hey there. we're live at the nasdaq marketplace in times square. we have a big show for you coming up. these guys behind me getting ready. while they're doing that, here's what's coming up ♪ you're as cold as ice >> the hottest stock of the year just plunged into a bear market. plus, ah, home. >> that sums up the home builders, but the chart master says the charts have gotten so bad they're good he'll explain. and -- >> this is the moment of truth.

>> it is for the banks which kick off earnings next week and dan nathan says there's one name that could run into trouble. he'll tell you how to profit it's time to risk less and make more the action begins now. and let's get right to it because as rates surge this week housing stocks got absolutely crushed. the shb etf sinking for 13 straight sessions. now down 20% this is a ten-year yield at the highest level in seven years the housing charts look so bad they're actually good. carter, take it away. >> sometimes things get so over done to the up side. the actual s&p 500 home building index is down 32.5% over the past nine months you can see it there that's a fairly extreme give back from what was a euphoric

moment this is the aggregate as constructed by standard & poor's there was euphoria this is the reciprocal just as in principle sometimes it's right to sell extreme, it is right to buy extreme legals there is a well-defined trend line for this index. we've come down to it for the third time 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 are also down support, the level from which we broke out. two ways to draw support, a trim line or, again, a retracement to the breakout juncture. that's exactly where we broke out. we've retraced the entire move so this is the interesting thing. if you were to look at the end of the last year, the 55 ishares, a lot of etfs, it was

the best performance of 55 at the end of last year i've given you the top three semis in that group, software. number one, people 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 exactly the wrong thing to love. guess what they hate it now. it's not right to hate it now. so the etf itself, 47 stocks, 527 billion. near 2% of the s&p let's look at the etf you can actually trade itb, the ishares i want to buy this for rebound it's hated but, remember, it was loved at the exact peak. sometimes it's better to take a road less traveled. >> so, mike, what's the trade? >> yeah, so this is kind of

interesting because of course we have seen some signs there's weakness 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 affordability index there. then you take a look at the constituent stocks of itb, names like dr horton, lennar, where are these guys actually operating? for the most part they're not operating in those markets they're operating in places where there is increasing housing demand, places like texas, georgia, north carolina, and florida. the secular push i think for housing in those markets could continue to support home building amazingly d.r. horton right now has only recently achieved the same level of revenues they've had before the housing market we saw going back to 2006 i think we can keep the trade simple here. looking for a bounce

january the 34 calls, $1.45. this allows us to be nimble. it allows us to roll into a spread if we should so choose. to mitigate our risk i'm inclined to go along with carter here. this is a way we can trade it. >> if you didn't have the technical setup, maybe given how poorly the home building components in that etf act, you may want to press it because maybe this is the time you see rates busting out to five-year levels that you start to see the home builders get hit below that home depot, lowe's, they make up 10%. home depot doesn't act well. 8%, 9%, s&p double talk detailing earlier. to me, i think if you're going to play contrarian given the devastation we're seeing in similar groups associated with the consumer on the high end purchase level, you want to define your risk

you're risking 4 1/2%. >> i think there's a good chance this could move 4 or 5% much sooner than the january expiration date we've chosen i think you're right about the retailing home depose. >> which could be the xh, not i.t. >> they do exist in i.t.b. also but it's not as much of an issue. i will point out that the home builders themselves operate a materially different business model than they did before the last housing crisis. they are not as vulnerable as they were the last time. if you are ink4r50i7clined to pr a bounce then they would. >> it's up felt like it so this is a trade. doesn't mean you're out of the woods but just as it's wrong to chase it at the high, i'd rather not be despon dent. >> now to a group of stocks

getting a boost from the rate spike and that is the financials the sector rallying more than 1% this week. could be judgment day. jpmorgan, citi, wells fargo all report next friday the options market implying 2 or 3% moving for the stocks dan says one of the names could run into trouble walk us through. >> i think a lot of them could wells fargo, we're going to focus on that one in particular because i think this has been the ugly stepchild regulators, the scandal, lending they can do to some of their money center peers this is the worst performing one, down 20%. mid january, down 12.5%. it's expensive to bank of america and citigroup. i don't see the prospect for these guys i have a two-year chart since late november 2016 when you look at this thing it looks like it's poised for a move back to $50 on

poor guidance. let's talk about what mel just said w why did the group rally. we saw the two year not get crazy. that spreads between the 2s and 10s. that got wider that's how the money center banks make some money. i suspect through lending they borrow short and lend long i suspect kind of like what i was getting at with the home builders we see it down and trade badly wells fargo is the guys that make these loans if we don't see good guidance for the end of the year, it's back there on the heavy shoulders formation. you look to october expiration when the stock is trading at 53.15. you can buy the october 53.50 put spread you buy one of the october 53 puts for $1 selling one of the 50 puts at 20 cents.

breaks even at $52.20. that's your max gain there and you're risking 80 cents. i just don't think there's going to be a whole heck of a lot of great move in the space. >> i like the structure for two reasons. one, you've targeted a level which is the 50 level which is where you're selling the put short. the other thing is this is a name where options premiums are slightly elevated. they're elevated to where the stock is moving. the implied volatility right now wells fargo, 23 with a realized volatility of 15 upcoming catalyst of the bank earnings, that's one of the reasons you're going to see the elevated premium >> the key to this is you're going after the weakest. started out with that. that's important we have an area of the market that's controversial

some people some don't you get a move to the 325. banks can't move that's a problem a 50 level, technical level. >> the charts of what some would consider the strongest, jpmorgan, do they look any better >> this is particularly better jpmorgan has held up better. >> take a look at jpmorgan. >> all the bank are stumping goldman sachs, morgan stanley, blackrock, they've all -- t. row, they've all slumped the market is saying the cycle has changed. for everything "options action" you can check out our website obviouses action dot cnbc dotcom. advanced micro taking investors on a wild roller coaster ride plunging nearly 20% from its high nearly 3 weeks ago

and mike koh says a bigger drop could be ahead he'll lay out the trade. plus, calling all "options action"s fans. reach into your pocket, not 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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action." the hottest stock of the year, advanced micro turning ice cold. sinking nearly 20% from the high just a few weeks ago for more, let's get to josh lip ton in san francisco josh. >> melissa, amd's hot streak has cooled and then some the stock posted a weekly decline of 11.5% its worst in a year coming on an update from rival intel. it said that it's making progress, too, with the next generation chips, so-called 10 nanometer chips. analysts publishing notes. bear downgrading amd to neutral in part because they think expectations for pc share gains from intel could now be too high the stock is still up 160% so far this year. it's certainly not just amd.

the semi sector has been under pressure smh dropped almost 4% this week, its worst week since april down 10% from the march high analysts chalk that up to a range of factors heavy valuations, trade tensions and mixed data points. yes, the pc and data markets are strong it's been a slowdown in china markets. i checked in with rosenblad's hans moses he remains a bull. he thinks the company will take share in the server market capturing 5% in q4 and continuing to gain ground after that. >> josh, have a great weekend. so if you own amd, what should you do? mike's over at the plasma with his call to action hey, mike. >> actually, this isn't just a trade for somebody who might own amd but somebody who might actually be bearish on the stock thinking it's going to be a little bit lower the problem right now if you

want to do something like buy puts outright, puts are incredibly expensive the stock has been moving around so much. the other thing we can try to take a look at here is whether there is some level you might want to get long the stock taking a look here we can see the stock has certainly fallen off a little bit. right around here. 18 bucks this seems to be where we had the big breakout before the stocks took out. let's take a look at the structure and why we're putting it on. we go over to the trade. i'm looking out to november. right now when i was looking at this you could buy one of the 26 strike puts for $2.25. then i want to sell two of the 22 strike puts for 88 cents each net net i'm spending 55 cents. the idea is, one, we're trying to reduce the very high cost

it costs about 8% of the strike and that was with the stock trading $27. here we're going to 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 going to be put the stock and our profits are going to start to trail off until essentially at $18.55. that's effectively where you would get long the stock think of how much of a decline that is from the $27 price now we have earnings coming up 23rd of october the stock typically moves 3 to 8% in the three weeks reading up to it. can move 16 to 18% until the three to four weeks before expiration that's the reason we're looking at this. risking 55 cents if it goes higher take a look and reduce the costs. taking a look at the profitability. 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 then that level down around 18 bucks which is effectively where you would get long the stock is a low probability that you'll see it down there. so the idea here is make a bearish bet. keep our premium down and focus on the probabilities to basically give us a better chance of success. >> what do you think of the trade? >> you started out by saying if you're long the stock it's something against it i actually really like this trade because mike just laid out the 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 down below the $22 strike price that makes a whole heck of a lot of sense that's up 150% of the year i like this trade against the

long if you're looking for protection near term worst case scenario taking a look. >> when a group is strong, semis are stronger than almost anything for the past two years, and then the group stumbles, a holdout ultimately succumbs too. so this stock was resisting a weakness that's been in effect for the past six months. you're seeing it in nvidia i would say 20 bucks. >> so 20 bucks we're still going to see profits on this that is a pretty significant decline. >> yes. >> we're talking about a better than 20% decline maybe within the next 60, 70 days. >> the down graft is going to be so fierce when you've been up this much. it was 175 down 22%. >> to his point, those are the types of moves that we've typically seen in the stocks in and around earnings historically the thing that i'm taking a look

at is because the options are so expensive, this doesn't apply to the stock but whenever you're trying to make directional best. when you see implied volatilities getting so high, 70% or more, it's very challenging to buy a call or buy a put to make a directional bet and make money an at the money caller put us at 10%. >> but sometimes it's the right thing to do. sometimes you outsmart yourself. >> if you had a quick 20% downdraft, you're going to lose money. wait, i got the direction right. i like it against the long because then you're willing to wait it out until expiration if the stock goes down. retail stocks posting their worst week there could be a bigger breakdown ahead. we will explain. send us a twee

tweet @optionsaction if it's a good one, we'll read it more "options action" right 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

welcome back to "options action." time to take a look back at some of our opening trades. two weeks ago dan made a contrarian trade on bonds. >> i think we could see a sort of sell the news on long dated yields here. we've seen the tlt, that's the 20 year buying atf has had a pretty precipitous drop. here's the trade being contrarian it's a sell the yield newsweek next week. in november when it was trading at 7.17. you could pay $1.25 for that >> we will, you saw what happened this week the ten-year yield soared. tlt tumbling what do you do now >> so i was just dead wrong, right? i tried to be contrarian i triedto define my risks. that's what we do with options i paid $2.25 for a $5 wide at the money call spread. now tlt has gone from 1.17 to

1.23 maybe you can sell it for 35 cents. i think as a rule of thumb with long premium directional trade you want to limit your risk once you're down 50% of the premium that's when 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 couple of weeks for a move higher and try to get out for 50%. >> moving on, last week carter and mike bet against a rally in retail here's 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 would cost you $1 >> nice call retail stocks plunged to a four-month low this week so what do you do now, mike? what do you say? >> that put spread that was $1 is $2.10 i think there's further decline.

i would be inclined to close the trade. >> this was so aggressive to the down side, such a popular area of the market. in principle there sudden be follow through. up next we've got your tweets and your 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. ♪

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 toes into the world of option? >> watch this show every friday. secondly, i would pick up my book if you can, "the options edge." usually the most common first trade is selling covered calls against stocks. >> dan loves that book. >> i do love that break. >> absolutely pick it up time for the final call. carter >>. >> playing itv. >> mike? >> buy pauls calls in itv.

>> if you don't want to play a single name, play xl 23. >> the name of your book, mike >> the options edge. >> check us back here next friday at 5:30 p.m. eastern time don't go anywhere, "mad money" starts right now (announcer) you work hard to give your children something to build on. i was always trying to think "how am i gonna get her through college?" i wanna have a mechanism in place to make sure that my daughters are well taken care of. i hope to leave my children with something to help them get set up. (announcer) don't let it get eaten away by unexpected fees and legal expenses. my husband did not have a will and everything went away. when my father passed away, he did not have a will or a trust.