♪ 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 - >> home crap home. 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 sinking 13 straight sessions down for 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 and i think this is the reciprocals. 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 55 i shares, it was the best performer of 55 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. guess what they 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, it's the i shares to buy this 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 weakness in some sectors of the real estate market i think new york and 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 under lying but you're giving yourself 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 themselves 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

that is the financials the sector rallying more than 1% this week but it could be judgment day for the space as the first big bank earnings kick off. a 2 or 3% move in either direction for those stocks one of them could run into trouble. >> a lot of them could but wells fargo we are focusing on that. 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 week lows down 12.5% on the year.

it really looks like it's poised to look at 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 builders we see the home building stocks trade badly. the auto stocks trade badly. wells fargos are the guys and the stock is trading by 53.15. you can buy paying 80 cents for that buying one of the october 53 puts for a dollar selling one.

and you're risking 80 cents. you're risk the stock price and i don't think there's 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 put spread 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. that's a problem it's makes perfect sense to me. >> so the charts of what some would consider the strongest, let's say jp morgan, do they look any better? if you take a look at jp morgan for instance, you like that chart. >> the invest backed brokers, they all had issues and obviously, what they're saying, they're not going to get it back. >> for everything options action check out our website options action.cnbc.com. what are you waiting for here's what's coming up next. >> taking investors on a wild roller coaster ride. plunging near 20% from its high three weeks ago and mike says a

bigger drop could be ahead he'll layout the trade plus calling all options actions plans. 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. i don't know what's going on. 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. ♪

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welcome back to options action the hottest stock of the year, advanced micro going ice cold. let's get to josh lipton in san francisco. >> the hot streak has cooled and then some. check out the chart? a weekly decline of 11.5%. the worst in about a year coming under pressure following an update we got from intel which said it should have enough supply to meet it's full year revenue forecast and said it's making progress with it's next generation chips then this week not all of them were so positive the team downgrade to neutral in part because they think expectations for pc share gains for intel could now be too high. still after this drop that stock still up more than 160% so far this year and remember it's certainly not just amd the semisector in general has

been under pressure. look at the smh. dropped almost 4% this week. it's worst week since april. down almost 10% from its march high they know heavy valuations, escalating trade tensions and data points. yes the pc and data center markets are strong but there's been a slow down in china markets, they note, specifically autos and industrials. now he remains an amd bull in part, he says, because the company he thinks will take share in the server market capturing 5% in q-4 and continuing to gain ground after that. >> josh, thanks. have a great weekend so if you own amd, what should you do mike is over with his call to action hi, mike. >> so this isn't just a trade for somebody that might own amd but somebody that might actually be bearish on the stock thinking it's going to go lower the problem right now if you

want to buy puts out right is that puts are incredibly expensive because the stock has been moving around so much so the other thing that we can try to take a look at here is whether there's some level at which you might be willing to get long the stock so taking a look right here, we can take a look, we can see that the stock has certainly fallen off a decent bit the level that i'm interested in is right around here right around $18 this seems to be where we have the big break out before the stock took off that's the level i'll be targeting here and why don't we take a look at the structure right now you could buy one of the puts for $2.25 then i want to sell two of the 22 strike puts for 85 cents each net-net, i'm spending 55 cents to put on that structure the idea here is that one, we're trying to reduce the very high cost of buying that put.

you can see it costs about 8% of the strike that was with the stock trading about $27. so here we'll make profits from 26 down to 22. at that point because we are short two puts against the one that we're long we're actually going to put the stock and our profits are going to start to trail off until essentially that's where effectively you'd let long the stock but think about how much of a decline that is relative to the $27 price of the stock right now. we have earnings coming up 23rd of october the stock typically moves 7 to 8% in the three weeks leading up to it and can move as much as 16 or 18% in the three to four weeks you have gotten after that time that's the reason we're looking at this. risking about 55 cents if it goes higher but the whole idea is to take a look at the levels and reducing the cost. because the stock is moving around so sharply there's a high

probability that the stock could hit 26 sometime between now and november expiration. the probability that it hits the strike that we're short is significantly less even though we have earnings coming up and then that level down around $18 which is where effectively you would get long the stock is actually a low probability that you'll see it down at the low levels so make a bearish bet and keep our premium down and focus on these probabilities to give us a better chance of success. >> what do you think of this trade? >> you start out by saying if you're long the stock, there's something against it i really like this trade because mike just layed out that $25.45 down to $18.45 that range is so massive so if you were to put that on as protection i like that and under the worst case scenario you put the stock basically down below that $22 strike price to me that makes a lot of sense. and especially it's up 150% of

the year so i like this trade against the long. >> and then that group stumbles, a hold out ultimately secgives n too. so you're seeing the bet is that it's long but i would say $20. >> so, $20 we'll see profits on this that's a significant decline. >> they can be so fierce when you have been up this much it was $1.75 in january 2016 all the way to the 34. it's down 22% from its peak already in the past week. >> to his point, those are the types of moves that we have typically seen in this stock in and around earnings historically the thing that i'm taking a look

at is because the options are so expensive and whenever you're trying to make directional bets when you start seeing implied volatilities get as high as they are, 70% or more it's very challenging to buy a call or buy a put to make a directional bet and make money it put us at 10% of the stock price. >> sometimes it's the right thing to do and sometimes you out smart yourself. >> would you do that here? >> do you know why i wouldn't do this if you have a quick 20% downdraft you'll lose money on this mark the market. let's say too much time to expiration and then you're like wait i got the direction right but i got the strategy wrong that's why i like it against the long if you're looking for that protection because then you're willing to wait it out if the stock goes down. >> still ahead, retail stocks posting their worst week since february, down more than 5% and there could be a bigger break down ahead we'll explain. plus a question, you can send us

a tweet @optionsaction more after this. what do you look for when you trade? i want free access to research. yep, td ameritrade's got that. free access to every platform. yeah, that too. i don't want any trade minimums. yeah, i totally agree, they don't have any of those. i want to know what i'm paying upfront. yes, absolutely. 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. no platform fees. no trade 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

it's kind of a sell to yield news next week into november when the tlt was trading at 117 today you could buy the november 117, 122 call spread and pay $1.25 for that. >> we saw what happened this week the 10 year yield soared to the highest level in years what do you do now >> i try to define it and what's interesting is that options prices were cheap. i paid $1.25 at the call spread. now it's gone from 117 to 113 and that call spread, maybe you

can sell it for like 35 cents. as a rule of thumb with long premium directional trades you want to limit your risk. once you're down about 50% of the premium you want to cash out. at this point i don't think it makes sense to cash out. you might want to give it a coup of weeks for a move back just a little bit higher and then try to get it back. >> moving on last week, carter and mike bet against the rally in retail and here's what they said. >> what's important is that every single time we have gotten to this down trend line, we have failed it's not a good set up i don't like it. >> that $4 put spread when i was looking at it earlier today would cost you $1. >> nice call retail stocks plunge to a four month low this week. so what do you do now? >> right now that put spread which was $1 then is about $2.10. i think there's further weakness

ahead. i would be inclined to close this trade and roll down the strikes. >> right so this was so aggressive and in such a popular area of the market it was in all time highs as was the market itself. in principle there should be follow through so i'll stick with it on the down side. >> up next, we got your tweets and final call options action is sponsored by think or swim by td 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. ♪

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 your best recommendation to begin dipping your toes into the world of options. >> well, you're starting out well watch this show every friday secondly i would pick up my book if you can, the options edge and finally, the most common first trade for options traders is selling covered calls against stocks they own. >> he loves that. >> i love it. >> absolutely pick it up time for the final call now. >> play on the long side. >> mike. >> buy calls in itb. >> so wells fargo reports next week, 25% of the weighted xlf.

if you don't want to play a single name you can play xlf into next friday. >> the name of your book, mike >> the options edge. >> that does it for us here on options action meantime, don't go anywhere. mad money starts right now the following is a sponsored program paid for by my pillow do you find yourself sleeping too hot or too cold, not getting the support you need to help relieve painful pressure points or struggling just to get comfortable? then get ready for a revolutionary, new sleep experience. introducing the my pillow mattress topper, the next generation in sleep innovation from the company that brought you the world's most comfortable pillow. [applause]