hey there, live from the nasdaq market site in times square we have a big away show for you tonight. here is what's coming up >> announcer: netflix shares soared ever a a wild week. but the chart master says don't trust the bounce he will tell us why. plus -- industrials are getting crushed. >> no! >> chill out, dude, because mike khouw has a way to protect losses and chip stocks sinking and dan nathan says it's the tip of the iceberg. he lays out the trade.

time to risk less and make more. the action begins now. >> right >> welcome we start with the chip stocks rallying today but closing the week down around 5%. it was a a number of one high-flying names hit hard n individually intel, taiwan micro ron semigetting crushed. the group on track for the worst month in six years could the move be the beginning of the end of the chip rally let's get in the moneynow and we are all over the map today. dan and mike out in san francisco. carter is at the plasma. dan start with you and the semi straight. >>s scotty how are you the semis had a bad week down 5% of the week. today's bounce was not impressive nip in my opinion it sets up for a re-test of today's lows we have a quick one-year chart, it bounced off the low that it made a few months ago but this is an index -- the smh, the the etf track the the semi conductor space maid a high back in march.

it's never tested that again it's been rolling. when you think about all the issues we have regarding this potential trade war with china, semi conductor companies are in the middle of it and taking a big brunt of this appear and i also think the earlier strength had to do with double ordering in fear of the potential trade war. to me, you have this bounce today, off of 95ish, you know, i have a 5-year chart. i think this is important. and carter can speak to it in a little bit but it broke the uptrend that had been in place from the 2016 lows i think there is a good shot that if we bounce a little bit more early next week it sets up as a great candidate to put back out as a short i want to look to november expiration we do have a couple of data points next week taiwan semi, the largest component of the smh reportings earnings, really important company. 17% of their sales come from -- come from apple and make chips for qualcomm for amd and nvidia and texas

instruments. this could be the catalyst preponderate i want this trade on early next we can wouns a little more on monday in the smh this could be a good hedge if you own ht nvidia or looking at november expiration when the smh traded at $97 you could buy the november 95/85 put sfred paying $2 for that breaks even down at $93. you can make up to $8 between 93 and 85 the max risk is $2 about 2% of the stock price. this is a sector etf basically down a couple of%. has a few large components that hold it up if earnings season doesn't hold up here for the big ones this thing is going lower. >> all right carter what do you think >> yeah, i mean you could see the lines drawn. it's a fairly textbook uptrend and then a break in trend just as dan described it. one thing i would point out of course which is also part of that, not only do we have -- and you see a two-panel chart

here -- not only do we have a break in trend but what we have is deteriorating relative performance. and really in many ways that's what alpha is, the opportunity cost to be in one thing versus something else and so depicted here semiss has been in a range in the better part of eight to ten months but not in a range in terms of relative performance and can you see here if i just zoom this in we have basically -- we are raeg breaking down on a relative basis ie performing worsz and the mechanic pmt the semi conductor on over the year where the s&p is up 3.5% absolute down relative worse, it's never a good setup. >> how about mike? what do you think about the trade? >> well, i think using a put spread here is going to make a lot of sense and one of the reasons is because the market rolled over yet of today's bounce we have seen a steep increase in the price of options, implied volatility when you go out and buy outrights typically you like

to do that when options are very inexpensive. maybe do you that when you think the market might roll but once it started to be, two things happen one you see a portion of the decline you are likely to see at other is the increases of options premium. that's when using the options makes sense. another reason for the elevated pgs ohs premiums is because we enter earnings season, a period when general will i you see elevated options proposal yums you combine that with volatility over the course of the last week-on definitely want to look to spreads to make the drexel bets right now. >> danny give you the final word here >> yeah, i would make one last point. we had a rough week. there was a lot of groups that got beaten up. today was a huge bounce day. but it wasn't that impressive. i mean, you know, if it doesn't follow through on monday, i think the market will have real problems this is not something i want to press as short, a group acted poorly and press at lows let's give it room, see monday afternoon. if it doesn't feel like a great, great bounce, a two-day bounce

that's when you put it on. >> good stuff np now from semiof to streaming netflix soaring after a brulgts selloff. up 6% bouncing after key potter. after citi group upgraded the giant to a buy this morning despite the move though. netflix shares still down nearly 20% from the june high so how should you play it into earnings next week who has the answer but the chart master break it down for us carter. >> well i'm not sure i have the answer but i'm going to try to give an answer or a answer rather than the answer a couple of things, one thing i would say at optically there is a risk is that something of a head and shoulders top and those are reversal formations with implications but let's move forward and look at what netflix has done what netflix has done -- it looks crowded here but basically since basically the spring and summer of '16, the past two years you had major selloffs as we know this is 19%, 14, 14%,

13 wers be 18%, 19%, 26 we just had another 18%. the question is is this just a very volatile stock in of course it is. but is it out of the woods on this next earnings print let me get rid of the circles and things and put in the trend line that effectively has been in -- well in play for the past two years. so the thinking here from my point of view is that we are going to come back to trend, that the hid and shoulders top is in effect and that would take us down. it looks like nothing. but that's another 10, 12% to get down to that level so i'm stopping it there my hunch is there is more risk than there is opportunity. >> we'll see what the trade is then, michael. >> yeah, so i was just looking out to november. i was looking specifically at the 325, 275 put spread. spending about $12 for that. i think it's important two things here.

number one netflix typically moves sharply on earnings. we have seen a lot of sharp upset and down moves right now it's implying a 11% move in the month following earnings this is a stock typically moves 16.5%. that complies a range that goes down to as low as 280 or maybe slightly lower and obviously sharply higher if you are making a bearish bet considering the elevated options premium with dan's trade earlier, i think this is a definitely place you want to use spreads as well. same situation as we were looking at before. elevated options premiums, this thing could move a lot in captures the range by the way. you notice that the downside put strike that we sell, 275 just below that 16 peart 5% move we have typically seen after earnings >> it is usually a big mover, dan and earnings >> no doubt about it this is -- for a company that has now 150 billion market cap or so, the implied movement in the high single digits is pretty

massive, scott i would say this, the target of this trade is really interesting because it lines up well with carter's technical levels. that low from april down about at 275 or something like that, that seems like a level where if they miss and continue to go lower that's probably the spot there. >> yeah, i mean that's right one of the reasons we identified this particular spread ---en a it seems like a wide un. we are talking about a $50 widespread is because of the movement and also targeting the specific levels. i think this is definitely a situation where you know number one we want to use the spread bus of the elevated premiums but look to the levels really carefully. how far do you think it could move and in what kind of a time frame? here we specifically target about a month after the earnings are announced. like i said, 280 if if it moved that 16.5% it has historically moved to the downside hitting about that level of the other strike. >> well you heard it, level from dan, level from mike and there is a key level that's what it's about there is also a gap.

and we'll zoom in. there is a gap left behind on the earnings bet often gaps are filled. doesn'thave to be that way but that would be exactly where this level comes into play it seems to me the risk is down zblood good stuff for everything "options action" check out or website "options action".cnbc.com and sign up for the ooa news letter i read it before the show. it was amazing i promise. here is what's coming up next. >> announcer: industrial stocks are burning investors. but if you own any of the beaten names, mike khouw has a way to limit losses plus, calling all "options action"s fans, 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 pgss action returns i don't know what' >> announcer: "options action" sponsored by think or swim by td ameritrade i've even built my on 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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boom! mad skills. education to take your trading to the next level. only with td ameritrade. welcome back to "options action." industrials melting down this woke the graham sinking more than 6% as one of the worst performing sectors in the market. for more on that let's get to bob at new york stock exchange robert >> hi, scott industrials suffered more than most sectors with good reason. they are exposed to most of the issues that are most worrying investoring. let's run down the checklist of wofrs. higher rates check. higher raw material costs. check. stronger dollar and weaker foreign currencies check. tariffs, check potentially weaker chinese economy. for many industrials check again. little wonder industrials and the close cousins materials are the worst performers in the latest downturn. down 8% singles the turmoil began last week. worst than technology down 7%.

financials down 6%, and far worse than health care and consumer staples but a lot of the biggest names have larger uncle being dpls dow components and kaerlt builter 3 m down 8%. lockheed monster fedex down many almost as much and airlineses rising fuel costs cancelled flights due to hurricanes and worries about capacity have combined to make it a miserable year for airline investors even as consumers travel more than ever back ou to you, scott. >> bob, thank you so much. bob pisani at the new york stock exchange if you own any of the names how could you protect yourself from losses let's kick it over to mike with his call to action on ba that's boeing mike. >> i was looking at boeing and we are seating a setup in the market to do this kind of a trade which we are looking at right now, a covered call in a lot of stocks. the first thing i would talk about here is resistance there hasn't been much

resistance for many stocks but i think there might be once stocks break down you create levels of resistance above where they currently trade. the other thing now is of course because of all this options have become more expensive. as we were saying in the first block also because of the upcoming earnings that adds to that and finally the reason we typically use covered call ises to collect premium petition you own stocks there is only a handful of ways to make money. stock goes higher or collect divides but with options you have the opportunity to take in some premium when you sell upside calls specifically i was looking to december looking at 37 a calls collect $10 for those when i look at those earlier. the stock at the time was trading about 358. so the idea here is that you basically are collecting that $10 if the stock rallies up to the 375 strike you are keeping the premium above that you could have the stock called away from you however net of $10 you collects you are netting about 3.85 on

the stock. there is a not a good chance the stock blows through the level between now and november expiration the other thing is if the stock sits here and goes sideways are slower you actually buffer the downside somewhat at premium you collect. i typically like to collect about 1% a month or more i think that's basically justifying taking the risk of selling the upside call to begin with here we collect 2% of the stock price in 70 days. >> the most important point mike makes mere is this was a low volume name. boeing, the price of options about 20% about a month and a half ago now about 30% mike takes advantage of fact that options premiums have gotten much higher as the stock just declined 8% now he looks at that resistance and saying this is a stock spent most of 2018 after the early ramp in a consolidation. it broke out, failed now he target as level where he is willing to basically get called away, up at 385

so to me this makes a lot of sense, the trade idea he takes about 2.5% over the next two and a half months or so if the stock stays. >> typically after earnings this is a stock moving about 6.5% in the month following. it's going to have to move more than 7.5% to the up side before the trade actually looks like a fail the only place it looks like a fail if you own the stock is in it it happens to rally significantly through that 375 strike. >> one wore point about an override pb mike said you would be called away at 375 but take the $10 of premium you receive, 385. if you got to a level above that short call strike, you doesn't actually have to have your stock called away. you could cover that short call, taking a bit of a loss on it, but that's how you would keep the stock positioned in place if you do not want to be called away. >> yeah, carter? >> well, i mean, really the same setup in many ways as semis but with a twist boeing as you can see here basically the past three years,

16, 17, 18 foesktly gone from 100 to 400 hit a high of 395 then it's been consolidates the better heart are the pennsylvania of 8 months which is bullish and you consolidate and to assert again. but while it was the consolidates it's been a market performer. and then bull trap you have a lot of people buying because, quote, it's breaking out. whether it's chart us or fundamental individuals, and it turns out that is just exactly what that was, a bull trap we didn't break out. we got here and faltered the relative performance never confirmed. the absolute breakout you have people maybe trapped here having purchased it for the break out only to have to reverse themselves it's not the greatest setup at all. industrials themselves just moving forward, here is the xli. and of course it's optically very clear isn't it. i mean a well defined uptrend and break in trend

and this is the worst part if you do break trend and then you try to rally all the way back to the underbelly of the trend line and then of course fail again, that's not a good sequence and then you see quite closely here it was an epic double top i mean, no thanks. >> mike, you want to comment on that >> yeah, unit's interesting, right before we came on the air we were talking to mark lehman of j and p securities. one of the comments he made there are sellers higher it felt that way today every time we caught a bid it seems like we will ample sellers coming in. it makes me feel we have a lid on prices at this point. maybe in this stock maybe in the industrials generally and maybe in the broad market. that's one of the reasons a strategy we haven't talked about as much lately is one i'm more comfortable with here which is look to sell covered calls against stocks you own as a way to take in a little bit of additional premium because you might not start sighing a lot of appreciation between now and the

end of the year i think. >> interesting all right. still ahead, banks under pressure earnings are under way. and one name in the group could see a bigger break down. we tell what you it is plus got a question for one of the traders? you are in luck because we are taking tweets later in the show. as you know we are live tonight in the nasdaq in tesim square. more "options action" still ahead. 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. ♪

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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 back at open trades last week dan said wells fargo could be in for some trouble going into earnings. >> if we don't see good guidance for theent end of the year i think wells fargo goes back to the neckline on the head and shoulder forms when you look at this it looks like a poised for a move back to shh 50 today we it traded at 53.15. you could guy the october 53.50 put spread paying 80 cents for

that buying one of the october 53 puts for $1. selling one of the 50 puts at 20 cents. >> well the stock was up today, still down 2% since the time of that trade dan what do you do with wells here >> yes, i think you give it a couple more days scott i mean obviously it had a little bounce but still down week over week. i think the price action in jp morgan that's what you want to focuses on the fact it couldn't rally today. i think you probably see more weakness in the banks. but at some point if you think wells fargo is going back to 50 and it's a 52.15 right now you need to roll it out a little bit. keep this one on a short leash what i would do is early next week if this thing goes unchanged from the 80 cent purchase price that's where you blow it out and you think about rolling the view out. >> let's move on to what mike and carter said last week that tech's rally was coming to la screeching halt. >> what we know is we have bounced beautifully offer this channel, off this channel, off had 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 if you are long. >> i was looking to november you could guy the 75.70 put spread spend sg 1 the.65 for the 75 puts selling the 70s against it for 60 cents. >> they were right the xlk down 5% since the time of the trade what's next for tech. >> yeah, i mean first of all we were targeting a 5% down move we got it faster than we expected it ran right to that short strike and actually i still have a bearish view on this space right now. so my inclination because there isn't that much left in this particular spread it to roll it down tp sometimes you roll down and out. here we don't need to go oh in time this expires sell this one. buy the 70s and sell the 65 puts against in it to get into a spread lower.

>> what do you got. >> i think that's right mike we had a break but rally back so there is a new opportunity on the short side because there is complacency people have bought in believing maybe the lows are in looks to me headed lower. >> step for two, final calls next 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. ♪ welcome back time for tweets now. the first question from jeff who asks, what's the general rule for exiting a spread that's going against you? dan, take it. >> yeah, great question, jeff. everyone has their own rules mine is 50% of the purchase price of a long premium spread that makes sense to me you cut losses there. >> good tough thank you very much thanks for the question as well process carter final call from you. >> netflix, it's been a grate great trade stumbled of late my hunch is there is more stumble to come. >> even with the upgrade fromcity. >> michael. >> use put freds

275325 are the strikes. >> danny boy. >> we got to give the shout out to nancy primavera within, the stage manager for "options action." good luck to nancy taking time off to have a baby. >>ave ha great my mission is simple, to make you money i'm here to level the playing field for all investors. there's 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 save you some money. my job is not just to entertain but to educate and teach you and put this whole craziness we have had into context. so call me at 1-800-743-cnbc or tweet me @jimcramer.