hey there live at the nasdaq market site in times square. we have a big show coming up these guys behind me getting reviewed while they are doing that here is what's coming up ♪ you're as cold as ice. >> announcer: the hottest stock of the year plunged into a bear market but if you own the name mike has a way to protect yourself. plus dsh. >> home crap home. >> that sums up the homd building seeing the worst losing streak ever. but the chart master says the charts are so bad they are good. he will explain and.

>> this is the moment of truth. >> announcer: it is for the banks kicking off earnings next week and dan nathan says there is one name that could run into trouble. he will tell you how to profit it's time to risk less and make more the action begins now. ♪ here she come say. >> let's get to it because the rates surge this week housing stocks got crushed the xhb home building eras etf sinking 13 straight sesses down more than 20% from the january high this is a 10-year yield hit the highest level in seven years the chart master says the housing charts look so booed they're actually good. carter take it away. >> yeah, i mean sometimes things get overdone to the up side. that can be to the case to the downside the actual s&p 500 home building index down 32.5% over the past nine months. that's a fairly extreme giveback from what was a euphoric moment.

this is the actual aggregate as constructed by standard and poors. there was euphoria i think this is the respect owe reciprocal in zpir sometimes it's right to buy extreme weakness like we talked about g.e. let's move forward and put in lines and drawings there is a well defined trend line here for this index and we have come down to it for the third time and my hunch is is that we are going to get a little bit of a bounce so i want to play for that off the line let's look at it another way we were also down a support, the level from which we broke out. two ways to draw support, a trend line or, again a retracement to the breakout juncture i mean, that's exactly where we broke out and we retraced the entire move. so this is the interesting thing. if you were to look at the end

of last year of the 5 a i shares a lot of etfs it was the best performer of 5 a at the end of last year. heres it the top three semis were in the group. software number one, peopled loved it in december here we are, nine, ten months later. and guess what, it's the worst performer. people loved it at the high. turned out to be the wrong thing to love. guessway, any hate it now. not right to hate it now my hunch is there is bounce potential just as there was sell off potential. the efp, .527 billion, 47 stocks 2% of the s&p. you can look at the etf you can trade. so far below the 150 day moving average i think you get a rebound. itb, the i ha shares to boy for rebound. it's hated remember it was loved at the exact peak sometimes it's better to take a road less traveled >> all right so mike what's the trade >> yes, this is kind of

interesting. because of course we have seen some signs that there is we canness in some sectors of the real estate market i think new york, perhaps los angeles, san francisco, then you see that combined with something like rising interest rates and you also see housing at maybe the peak of the afford ability index there. it's obviously very hard on those markets. but look at the constituents constituent talks of itb pch lennar, ir horton. where are they operate sng for the most part they are not operating this knows markets they are operating in places where there is still increasing housing demand, places like texas, georgia, north carolina, and florida. and the secular push, i think for housing in the markets could continue to support home building amazingly dr horton right now has only recently achieved the same level of revenue they had before the housing market crash we saw going back to 2006 we can keep the trade simple here looking for a bounce i specifically was looking out

to january, the 34 calls when i look at this earlier $1.45. this allows to be nimble, roll into a spread if we should choose and to mitigate risk to the downside in the event that what we see right now is just the beginning. but i'm inclined to go with carter here. and i think this is a way we can trade it simply. >> i guess if you didn't have the technical setup you'd say maybe given how poorly the home building components in that etf act that you maybe want to press it because maybe this is the time where you see rates busting out to 5-year levels that maybe you see the home builders hit below the uptrend. i make one other point you know, home depot, lowes make up almost 10% of the weight of the xhb. home depot doesn't act well. looks like a double top not different from the s&p double top you detailed earlier to me if you play contrarien in-housing right now given the devastation that we see in similar groups that are associated with the consumer on the high end purchase level, you want to define your risk

you are risking 4.5% of the underlying but gifting time to play out. >> there is a good chance this could move 5% much sooner than the january expiration date we chose. the other thing i point out, i think you are right about the discretionary stuff like the retailing home depot and lowes. >> as opposed to let itb. >> that's true itb they do exist in itb also but not as much of an issue but i would also point out the home builders themtz operate a slightly different business model actually materially different than the last housing crisis process not as vulnerable as they were the last time process you are inclined to play for bounce get in here. >> guess what they did at the end of the day nvr, the bigds one closed pup lennar closed up. it felt like a cap it laer to low. does it mean you're out of the woods? maybe it's i don't think to chase it at the high i'd rather not be despondent at the low.

>> now to a group getting boost from the rate hike, the financials, the sector rallies 1% this week but it could be judgment day for the space as the first big bank earnings kick-off. jp. morgan sit i wells fargo report next friday the ogss market implying a 23 or three% move in either direction for the stocks dan says one name could run into trouble. walk us through. >> a lot of them could but wells fargo we are focusing on that. this is has been kind of you go ily redheaded step chilled they have had two years of non-stop scandal and some issues fares the rts sorts of lending that they can do relative to money center peers but this one to me is the worst performing it's down 20% from the 52-woke hays down 12.5% on the year. trades expense toef bank america and to citi group. and yosz the prospect for the guys i do have a tu two-year chart since late november, 2016 when you look at this thing it really looks like it's poised for at

least a move back to $50 on poor guidance and let's just talk about what mel just said. why did the group rally in week? we saw the 10-year treasury yield break out to five-year highs. we saw the 2-year not get crazy. that spread between 2s and 10 of everybody was worried about inverting got wider. that's how the money center banks make money i suspect through lending they borrow short and lend long i suspect kind of like what i was just getting at about the home nlders we see the home building stocks trade badly. the auto stocks trade badly. wells fargo are the kwies making the loans. if we don't see good guidance for the end of the year. wells fargo goes back to the neckline on the head and shoulders formation. that would be 50 october expiration today when et stock traded at 53.15. you could buy the october 53.50 put spread paying 80 cents for that buying one of the october 53 puts for $1

at bracing you even make up to 2.20 between 52.20 and 50 that's the max gain there and risking 807 cents risks about 1.% of the stock price to make free extra money moving back to 50 i don't think there is a heck of a lot of great news in the space between now and the next few weeks. >> i like the structure for two reasons. one you targeted the level which is the 50 level where you sell the put short. the other thing is that the you know this is a name where options premiums are slightly elevated certainly they are elevated relative to how much the stock moves. when we talk about the price of options, the implied volatility right now, wells fargo, probably about 23 with a realized volatility of 15 with the upcoming catalyst bank earnings next week that's one of of the reasons you see that elevated premium that's why using the process put tread makes a lot of sense here. >> obviously you've gone a after the weakness started out with that that's important we have an area of the market controversial. on the devg some people like it some don't but the key is that you get a

move to 3.25 on the 10-year and banks can't move that's a process problem this is the weakest of all you target the 50 level. makes perfect sense to me. >> for the charts of the- what some considering the strongest jp morgan do they look better. >> that's -- dan's point this is particularly bad jp morgan held up better. >> if you look at jp morgan for instance would you like that chart. >> no, they're all slumping. the investment bank and brokers in particular goldman sachs, morgan stanley even big ones like blackrock, t rowe all tlufrpd. they have issues and fb obviously the market says whether the cycle changed or whether -- they are not benefitting from rates. >> all right for everything "options action" check out the website. "options action" while there sign four the news letter. cart he is says it's the best thing since christed bread what are you waiting for here is what's coming up. >> announcer: advanced micro, taking investors on a wild roller coaster ride plunging 20%

from the high three weeks waig and mike co says a big are drop could be ahead he will lay out the trade. plus, calling all "options action" fans, reach into your polk, grab your phone and tweet us your question at "options action." if it's nice, we'll swaner it on air. air. when sfls option attention action sponsored by think or swim b sfls option attention action td ameritrade's trade desk. they can help gut check your strategies and answer all your toughest questions. sounds perfect. see, your stress level was here and i got you down to here, t.d. ameritrade. call for a strategy gut check with td ameritrade. ♪ the nation's largest senior-living referral service. for the past five years,

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you know your family, we know senior living. (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." the hottest stock of the veer. advance micro, turning ice cold, sinking 20% from the high a few weeks ago. for more let's get to josh lipton in san francisco. josh. >> melissa amd's hot streak cooled and then some

check out the chart. the stock posted a weekly decline of 11.5% the it's worst in about a year coming under pressure following the update from rival intel which remember said it should have enough supply to feet the full-year revenue forecast and said that it's making progress too with the next generation chips so-called 10 nan meter child support agency the team at baird downgraded amd to neutral in part because they speck expectations for pc intel share could be too high. the stock still up more than 160% so far this year. and remember it's certainly not amd. the semi sector in general has been under pressure. look at the smh, a drop of almost 4% this week. the worst week since april down more than 10% from the march high a analysts chalked that up to a range of factors they note heady valuations, escalating trade tensions and

mixed data points. yes the pc and data center markets are strong but there is a slowdown in china markets they note specifically autos and industrials. i checked with rosen blats hansen most he isman he remains a amd bull because he think the company will take share in the server market, capturing 5% in q 4 and continuing to gain ground after that melissa, back to you. >> josh, thanks have a great weekend. josh in san francisco. if you own amd what should do you in mike has the call to action hey there. >> actually this isn't just a trade for somebody owning amd but somebody who might be bearish on the stock thinking it's going lower the problem right now if you want to do something like buy puts outright is that puts are incredibly expensive because the stock has been moving around so much so the other thing we can try to take a look at here is whether there is some level at which you might be willing to get long the stock.

so looking right here we can take a look and see the stock has fallen a decent bit. but the level i'm interested is here around $18 where we had the big breakout before the stock took off that's where i'm tarring. let's look at the structure and which we put it on we go over to the trade, i'm just looking out to november right now when i was looking at this you could boy one of the 26 strike puts for $2.25. then i want to sell two of the 22 strike puts for $85 cents each net-net i spend 557 cents to put on that structure. the idea here is that one we are trying to reduce the very high cost of buying that put. as you can see it costs about 8% of the stroik. that was with the stock trading about $27. so here we are making profits from 26 down to 22 at that point, because we are short two puts against the one that we are long, we actually are put the stock. and our profits will start to

trail off until essentially at 18.5 that's where effectively you get long the stock but think about how much decline that is relative to the $27 provides of the stock right now. we have earnings coming up, 23rd of october the stock typically moves about 7 to 8% in the three weeks leading up to it and can move as much as 16 to 18% in about the three to four weeks you have until until spirpgs after that time. that's the reason we look at this risking about 5 a cents if it goes higher. but the whole idea here is to take a look at those levels and reducing the cold front. finally looking at the probability, because the stock is moving around so. sharply there is actually quite a high probability that the stock could hit 26 sometime between now and november expiration. the probability that it hits the strike we are short though is significantly less even though it's this volumety even with earnings coming up then the level around $18 where you get effectively long the

stock. there is a low probability you see it down at those low le levels the idea here is to make a bearish bet, keep the premium down and focus on the probabilities to basically give us a better chance of success. >> what do you think of this trade? >> so you started out by saying you know if you are long the stock it's something against it. i actually like this trade because mike just laid out that 25.45 down to 18.45, that range is so massive. if you were to put that on as protection against a long that didn't cost you a whole heck of a lot i like that. and unthe worst-case scenario you put the stock basically between the 22 strike price to me that makes a lot of expense especially in a name like this up 150% on the year. so i like this trade against the long if you look for protection near term or in worst-case scenario taking a low premium. >> one principle important obviously when a group is strong semis are stronger than almost anything over the past two three years. then the group stums be a

holdout suck kms that stock resisted the weakness that's in been in effect new now you see n individually yat and the you see m chlt a md i would say $20 is what's coming. >> well so $20 you o we see profits on this. that is a significant decline. >> yes. >> we are talking about better a 20% decline is what you look at maybe within the next 60, 90 days. >> the downdrafts can be so fierce it was $1.75 in january of 2016. we appreciate all the way to 34. down 22% from the peak already in the past week and a half. easily do 15 or 20 more. >> to his point those are the moves we have seen in the stock in and around earnings historically the think i look at here though is that because of the options are so expensive -- this doesn't just apply to this stock but actually whenever you make drexel bets when you see implied volatilities as high as they are in stocks like amd, 70% or more, it's very challenging to simply buy a call or buy a put to make a drexel bet and make money

because as you saw here and at the money call put is 10% of the stock price. >> but sometimes it's the right thing to do. and sometimes you kind of outsmart yourself in something like that. >> would you do that here in this troo i. >> i wouldn't dos it as outright bearish if you had a quick downdraft you lose money i'm saying too much to expiration and wait i got the direction right but the strategy wrong. i like it against the long if you are looking for that protection then you are willing to wait it out until expiration if the stock goes down there. >> all right still ahead retail stocks posting the worst week since february and there could be a bigger breakdown ahead. we explain plus a question for one of the traders send as you devote at "options action. if it's a good one we might read vet ater in the show li athe nasdaq market site in times square. more "options action" right after this eritra >> announcer: "options action" >> announcer: "options action" sponsored by think or swim b

>> announcer: "options action" sponsored by think or swim b do you just say yes to everything? hm. well i say no to kale. mm. yeah, they say if you blanch it it's better, but that seems like a lot of work. no hidden fees. ameritrade de minimums. and yes, it's all at one low price. td ameritrade. ♪

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." time to look at open trade two weeks ago dan made a contrarien trade on bonds. >> i think we could see a sort of sell the news on long dated yields here. we have seen the tlt, the 20-year bond etf had a precipitous drop here the trade being contrarien it's a sell the yield news next week in november when the tlt traded at 1.17 today. you could buy the november 117, 122 call spread paying $12.25 for that. >> we saw what happened this week the 10-year yield soared to the highest levels send going tumbling >> i tried to be contrarien. tried to define my risk. that's what we try to do with options. oneof the things that's interesting is "options action." paid $1.5 for a $5 yp now it's got from 117 to 113. the call spread maybe you could sell it for 35 cents as a rule

of thumb with long premium drexel trades you want to limit the risk once you are down about 50% of the premium that's when you want to cash out because at this point i don't think it makes sense to cash out. you might want to give it a couple of weeks for a -- a move back just a little higher then try to get out for 50% of the premium. >> moving on, also just last week carter and mike bet against the rally in retail. here is what they said. >> what's really important is that every single time we have gotten to this downtrend line we have failed. it's not a good setup. i don't like it. >> i was just looking out to december i was looking specifically at the 51/47 put spread that $4 put spread looking at it earlier would cost you $1. >> nice call retail stocks plunged to a 4 opinion month low what do you say mike. >> right now that put tread spread is about 2.10 i think there is further weakness ahead i would be inclined to close this trade and roll down the

strikes. >> right so this was so aggressive to the downside such a popular area of the market it was at all-time highs as the market itself. in principle there should be follow through i would want to stick with it on the wndo zblood up next we got the wndo zblood up next we got the tweets(sighs) i hate missint 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. and? ♪ ♪ 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. ♪

i've done all sorts of research, read earnings reports, looked at chart patterns. i've even built my own historic trading model. and you're still not sure if you want to make the trade? exactly. sounds like a case of analysis paralysis.

is there a cure? td ameritrade's trade desk. they can help gut check your strategies and answer all your toughest questions. sounds perfect. see, your stress level was here and i got you down to here, i've done my job. call for a strategy gut check with td ameritrade. ♪ time for a tweet jeff asks what is the best recommendation to begin dipping toes into the world of options professor co. >> you start out well. watch this show every friday secondly i would pick up my book if you can, the options edge and finally usually the most common first trade for options trader is selling covered calls against stocks they own. >> i love that book. >> absolutely pick it up final for the final call carter back. >> home builder itb on the long side. >> mike co buy calls in itb. >> wells fargo reports next woke 25% of the weighted xlf process

you don't want to play a single name sell into next friday. >> the name of the book mike. >> ongss edge. >> that does it for us on "options action. check us back here next friday "mad money" starts right now my mission is simple, to make you money i'm here to level the playing field for all investors. there is always a bull market somewhere, and i promise to help you find it. "mad money" starts now hey, i'm cramer. welcome to "mad money. welcome to cramerica other people want to make friends. i'm just trying to make you some money. my job is not just to entertain but now educate, teach, put it in context call me at 1-800-743-cnbc or tweet me #madtweets. it was a tumultuous week, people. >> sell, sell, sell, sell, sell, sell, sell, sell, sell >> and that's what happens when th