wells fargo, it just broke the down trend -- the up trend that's been in from the april lows jaime diamond, the ceo and jaime morgan goldman was down for ten straight days. yeah, i look at it and i say to myself, i am not certain what they're going to be able to say q 3 earnings i think you will define your risk of october and out to november which will catch the bulk of the components of the xlf. look at november, you buy the 28 and 26 buying one of the february for 58 cents and selling one for november 26th. it breaks at 27.60

that's a four to one pay out i like the risk and reward there. it does not have a whole heck of ump here these stocks are going down. >> financials are such an important part of the market whether it is based on the cost of ten-year money stuck at 10% financial is a big one gold goldman sachs is down 10 >> are they that important to the market >> sure. second or third biggest by weight in the s&p. in terms of the system, the most important sector by far. it is plain and simple >> it is credible that the market has been able to do >> there are two components to the success of financials.

one which what we talked about and their interest margins of what you would expect of rising rates. the fun fundamentals of the business the housing markets and many markets have peaked a little bit. those types of weaknesses, have we reached auto. just specifically to dan's trade here looking out to november, right now the implied volatility in xlx -- xlf is less. this is much lower than normal, makes it a good value if you are thinking or, if you are thinking a general hedge to the market or looking at making a barish >> if you look ats the

components and investment bank and morgan stanley, if there is bad news that you can get a flush out of those and you can get a move back to 105 and jp morgan you will have the xlf back to 26 switching gears, transports are hitting the road again checking out the best in the group, united air star and land star and fedex are all making it big for the month. what do you dpguys think >> that chart shows what i am going to do is zoom in and what you can see is that we have made the new high where it is just to keep in your mind's eyes that the dow is still below what i am thinking here in areas that's leading as of now find the lagging stock. to that end, i want to talk

about fedex. fedex having not made it to the high as this thing from the transportation guide itself, this is an opportunity for a catch up train a couple of ways to draw the line here is first of all how much it lagged year to date, you can see the numbers clear. 9 verses up 2. that's the opportunity so the chart itself of fedex, no annotations are drawn by me. here are the lines as i see it what we know of what we have is a well define reaction below and again to the high and the high we are sitting here right in this triangle or wedge or whatever you want to call. the judgment is you will want to break out and fedex will do what the index have already done. >> good stuff >> what's the trade?

>> fundamental express is an interesting case because like ups they have a secular tail wind the dark cloud on the horizon may be that amazon looks to potentially compete with them. that's a long way off. it is going to take a long time to amazon getting in top place and capital intensive business and to compete here. we have earnings coming up next week just taking a look you typically look out like 60 to 90 days if you take a look a month out after earnings, federal express typically moving in the months following earnings we are looking at considerable move right now with option premiums not being elevated despite the fact that it is going to be announ announcing i was looking out in november, the 260 call spread of $70.70 cents. the idea here is that we'll get

to capture some of that upside we have seen that the move is in a comparable period of time when you have earnings that's fairly significant. take a look at the last quarter of 9% following the month's earnings here i am looking at 10% upside and a little over 60 days. just because the option is reasonably priced you can use the option on the long side and situations like this where it is inexpensive i expect this one to move. >> mike is targeting the premiums that he's paying for this $20 wide. that makes total sense getting that time out to the bases makes sense. here is the stock that's really cheap. it seems the lack of performance is activity to its peers and the broad market it is one of those names that's in the mix of oh, are we slowing globally and for some reason,

trading for 13 times i don't know why it is trading at a down. i am just a little apprehensive going into this earnings you can see this things on good numbers. >> that's really good point when you take a look at valuation what is it that the mark is seeing and when it is trading at a discount and looking at those types of growth rate companies charging 10% margins and it has less of that now. again that speaks to why option makes sense in this case earnings are revealed, we are not explosive to materials here. >> again this is the kind of thing where in the event that earnings are dekrcent, you get pretty good catch up >> okay. got a question for us, send us a tweet to "options action" and

for everything "options action" check out our website at cnbc.com >> while you are there check out the news, that's what i read friday night here is what's coming up next >> how would you like to triple your money in netflix in just one month? no, it is just mike's option trade. he'll break it down. calling all action pact, reach your pocket and tweet us your questions at options action. if it is nice, we'll answer it on air "options action" is sponsored by think or swim by 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. ♪ we are back to "options action." julia boorstin is in l.a. with more dedaltails on the app of wt it could mean for netflix. >> this one is for its comic book brand and it is called dc universe the app costs a dollar a month where basic service is $75 annually you will get access to thousands of hours of movies and tv series access to thousands of books and

community for fans and exclusive merchandise. warner brothers are producing a original series for this the first of which is called "titans. this is more for super hero fans entering the crowded market of all the streaming options. plus, netflix's hulu and amazon and among others next year disney is streaming its own stream service that'll feature its own, marvel content. now bob iger says it will cost less than netflix and less than dc universe. >> how well at&t can market the offspring from its new

opposition the warner brothers catalog is not being put to word and john stanki is working on a new model to be announced this year. when it comes to competition of n netflix, stevenson says his videos are like tiffany to walmart. mike is at the plasma with a call to action >> we are talking about netflix here this is the 800 pounds or 400 pounds we are looking at a bull issue trend. first of all the stock is at a bull issue trend we have something that can make the stock move fairly sharply. taking a look at those moves and what we have noticed is the current price of option is implying a move that's lower than that. it is implying a move of just

about 7% on earnings and over the last eight quarters, it averaged about 8%. options are looking like a decent value what we are targeting are these prior highs and we are trying to avoid returning to these levels if that's what we are looking at taking a look at the trade specifically, i am looking at to capture the october catalyst i am looking at the 375 and 415 call spread. ill cancel these 415 calls let's take a look at why i am still looking at the upside despite the fact that the option premiums are slightly lower. the chances that the stock gets to 387 which is the break even on the call spread sometimes between now and october expiration is about 70%,

reaching that high level if i did not sell that only at 55%. the 415 i am calling is 4% chance between now and october operation. by using call spread, we'll mitigate some of that decay but improve our odds of success. mike, thank you very much. you want to comment on the trade first? >> sure, in terms of the stock itsel itself, think of the trajectory. peaked in june of $4.25 and plunged. it rebounded 20% back to the 365. it is exactly 50% from the peak in june 425 below 312. a lot of energy is going to ex pend it already. i am thinking it is sort of range bound stuck and maybe held

higher on a week to week basis, i don' think it is going. >> this is a stock that has history moving fairly sharp. over the period immediately prior to and following a more substantial move than that >> there is also again, it is about the set up if we were closer to the lows, i think we'll have the energy to follow through and might used up and despite the statistics that it should move a lot >> on the trade. the first call spread you did on fedex, you are targeting a quarter of a width of the whole spread, right. you know this trade now has a much higher probability being in the money than the fedex one you are risking more to make less and risking one to make two and a half sort of thing

with those high probabilities you are risking more if you get the direction wrong in this one, you will have higher losses 3% or 4% of stocks >> if you were to reach out and buy the stock here maybe of the reason that ex pended a lot of the energy or over the course of the last eight quarters. that's the risk you are taking you are going to spend over $30,000. one call is going to cost you 1245 bucks and it depends a little bit on your view. one important thing, when you using a call spread, you are expressing a little bit of skepticism of the downside risk otherwise you try to buy the stocks >> the stock on earnings generally moves sharply one way or another >> if you play the trend, it is likely going to do that.

>> but, you got to get the direction. >> competition is getting really crowded. when you think of netflix of $160 billion market cap, that's equal to disney market cap disney is pulling all of their contents off of netflix. once you start seeing that, the trends are lower lows and highs. we have not seen the competition. >> every streaming company wants to have priority content that justifies prescription. >> good stuff. up next, cloud stocks, what have they been doing? that's good news for one trader making big on its name we are live at the nasdaq on this friday of "options action,"

we are live after this break so, why don't traders coac? 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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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 are back, it is time to look back at some of our open trades mike carter says the beat down

energy trade was gearing up for a rebound. >> you can see how precise these lows are and it is my bet that we'll snap back at it here and throw back to a level where you are likely to make it back towards this done trend. >> i was looking out to october, 21, 23 call spread you can spend 50 cents for that package. and they were correct. the oih of etf is jumping more than 3% since the timing of the trade. what are you doingnow? >> we only trade from settlements. this makes the most money at 25 bucks. after that your gains are kept we are at 24.20 as of today's close. that means you are getting 80 cents at best and more risk. my inclination looking at the

options here >> very much looking for a balance of trade and short term things in a down trend, we have that. >> all right, last week dan said cloud stocks can be set for a move higher >> last week box reported earnings that kind of disappointed the stocks sold off a little bit. the stocks sold up it makes sense to look at this thing right now. it was traded at 34.25 way out of the money stock at 24.65 right now i can sell that at 65 cents and i can buy the january 2019 expiration 30 calls for 95 cents. >> the stock rallying 2% since the time of the trade now. what are you doing with box now? > we want to look at a much smaller name if you look at how much market cap and adobe moved

since last week. that's why we looked at january's expiration and that's why we have these widespread you will want to cover the downside put >> up next, we'll get to your tweets and of course 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. ♪

omar, check this out. uh, yeah, i was calling to see if you do laser hair removal. for men. notice that my hips are off the ground. [ engine revving ] and then, i'm gonna pike my hips back into downward dog. [ rhythmic tapping ] hey, the rain stopped. -a bad day on the road still beats a good one off it. -tell me about that dental procedure again! -i can still taste it in my mouth! -progressive helps keep you out there.

-i can still taste it in my mouth! (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, it is time to take your tweet. jay asked what do you think about selling short the september 170-strike call for red hat? >> we don't like it. it is a 10 down to options we got 20 seconds.

>> you know, fedex >> didn't mean to stump you there. >> xlf >> good stuff. thanks so much for watching. that does it for us on "options action." we are back on friday, don't go anywhere why? because "mad money" with jim cramer is next >> announcer: the following is a paid advertisement for online trading academy. you've heard it over and over again. if you want financial freedom, you have to invest in the markets. it's true that the wealth created in the financial markets has transformed more people into millionaires and billionaires than ever before. why is it that only wall street and a select few investors get richer and richer while the everyday investor lags behind? how is this possible when both groups are investing in