebound.

>> in late july, when the company reported they did talk about the effect of fortnite on online sales and that was disappointing. the stock sold off after that. >> we were thinking about it on the show a little bit. that looked like interesting support here today the stock was at $113.40 that's where it closed you can look to the november 100-120 risk reversal paying $2.50. >> he was right. >> so interestingly the stock sold off and then recovered too today. i wasn't really sure where it's going to bottom out. it may not have been done bottoming out but if it does get back toward the 120 long call strike, at that point i'm going to think about covering that short 100 put strike and that's the max risk of this trade obviously i spent some premium for this thing and at some point

i'll look to spread that into a call spread by selling a higher strike call in the same expiration which will be november >> it's good 150 from 110 and at some point you get rallies. >> all right up next, your sweets 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. ♪

(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. if we think volatility will increase between now and election day in november what is the simplist way to get long volu volatility >> you probably also think the s&p might be hitting a rough spot here. so probably buy some december or january puts. >> back to the final call.

carter. >> going to use a call spread. risk reversal in oih. >> box could be really interesting. >> all right that does it for us here on options action thanks for watching. see you back here next friday at 5:30 don't go anywhere. "mad money" starts right now - [announcer] the following program is a paid advertisement for the nuwave brio digital air fryer, brought to you by nuwave, the makers of the nuwave oven pro and the nuwave precision induction cooktop. we all love fried food. french fries, wings, onion rings, fried chicken. but who wants to deal with the mess and added calories? deep frying food has been linked to high cholesterol, heart burn, acid reflux, kidney problems, and even cancer and alzheimer's. now, you can have all the fried food you love without the added fats and oil. introducing the revolutionary nuwave brio digital air fryer. the nuwave brio uses super-heated, cyclonic air