hey there. live from the nasdaq market site on this friday afternoon the guys here finally are together and they're getting ready for the big show while they're doing that, here's what's coming up. >> you can't sit with us >> social stocks are getting kicked to the curb, but if you own one of the beaten names, mike co has a way to limit the losts and the trade. plus, cloudy with a chance of profits ♪ i'm singing in the rain >> cloud stocks are on a tear. and dan says there's one name that could be next to break out and he's got a way to buy it for less. and -- ♪ hurt so good

>> energy stocks got crushed this week, but the chart master says the charts 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% the xo gas falling 6% and energy was one of the worst sectors of the week the chart master says the charts of one area of the energy market have gotten so bad they actually look good. let's get to carter at the plasma. >> direct opposite trade from what mike and i did about three weeks ago playing for energy overall to plunge. now that that has 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. s&p versus oih it's from slummerge and halliburton. you can see what the spread is we know what this is versus this year to date moving forward take a look at a wrong ger period again, you're talking about over 1,000 basis points of spread over the past 12 to 18 months and at this point the correlation is broken down i think the orange line actually has some snap back potential let's look at the oil services look how precise we know, yes, that this is a double top but to some extent that's played out. and look how well defined these are. if i put in the next chart, what we've got are the very precise chart. you can literally see how precise these lows are and it's

my bet it's going to snap back a bit here we're going to throw back to a level where you are likely to make it back towards this down trend line let me see if i have one more here we will call it a day. in fact, that's it what i'm thinking is like this you get the throw back and at least a 4 to 5% move in which it's so bad it's good back to multiple well-defined levels. >> how do you trade this, mike >> this is a tricky situation. we're trying to catch the falling knife as carter just pointed out, maybe this has bottomed out here. i think one of the things we want to do is mitigate the amount of premium. oih is an etf. when you have situations like that, generally speaking you're not going to see gap moves this is a basket of stocks i think the way to play this is with a call spread risk reversal i was looking out to october, the 21, 23, 25 call spread risk

reversal very close in the money. about 20 cents in the money. you could spend 50 cents for that package and the idea here is that we're going to be collecting some decay on the call that we're short on the up side, the 25 strike, as well as the 21 strike put on the down side of course, if it stays right here that's going to mitigate a lot of that decay. looking for maybe a 10% move but also getting a bit of a buffer to the down side if it's lost by 10%, that's essentially where we would have it put to us obviously we've made some bearish signs before i'm individually long halliburton which is one of the largest constituents. >> whoa, it's in an interesting setup. slumberge, it's approaching seven year lows. i'm wondering if there's a reason to flush them they might not come back which leads me to mike's trade it's going to be contrarian.

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

buy that call. here i am trying to offset some of the decay that's one way to do it. >> the halliburton, slumberge, after that aggressive draw down, you get an immediate second run. a little bit oversold. >> now to the cloud stocks they're flying high. adobe, sales force all flying high up 40%. adobe reports earnings next week dan says he could be right for a breakout what are you looking at? >> let's look at adobe this quietly or not maybe to quietly has become one of the largest stocks market cap up 130 market cap at one point this was kicked around as a takeout name from a bigger soft blairer. not anymore. i have a chart since it started in 2017 of adobe look at how far this thing has come off trend just since it's broke out to a new all-time high i don't want to trade this one

next week. i don't think i have a whole heck of a lot of edge. last week it went down a couple of percent and i think the momentum is with them. workday, sales force, service are big names. the latter two are 30 plus billion market cap companies workday, those were also thought to be takeout candidates i actually think given the situation that we are with all of this cash coming back on shore and the inability of some foreign buyers, we could start to see m&a and adobe with their stock or sales force, they should start thinking about some smaller tuck in acquisitions stock sold off they pushed out their $1 billion annual revenue target of about a year and a half or so from prior guidance it makes sense to look at this thing. they're growing sales 20% a year they have $600 million in sales expected this year it has a $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 ai business. there's not too many pure play ways to do it. it's hard playing for takeouts, right. we don't want to be buying calls all over the place one of the things i like to do is a risk reversal where i define the level where i can get some lechblg to the up side. mike did a call spread risk reversal stock was trading at 24.65 i can sell the january 2019 strike 20 put. stock is at 24.65. i can sell that at 65 and i can buy one of the january 2019 expiration 30 calls for 95 cents. that trade costs me 30 cents, okay on january expiration the stock is above 30.30 i have profits if the stock is below 20.30 i

have losses. the highest probability is nothing happens. the stock is between 20 and 30 i lose 30 cents. what am i doing? i'm trying to puta place holder i want to hold this thing. it could be a takeout candidate. if it starts to get going, you'll see it back up to the pryer highs. >> even if it starts to get going without some kind of a bid coming in. it's an adjustable size. although it's a $3.7 billion market cap, it has net carbon the balance sheets the acquisition costs, you figure they're going to throw a 20% premium kwi isn't as high as you might say. the thing is if the stock does go higher for any other reason, you are in between now and that expiration date going to see some profits this is long delta you are long exposure, the idea is if it doesn't go in your favor, time is kind of on your side if it does, you're going to have opportunities to monetize this before the expiration date

especially by covering the down side put. >> classic charting, this is a selloff o to a level of support where rebound is potentially high a breakout at 30 and quiet whether i coming back to levels from which it broke out, down 22% or thereabouts rebound potential high lower, i would say you want to be long. you want to be long. >> one thing i would ask 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 in this name. >> to your point, on a market to market basis the 30 call that i'm long is going to start to pick up deltas, right? it's going to be worth more. maybe i could 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" you can check it out while you're there, don't forget to sign up for the newsletter. it's like you died and went to options heaven so what are you waiting for? here's what's coming up next. >> the him the her. >> social stocks are getting slammed but if you own one of the names, relax mike koe has a way to protect yourself plus, calling all "options action"s fans. 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. 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.

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♪ trade 24/5, with td ameritrade. ♪ welcome back to "options action." it wasn't cool to be social this week facebook, twitter, snap getting absolutely demolished. facebook and twitter got grilled about privacy concerns on hill snap sinking to an all-time low. facebook and twitter are sitting firmly in bear market territory. facebook down 25% from the late july high. twitter down and it's closing below the 400 day moving average for the first time in a year did you expect more pain for the space? mike koe is over to the plasma with a very special call to action. >> twitter is one of these names more so than facebook which has

had a sharp pull back, very volatile stock at this point obviously if you're a holder, that might be concerning even more concerning is the fact that you pointed out that it's down more than 1/3 off of its highs in less than three months. if you hold the stock and you might be thinking you want to get rid of it, there might be another way to deal with that situation. we might be putting oen a trade that can limit your down side list if we take a look at the stock price we can see the volatility. obviously we've had this huge almost 40% decline the other thing i would ask you to keep a look at is over here and here if you're a holder of the stock, you're wondering where exactly is the bottom. if we have a little bit of insurance, maybe we can hold onto the stock and not have as much significant concern specifically what i'm doing is looking out to december and putting on a put spread. one of the reasons we're putting oen a put spread is the stock is volatile it's elevated. i was looking at the 30 put,

which is pretty much at the money. $2.85 which is what you would sell at that selling the 22 for 25 cents. i'm selling 2.25 which is a little over a quarter of the spread, which is $8. because the stock is moving around so sharply, that's why you see the elevated premiums. we have earnings coming back in the latter half of the month give ourselves time in case the stock is going to rebound. you have holdings. you can protect the down side. if earnings for whatever reason continue to put pressure on the stock, you're going to have insulation below. >> thanks, mike. >> a really interesting setup. stock is in a free fall. i'll let carter speak to the fundamentals when they are going to have guide dance, it's going to show a couple of things, how they're combatting some of the issues that they have from 2016, higher

expenses we saw it on facebook and it also can be a loss of revenues the other point i would make, i've said this consistently, i like the company i like a lot of things they're doing. they have a huge user problem that they have not had a reis the. if you think about mike's trade, the stock is up 25%. it's had a massive move. that puts for a big spend to hold on to your long position. >> also if you're thinking about making a bearish bet we have a slide on it and we can show what the odds are basically with the volatility, the chances that it's going to go even below 30 by the 2.85 or 2.50 that you're spending on the structure, the odds are pretty good with the movement that we're seeing especially with the upcoming catalyst. the other thing i would say to your point, i don't know that we're completely done with the head winds they're facing in terms of scrutiny, they like the

other social media companies are facing. >> just, again, a classic chart. you have one up on the screen, head and shoulders very heavy volume. try to recover profits break again this week. it projects 25 at a minimum. i would say even lower than that just not a good circumstance facebook is similar. >> how does google look -- alphabet i should say. >> think about it. there are three distinct circumstances. one even as of now are broken, adobe, microsoft, so forth there are ones that have completely been destroyed, that's facebook and twitter. there are ones that are middling, am i getting better, am i not google is the largest one. >> you would assume alphabet has some insulation on a fundamental basis. you are not dealing with some of the same kind valuations and uncertainties. they have good and robust businesses, the cloud business is very strong twitter i think there's more of a question mark.

there is a higher valuation and more volatility. >> mike, on a trade of yours it was defensive against the long position when you think about the premium you're spending it's high single digits of the price percent. there's a rule you like to use you like to use long premium put defensive positions tactically against long holds if you do that too frequently you'll erode any kind of returns. what sort of premium level do you like to target >> i think it's relative sometimes you'll see that options premiums go up sometimes they don't go up enough just take a look at how much the stock has moved. 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 the stock has moved close to 40%, right? so if you're spending 8% in terms of premiums when a stock is 3406g%, then that can be okay even other times when spending 3% might not make a sense like

on an index, s&p so it's all re8 will he vent. still ahead, big short week for amazon crossing $1 billion on tuesday before falling with the rest of the tech space how should you play it now the traders have clues send us a tweet to "options action." if it's nice, we might read it later. much more "options action" right 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.

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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 some of our open trades mike said amazon's amazing rall still had room to run. >> the stock is expensive at over $2,000 a share. that would cost you $200,000 if you bought a round lot it's expensive on a valuation basis but we're okay making a bullish bet. october you could buy the $20502100 call spread. you would spend $18 for that >> well, it was a wild week for amazon, the stock hitting the trillion dollar mark the cap milestone. closed lower by nearly 3%.

mike, what are you doing now >> this is an interesting one. this is as good an illustration to use options as any i've seen. it was trading around 2,000 bucks. it was up money on tuesday but you came out tuesday and talked about it potentially running out of gas this stock was worth $18 at the beginning of the day and it slid 13 bucks the stock is down 50 so you obviously get exposure to the shares while mitigating significant amounts of your risk. >> however, i'm going to defer to carter. >> the point of the exercise was even great up trends have pull backs. this one seemed due. is it a setback that's permanent? of course not. does it mean you can't hold it for three years and rebound from here a lot of people think so over done day to day that was the point i think more down side.

>> last week dan said game maker was down >> they talked about the effect of fortt night -- fortnite. it has an up trend that looked like interesting support. the stock was at 113.40, that's where it closed. you could look to the november 100-120 risk reversal paying $2.50. >> and he was right. the stock rallied 2% since the trade so, dan, what are you doing with e.a. now? >> interestingly, the stock sold off a little bit and then it's recovered today. looks like it's putting in a near term bottom one of the reasons to sell the risk reversal to buy call, i'm he not sure where it's going to bottom out it may not be done if it gets back towards the 1.20 long call strike, i'm going to think of covering the short 100 put strike that is the risk of this

i spent some premium for this. at some point i'll look to sell the long call by selling a long call. >> this is classic, so bad it's good it plunged from 1.50 to 1.10 and at some point even if it gets cut in half from here, you get counter even like amazon. >> 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. ♪

(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." time for a tweet this one is from indy who asks if we think volatility will increase between now and election day in november what is a simple trade to go long net volatility? >> the simplest way is to buy a straddle you think volatility is going to rise you think that the s&p might be hitting rough spots here i think the easiest way is buy some december or january puts in

sty. >> etf oih for a bounce. >> mike? >> call spread risk reversal in oih. >> i think vox can be really interesting. >> that does it for us here on "options action. thanks so much see you back here next friday at 5:15 meantime, don't go anywhere. "mad money" starts right now - [announcer] the following is a paid presentation for the power airfryer oven, brought to you by tristar products. we introduced the power airfryer, 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 airfryer. now, air frying is taking a quantum leap forward. introducing the power airfryer oven, the full oven that can air 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, and up to 70% less calories