>> hi, there, live at the nasdaq market the guys are getting ready behind me. while they're doing that, here's what's coming up on the show. >> talk about going up in smoke, tesla shares are in free fall and you won't believe how low some options traders see it going. mike will break it down. and soup and cereal stocks could be bad for your portfolio sell so says dan nathan and he has a way to profit. plus talk about hanging tough, despite rising oil and rising

rates, retail stocks rallied 5% this quarter but watch out, it might be time to ring the register it's time to make more options action begins right now. >> we start are retail hanging tough this quarter, rally more than 5% in the last three months this in spite of rising rates; tariff concerns and rising gas prices and back on its best year since 2013 the retail rally could be in trouble. so let's get straight to carter to break it down. >> that's right. it's been quite dormant for the past 2 to 4 weeks and xrt. it's 96 stocks

2.2 trillion and a big chunk of the s&p, 8.3%. so let's look at some charts and see if we can figure this out t. brands, the names you know, including amazon and walmart big competitors, kroger, walgreens and the list goes on and on costco, macy's, ebay, target the first is the xrt itself and then, which is key, the relative performance to the s&p 500 one, what we know is that we made a slight new high but basically we have been rebuff there. it's been basically straight down so there's no outfit here this relative to your choice being the market but what's really important is every single

time we have gotten to this down trend line, we have failed not a good sign. i don't like it. moving on. here's the xrt itself. they're going to come down to the trend line that's been in effect i'm betting that's exactly what is going to happen to xrt. there's a message here about retail. >> he doesn't like it. >> this is kind of an interesting one and it sets up well for options one of the things is the fact that xrt is equal weight names like target and costco and walmart, they have the same as that and those are the same impact on xrt and what ends up happening

is that typically if the market takes a down trend, when you take a look at xrt versus the srt in terms of volatility it can get sharply more volatile. it's been relatively subdued as it is recently so i think the way to take a look at this, i was looking out specifically to the 51-47 put spread when i was looking at it earlier would cost you $1. we are talking about a basket of stocks typically we don't buy puts on those. there's a limit to how much a basket or index might fall we do have a situation where this one with some of the lesser known names, there could be a very sharp increase in volatility in this if we start seeing a pull back. >> what do you think of mike's trade. >> i like the trade. first off, i like the level of

targets. seems like retracing the move over the last six or so months risking one to possibly make 3 to get back to that level and more importantly, carter started to mention this, those comparisons as we go into the holiday season were really tough. 2016 was a horrible period for retail everyone was pricing amazon to kill everything. the big box, the department stores so they're going to be hard so with the etf stalling here if you get any bad news you'll get this back. >> actually that is also an important one. xrt is about 20% higher than a year ago the market is basically pricing in a great deal of growth here generally speaking when you think growth might tail a little bit because that was impressive. we're talking about 20% earnings growth for the entire basket over that period of time do you

think that's going to continue i think it's a bit optimistic. >> a lot of stocks that have basically gone too far, too fast basically, such a provision. >> and the specific constituents that are among the mega cap stocks that are in this thing are also stocks that once were achieved but are no longer walmart is probably the most prominent example. that is a stock facing significant pressures from amazon they haven't figured out their online presence story. it does tell you that you have small stocks where there's greater risks and large stocks that run very far very fast. >> one area that has been sitting out the rally and that is the staples so-called safety stocks adding like anything but this year. and dan says it could get even

worse as one of the biggest names reports next week. walk us through. >> pepsi is reporting. consumer staples here and this is an interesting conversation right after that retail one. consumer staple stocks have the worst performing sector in the s&p right now and the xlp that tracks the sector is made up differently than the xrt the top five stocks make up 50% of the weight and that's pepsi, coke, procter & gamble and walmart. all of those act really badly. the best one is unchanged on the year the worst one is down 23% on the year i'm not holding my breath for any of those names to report earnings and drag this sector up a little bit i think pepsi, how it reacts, it's not imlying a big movement. about 2% in each direction how it reacts could be interesting. this group is very volatile.

margins were getting pressed a little bit this group trades expensive to the broad market here so as i think about the chart and the technical set up here, look at this up trend since 2011 it just got rejected there i want to play over the next couple of months or so for a move back below $50 here so very specifically the trade, the stock was trading at 53.85 the xlp, you can very simply look at the november expiration by the november 54 put, down about 1.5% that's your max risk one of the things that was interesting, when he was talking about the equal weighted xrt and why he wanted to, unified stocks making up 50% of the weight, this is where you want this one to run a little bit. i want to see this thing start moving back down closer to 50 and at some point i may spread it by selling a lower strike put

in november. >> it's really interesting the xrt is much more volatile than this particular one is and you'll notice that this option cost about as much as a spread would which is why going ahead and buying that put out right makes a lot of sense we have an upcoming earnings season in here and we have a hand full of stocks that could make this thing move around a descent amount and the options are cheaper which justifies the structure. >> as a set up, the key thing is followed by the point of origin. a lot of volatility.

so more volatility in the market >> does your outlook change if you see a big pull back in the markets? is there a safety trade? >> i'm not worried about that. rates is the one thing that we didn't talk about. a greater than 3% dividend yield. we know that could be one of the reasons why they lost a little bit of their luster but i don't think that we're in a position where if the market goes higher these stocks are not going to perform in the broad market and if we go lower, i expect them trading in the high teens, 22% for some of them i don't see them going higher and i don't see them outperforming on the down side either. >> all right check out our website options actions.cnbc.com be sure to sign up for our news letter what are you waiting for here's what's coming up next

>> you want to see something really scary >> check out shares of tesla which continue to get pounded. mike ko will tell you how to profit plus, calling all options action fans, reach in your pocket and tweet us your question @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

(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 that sparked a flurry of activity in the options market let's get back to headquaters to break it all down. >> well, if you thought tesla stock was all over the place, melissa, take a look at how the options are doing. options volumes have surged for those shares on the heels of the sec loss due to fraud by founder and ceo elon musk. nearly 800,000 contracts changing hands both of those were puts. they give you the right but not obligation to sell it at a lower price. some more than four times the average daily volume you could say the options were sizzling so all of that activity translated into a surge of implied volatility or the price for the options. in fact, options prices on tesla

are at the highest point of the year it might take a little while longer before it gets back to whatever you want to call normal for shares and of course the options. back to you. >> dom, thanks so with the stock down 14% today, how would you play it mike has his call to action. >> sure. what we'll be talking a look at is playing a range-bound thesis. the stock is moving around very, very sharply and the options are also extremely expensive and it's going to move around very sharply so this range is going to be a very wide one. the thing is, doing this usually means you'll look to sell some options so is there a way we can do this and also limit the amount of risk to take in some premium. if we take a look at the stock over the course, back to january 2018, we can see this has had a huge range actually i was looking at this earlier. this right here was essentially one of the first tweets that elon musk made threatening the

shorts were going to have trouble and see something explode in their faces in three weeks. i guess their profits were going to explode and here we saw the tweets about the potential of it going private and now that it's falling quite sharply, what kind of a trade might we will willing to use it's a range that's going to be wide a range of about 200 to the down side and upwards of about 300 to the upside about $60 going out to november when i was looking at this earlier today. so what's the trade? specifically i'm looking at buying a march 240 put that would cost me $38 and then selling a november 240 put against it for 2050. net net spending 17.$5 to put this on. now this chart can be a little bit confusing because this really tells us what the profit

and loss is going to look like after that november put expires but until then it will decay more rapidly than the march one that i'm long and actually what's going to happen is if it just finishes at this 240 level that's the best i can do because that is still going to preseven -- preserve it's value. but the november one isn't going to have one. >> what do you think of the strategy >> i like it it leans to the short side a little bit it's important to know that the short strike is in november. so he's looking at 6 or so weeks from here. he doesn't want to be short options too much longer but he's setting up to open that longer put that he helped finance and

that's obviously more than 10% i'll make one other point. you said the stock was down 14% today. shockingly, it's only down 15% on the year. i would assume we're going to have a major move one way or the other in this one and it looks like traders are now, or at least investors are bracing for that to the down side. >> 14% isn't a huge move for this. >> one of the most controversial equity assets there is and if facebook can drop, tesla could have been down 40% that kind of thing happens either this company is literally the most overpriced asset there is or he changed the world so the volatility is normal in a way. and the level, we were here a week ago and we were here in march. >> it could easily go lower like

i mentioned. the options market is imlying movement of almost $60 from where it closed today. so that would take you down to 200 which would be cutting the stock in half. i do think the upside is significantly limited. dan mentioned, it looks like you're fading to the down side it's really hard for me to understand what could come out in the near term that would take this stock sharply higher. the thing that could have done it would have been if elon had actually settled that offer that could have helped stabilize things. the other thing that could, do they somehow get to cash flow break even >> we will get dlif elivery num this weekend

let's say the stock reacts positively does that make you think >> fundamentals don't matter until this thing gets cleaned up very unique situation. so they kind of match that up a little bit. >> still ahead, banks slammed down more than 4% but dan has a way to profit from the break down he'll explain. plus send us a twee tweet @optionsaction and we'll answer it later in the show. we're live in times square 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.

howdoing great dad!r does this thing got? looking good babe! are you filming. at booking.com, we can't guarantee you'll be any good at that water jet thingy... but we can guarantee the best price on a hotel, like this one. or any home, boat, treehouse, yurt, whatever. get the best price on homes, hotels and so much more. booking.com, booking.yeah 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 action it's time to take a look back at our open trades. two weeks ago there was trouble brewing in the banks. >> then there was some decent news out of goldman. decent news out of jp morgan and decent news out of city. this was on the fundamental front. the stocks couldn't rally. i'm not certain what they'll be able to say in mid october that's going to take this

either >> and dan was right how are you trading the financials now >> you stick with the trade. and i can't tell you how much i hate this group. it seems like every day on fast money we have a new pundant or investor telling us how they're finally going to participate do you know what there's one global bank stock up on the year and it's jp morgan and might have just got rejected so to me if there's no good news in earnings this is going much lower in my opinion. >> mike said netflix's big rally was just getting started >> it's applying a move of just about 7% on earnings it's averaged about 8% so right now options are looking like a decent value i was specifically looking at

the 375 call spread. $18.60 when i was looking at those earlier today. these $4.15 calls against it. >> good call shares jumped 3% what are you doing with it now >> we were targeting a bigger move and put on an options position that would capture earnings right now this trade is only up about a buck or so >> i think you have a tiger by the tail here. this acts better than the tech sect sector. >> i haven't heard that one in a long time. >> it already had a big draw down that's not the circumstance with amaz amazon i like it a lot. >> up next, we've got your tweets and the final call. stay tuned.

>> options action is sponsored by think or swim by t.d t.d. ameritrade. 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. ♪ 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. ♪

(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.

time to take your tweets if you think a stock you own is going to go down is it better to sell or just buy. >> i'm assuming you can't sell the stock itself because that would be one of the things you could also consider but i would buy puts rather than deep calls. a lot of times there's no premium in there. >> next tweet, can you tell me at what percentage of a loss do you typically close out of options trades dan take that one. >> i usually use a 50% premium stop on long premium directional trades once you get below that the probability of a total loss increases pretty dramatically. >> dan, kick it off. >> xlp november 54 puts. >> xrt, retail, likely lower. >> mike. >> i think for xrt the best way to play that look out to

december 51.47 put spread. >> that does it for us here on options action thanks for watching. see us back here next week mad money with jim cramer 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 grou i