hey there. we're live from the nasdaq market site on times squares while they're doing that, here's what's coming up on the show this is your portfolio this is your portfolio on tilray any questions? >> just one, how can i plank tilray using options mike co with the psa plus, tech is breaking down. and the chart master says there's something to suggest even more pain to come he'll tell us what's got him so worried. and talk about a rate

shocker. bonds are tumbling and dan nathan has a way to make three times your money in just two months it's time to risk less and make more the action begins right now. and that is where we start rates getting a big boost to the bank the financials are the second best performing sector this week in the markets although reversing. citigroup and jpmorgan 4%. jpmorgan up 3% despite a big week, financials have lagged even as interest rates have climbed higher. the move in the ten year yield moved up this week sparking a rally wall street was waiting for. dan is taking a look at the tlt. >> i'm taking a look because we have a fed meeting next week and one in november and a third one in mid december here the way i'm seeing things and some of the guidance from the companies, just the commentary we're seeing from our trading partners, it seems like we do have a trade war here. we have some slowing economic

data globally. we're starting to see some companies talk about the effects of tariffs here. when i think about this, obviously the futures are pricing 100% chance that the fed raises op ed funds 25 basis points next week but what really was at one point a certainty about a december raise and then three in 2019 seems to be something that's a bit debatable right now. when i think about what's going on here i also think about these mid-term elections i see a fed that wants to kind of proceed kind of lightly especially when we know the president has put some pressure on the fed chair about the pace of rate increases. so i think we can see a sort of sell the news on long dated yields here. we've seen the tlt it's had a pretty precipitous drop since august. it's down 4% the tlt has gone and bounced off of 116 the way i'm thinking is this we've seen yields rise and bonds go down. i think there's a good trade

setup as we go out to november expiration one of the reasons i think it makes sense, implied volatility are really cheap you can make near the money, projectional long bets risking one to make three. here's the trade, being contrarian sell the yield news. when the tlt was trading at 117, you could buy the november 117, 122 call spread paying $1.25 one in november for 1.55, selling one of the november 122 calls at 30 cents. it costs you 1.25. you break even up at 118.25. you can make up to three seventy-five between 118 and 122 and your max risk again is that 125 or a little more than 1% of the price. i have a one year chart. i'll let carter talk about the charts it bounced off of 116.

122.50ish seems to be good resistance five year bounced off of 116 a whole heck of a lot. do you like my levels? >> dan, i want to give you a good anecdote. i was a kid and someone said you can draw this. draw a straight line it's a perfect line. right down to it, you've got good rebound potential here's the other thing, record short bond positioning globally and the big pain trade would be it's actually you don't quite move as aggressively as everyone is expecting you do get some sort of lift in the ten year >> even if they move aggressively, one of the things you can see is some flattening in the yield curve i think one of the things you have to look to is look to signs of inflation to concern yourself with ten year rates or 20 year rates which is what the tlt is going to affect. i actually think between that and also of a host of geopolitical or economic risk

factors, a risk off trade is long u.s. treasuries here we are, right there and finally i would say at 1% of the current stock price, that makes a lot of sense it has spent most of the last 60 days, which is how much time you have before this expires, well above the break even level it's easy to see it making that move even though options prices aren't implying that it could happen easily. >> i think you nailed it from a sentiment standpoint it was bad. the fed, they have to move in front of inflation well, what if they're one and done in 2018 what if they're a bit more dovish in 2019 you're going to see the tlt bounce back against that resistance. from hot to not. tech hag been cisicity -- has bn sitting out. carter, what do you see? >> tech has been faltering on a relative basis this is an opportunity could one have avoided the underperformance in tech since

june it's been going on for three months what i have here is the tech sector on top and i have relative performance to the standard & poor's 500. what you'll see if i move this ford is this is ascending. we are making new highs in tech, but the relative performance, take a look at the next chart. the relative performance is what matters. we've peaked around june 5th here we are almost the end of september and as shown here, essentially we are not progressing and the relative performance, the relative performance is down even as you make new highs so the problem with that is is that it's still crowded and yet it's no longer paying. it's no longer the reward that one would think. so let's draw the lines a different way. here is the same s&p 500 tech sector on the top with its moving average and here is the relative performance we have literally lived perfectly in this channel over

and over and over and every time we move -- okay. every time we get above orhere we are on the cusp of breaking for the first time in two years. not a good circumstance. one or two more charts this is the smoking gun. semis. look at the relative performance to the s&p 500 this peaked seven months ago we've broken trend this is not good something is wrong here. so xlk itself, here is the chart of xlk last two years. here is the chart with the trend line what we know is we have bounced beautifully off this channel, off this channel, off this channel again and again and again. at a minimum i think we come back down to the channel that implies another 5% and then what if i think ultimately that's it we break i want to be short xlk take profits.

>> so, mike, what's your trade >> so i think this is one of those situations kind of like what dan was looking at in tlt where implied volatility is relatively low this is basically a basket of stock, an indices. we often see that. i was looking out to november, you could buy the 75 70 puts net net that will cost 1.15 which is less than 25% that's the math we look for. it was trading on or about 75 when i was looking at this it closed lower. pretty much closing on the lows or close to it you might be able to look at a 74-69 for a comparable amount of money. that's what you're looking for here's one thing i would look at also is two of the biggest stocks in it, apple and facebook, apple hasn't responded well since their product announcements and facebook has been in real trouble for a little bit longer. so if they're going to basically sway the whole sector, they're

giving us some significant warning signs. >> what's interesting about the xlk, the makeup versus the qqq, it's obviously heavily weighted to a handful of those megacap names. it also has at&t, verizon. there is some other funky stuff. the market, it doesn't have to be tech that goes lower. telecom and fin tech stuff i think it makes sense at this point given how much those top names in xlk outperform, if he's telling us, carter, that the relative performance has been topping for months, we could have other sectors perform okay. >> it's been a source but tech which has been so good, tech has been the source of funds you have to have -- not necessarily, but you are getting rotation tech is the likely one to continue that. >> more broadly, some of the constituents that you referenced like visa are part of the growth

versus value that's what we've been dealing with in the marketplace more broadly. it's not about just the big tech names. if you see a rotation as we sometimes do, you will actually see rotations out of growth and into value that would be also for the names that you don't conventionally think of as tech stocks. >> just one point about the trade, you obviously picked 75 you want to get really near the money. you're talking 1/4 of the width. you're already in the money. it's not going to take much for this trade to be profitable on a short move as we go into earnings that's really i guess the target you're going to look to take this off in october once we get the bulk. >> yeah, 56 days to expiration. for everything "options action", you can check out our website. you can check out our super cool newslett newsletter in the meantime, here's what else is coming up. tilray shares are crashing before you buy puts. mike koh has an important psa.

plus, calling all "options action" fans tweets 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

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>> that's right, melissa it's not just pot stocks options volume on pot stocks is exploding this week. and a lot of that could be related to an inability to make short bets on these names, particularly on shares of tilray, canopy growth and cronos growth one way to look is through the options contrast in each stock outstanding. we'll start with tilray. as of september 20th, total interest between calls and puts was 343,000 contracts. compare that to roughly a month before back on august 22nd when open interest was just 8,000 on contracts. for canopy growth, open interest, september 20th, almost 268,000 contracts. a month earlier, august 22nd, that was more like 96,000 contracts. and for cronos group, open interest, september 20th, 380,000 plus contracts open interest and on august 22nd it was closer to around 69,000.

on august 18th when they hit 300 bucks a share, they showed a huge spike for tilray. 237,000 plus total options traded on august 22nd total trading volume was 2800 contracts. canopy growth trading on that day, total volume, 102,000 plus contracts. 30,000 was what it was a month ago. for cronos, trading volume, almost 92,000 contracts versus just around 12,000 a month ago the bottom line, melissa, an explosion in pot stock interest translated into an explosion for trading in options on those pot stocks which already appears to be pulling off of it yesterday and today. >> dom chu in the newsroom how is all of this crazy options volume and rising short interest impacting put options. professor koh has the answer. >> when a stock becomes hard to borrow as it does when the short

interest rises and you start to see all of this activity taking prai place in the options market, generally speaking you see a lot more volatility. taking a look at cronos here, as the short interest rose, we can see the volatility of the stock similarly rose very, very sharply. take a look at canopy growth, you have basically the same dynamic going on here. you have the short interest going up and we have the volatility also rising very sharply. how sharply? well, we can take a look at what these markets are actually implying when we take a look at till ray there isn't as much of a history. the stock was trading $130 and the december 130 straddle, that's taking the call and the put together, cost almost 90 that is essentially what the options market is implying the movement on this stock could be now and december expiration if you've been paying attention to option prices, with the stock

being 130, the call was 30 bucks and the put was actually 60. the stock right at 130 why was the put so much more what the options market is telling you is that it has become so expensive to borrow the stock that people are using puts they're paying up to get those puts to make those bearish bets. if you add the strike plus the call, so this is 130 strike plus 30 it gitsz you to 160. you deduct the price of the put, that's 60. the net is $100. that is the forward price for december expiration that the options market is implying for tilray if you're thinking about buying a stock, remind yourself that the options market sees this thing going lower. >> well, let's say you are thinking about that, carter. what do the charts show? >> buying that stock >> tilray. that reaction is priceless. >> here's the thing. if you look at the aggregates. harvest etfs, it's quite a week.

the grandfather if you can say that, the canada cannabis competitive fears index, all having a good week, tilray is a blow off and it will not be exceeded perhaps forever. >> mike, we've seen the situation before with stocks that have hard borrow, small floats, that sort of thing are there some strategies, short premium strategies that you can define the risk that makes sense in a name like this that is moving 30, 40% a day >> you know, it's interesting because it's very tempting to start dipping your toe into these things one of the things that attracts options traders for sure is volatility the thing is there are not a lot of free lunches. in a name like tilray, most of these options are 4 or $5 wide it makes it hard to get in at prices that are reasonable unless you really are prepared to spend a lot of time and attention and can trade this moment to moment, i think you're probably better off watching this one from the sidelines. >> you are looking at the "options action" in a lot of

these stocks this week. >> i think the most important thing is what mike just aid. if you're looking at one option it may have a $4, $5 widespread. if you're looking at a spread, a call spread, put spread, double that if you're going to go and pay the market in a fast market, the bid ask is almost making it impossible for you to be successful in this sort of trade so the way i think about it is if you really need to make a directional bet, long call spreads, long put spreads, make sure you're actually bidding for them and you're likely to get hit in a name like this. >> how about the other cannabis stocks out there do we see the same sort of increase we saw volume obviously increase how about the prices of options? >> every single time you get into one of these short squeeze situations where the short interest is high, it doesn't have to be a pot stock we saw it in names like gopro, for example, the same situation, when you have relatively small close and you have a lot of people trying to borrow against

it, you get a lot of volatility and you get a high cost to borrow and this kind of activity in the option. if you own a stock like this and you could see that the forward price in the options market is so much lower, at the very least consider rolling out of that stock position and into some form of a synthetic using option we can write about that on the website and i think we'll do that that's an important public service announcement don't buy a stock that you could buy $30 cheaper in the options market. >> play aggregates. >> like an etf the group trades as a group, correct? they're very tightly correlated even though tilray is extreme? >> there are some that are lagging others, but if you looked at the etf, alternative, that gives you a broad thrust of how we -- we were able to get above the january high for the first time since january now we're consolidating. >> the final thing i would say, at $100, you're dealing with an

$8 billion implied value this is a company that had $20 million in revenue geez, it's come down so far so fast it's not cheap now and it won't be when it's 100. >> up next, small caps mean big profits. we are live at the nasdaq market site more "options action" still ahead. (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.o says they d? 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. in them therr hills on your guarantevacation.find gold

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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 action." time to take a look back at some of our open trades back in august mike said small caps were the best way to play volatility in the market >> taking a look at iwm, what we can see is that certainly over the course of the last couple of months we've sort of been channelling in this area right here we're going to try to make a bet that this is going to continue very simply what we're doing is we're selling the 163, 162 put spread collecting $2.10 when we sell the put paying the 1.90 on the 1.62s and selling the 1.71, 1.74 call spread. >> it's up 2% since the trade. what do you do here? >> this is one of those

situations where we're trying to let time work on our side. i think the question you want to ask yourself is more of a technical one here where this thing was going to break even was 172 1/2 or thereabouts. equal to the 171 plus the premium we collected the down side we can't lose. we're short the $1 put spread. what are your thoughts >> what's remarkable is since that moment it's been one of the most tight, benign, three or four week periods in the last 12 months meaning it has literally stopped trading. within a 2 to 3% range my hunch is that it's going to do just that, stay here. we know that small cap stocks outperform for a long time this is a moment where super cap has come back to light so it's relative move and absolute sideways. >> super caps, we had the dow jones go over its january high for the first time since then. the s&p did it recently. a lot of strategists who have 3100, 3200 year end targets.

they're expecting a breakout and a straight move up do you see that for the super caps as you like to call them? >> my hunch is that frankly we're stuck here and probably post election is a good deal. 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. ♪ [ horn honking ] [ engine revving ] what's that, girl? [ engine revving ] flo needs help?! [ engine revving ] take me to her! ♪ coming, flo! why aren't we taking roads?!

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you don't have to say i'm your best friend. (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 to take your tweets ours is from cnbc super fan ivan the k. do you expect to see an election volatility premium creep into index options? if so, when? >> i absolutely do the vix is below 12 at the money 30 day implied volatility in the s&p right now is about 8%. that's very close to the all-time lows. it's almost no place for it to go but up and we have plenty of reasons why it might i think that's going to start as early as next week. time for the final call. last word from the options pits. carter >> technology sector xlk, sell.

>> mike? >> november put spreads in xlk. >> everyone is taking about yields going higher so fast so far. i think it sets up a good trade. tlt long. >> see you back here next friday at 5:30. meantime, "mad money" starts right now. >> 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