get the new iphone on xfinity mobile ask how you get xfinity mobile included with xfinity internet so all you pay for is data. and now get $200 back when you buy a new iphone. click, call, or visit a store today. hey, there, what has been a wild day for the markets the guys here are getting ready behind me getting ready for the huge show tonight. while they're doing that, here's what's coming up >> that pretty much sums up what investors have been doing this month. but if you're worried it could get worse, we have a way to buy protection for just 5 bucks. plus -- ♪ ♪ the final countdown >> after a wild couple of weeks for tech, the fate of the space hangs in the balance of two stocks reporting earnings next week apple and facebook so will the tech wreck continue to rage on

mike khouw when and dan nathan have you covered with the needs. and carter worth on the charts time to risk less and take more. "options action" begins right now. >> and we start with that final countdown to the two most important events that could rock the markets next week and that would be facebook and apple earnings the options markets are implying huge markets and facebook is out on tuesday that could swing 9% in either direction. apple could see a 5% movement when it reports on thursday. together, that's a nearly $100 billion potential shift in market cap all this comes as the nasdaq sinks deep into the correction so how should you play the stocks headed into the events? let's go straight to the chart master, carter worth. >> we have a repeating circumstance -- big super cap market names reporting great results and all not acting well post results, meaning going up and then fading or going straight down.

we'll make the bet that apple actually will be able to sustain a bit of a pop after its earnings let's look at a few charts this is a two panel chart going back to 2009 to present. we know that apple is an uptrend and a great performer. but actually, let me zoom in here this of late is only just now apple outperforming the market so take that away. this is relative performance to the s&p. it peaked as far back as 2014 and just now is apple actually starting to outperform the market of which it is the biggest component. we think that's a positive and we'll make the bet that apple will be okay post earnings in terms of the charts, here is a chart, no drawings, no judgments no an notations by me. here is the well defined channel in which apple has lived the better part of two years i mean, very precisely responding as is so often the

case it makes you wonder why i study the fundamentals my hunch is we'll move towards the top end of the range here. zeroing in on the here and now this is a short term chart again, i think you can draw the lines this way a lot of tension the bet as we break out of this apex and we make it back it to the former high. that would be a 5% move that gets you back to the high of october 3rd. >> thanks, carter. so mike, how are you trading apple? >> it is interesting you were highlighting earlier that it's implying about a 4.7% move above average and that's extraordinary given this is a $1 trillion company. so this is one of those situations where also we have seen, you know, obviously a lot of volatility in the market. that has shaken out a lot of stocks and we might use this as an opportunity to try to look for opportunities to sell higher priced options and i think that's what i want to do here in apple. what i was looking at specifically out to december, i

could do the 195, 220, 240 call spread risk reversal selling the 195 puts, buying the 220 calls, pay 1050 and then selling the 240 calls against it at 3 bucks net-net i'm spending $4 on this trade which is about, you know, 2% give or take of the current stock price. this is a situation where even in the stock was going to linger right here, those wing options are going to deday somewhat more rapidly. particularly after earnings are announced. so i don't really need something to happen right away for this to be profitable. one other quick point i would make about this. in the month following earnings typically this is not a stock that has moved very sharply to the downside going back 12 quarters so we have about three -- in the last three years or so, we have not seen big moves to the downside that said, the valuation on apple is maybe higher than it has been we're trading 15 times excash. so we can look at the

probabilities now of what it would be that the stock might hit the lower 195 strike is about a 48% chance given the volatility in the market now between now and december expiration there's a 90% chance it will hit the 220 call strike and about a 35% chance it gets all the way up to the upper one. actually in this kind of a market environment i think a move that much to the upside is less likely than that. >> what i like about this trade, if you go long into this event this has better odds to have -- on a risk adjusted basis for all intents and purposes you can run the analysis any way you want the trade -- the stock is down a little, you lose 1.5%. the very worst chance is that you get put the stock at 195 on december expiration and that lines up really well with that breakout from the last quarter and that's probably a level -- as long as there's no fraud here or anything like that. you want to buy apple at 195 at those levels

then 240 between here and there on december expiration, it makes a lot of sense i'll make one point about what the expectations are into this quarter. you know, listen, they launched the phones last month, a new one this month it might be a little messy i don't think it will be a disaster because investors will say whatever they missed they'll pick up in the holiday season. >> the hope is they'll rely on other products other than iphones but we are expecting product announcements for the ipods and for mac's within the next month or a little bit more. i think that's something else that investors might potentially be looking forward to. so even if the earnings just basically come out as expected, that might help the stock hold up a little bit as people are, you know, looking forward to that event. >> look, making capital commitments before earnings is a binary thing one thing to keep in mind -- when you have a gap in earnings, they come in twos or threes.

we have had two gaps now do you get a third earnings beat that's the bet we're making. >> let's move on to facebook the last of the f.a.n.g. to report amazon and alphabet reported the stocks -- they spent the day in the red. and netflix reported last week and they're down 14% why don't you walk us through your trade. >> there's a chart up there, you know, the march lows was about 150. we kind of came back and we were holding there a little bit this week it kind of broke through. look at that, that's the chart since the ipo. it's a pretty nice, pretty consistent uptrend there that it just broke, you know it went through that most report support. it's a pretty dicey time i think to come and catch a falling knife in front of two events the options market is implying a $13 move between now and next friday's close most of that about 8.5% is for that earnings event.

okay so for a stock that's been as volatile as this year i think it's safe to assume this stock will move between 5 and 10% after earnings so here's the thing. i think the name is kind of been derisked a little bit. estimates have come down fairly dramatically and next year's expected earnings which are supposed to be 13% and sales are expected to grow 24% from $55 billion to $68 billion. i think the earnings estimates for 2019 are likely very low so here's the set-up into next week if they don't guide down again, the stock is not going down. it's just done, as far as i'm concerned. if they're able to kind of guide up a little bit, i think you have this stock moving back towards a recent breakdown level of 160 or so to me what i want to do is set up my selling shorter dated out of the money calls to finance the purchase out of the money calls. this is a call calendar. so today the stock closed at about 145. i could do the november, january, 160 call calendar

paying $2.50 for that. what am i doing here i'm selling one of the november, 160 calls at 270 and i'm buying one of the january 160 calls for 520. that cost me 270 actually. that's my max risk here. what i want the stock do is move up close to that 160 strike between now and november expiration november call will expire where i cover that and then i end up owning the january 160 call and then you possibly get investors looking at this name again into the new year, setting up for a bounce back towards the prior highs or getting close to 200 bucks >> it's interesting and people should pay attention to the effect that expiration is relatively close. you can still collect 2.50 bucks for that relative to what you're spending on the january option i think this sets up very, very nicely as far as the multiple is concerned i mean this stock is

trading as cheap as it ever has. we're talking about something -- the conservative estimate is it will see year over year eps growth at 12% and trading a market multiple. because you're doing this call calendar, if it turns out that's unfounded if there is another shoe to drop on facebook, your risk is low. >> this has to be an options trade, because this as binary as it will get. here we are october 26, july 26, this stock dropped and gapped the biggest one-day loss in the history of investing $120 billion that defines this for all time those highs are likely to stand forever as far as i'm concerned. now it - >> wait, the highs in the stock forever have been put in >> i think that's the case. >> wow that's a long time. >> forever is a long time. so does that mean ten years but in this business a year to three, that's forever. could it get back in five who knows that

not this year, not the year after. facebook climbing back through that kind of supply when you have that aggressive of a re-rating. now you have the benefit, the fact that it's already plunged 34%. >> but you made the most important point and this show is called "options action." i wouldn't say i think you should buy this stock into that event. i'm not pounding the table on bullish scenarios, but to figure out what's more likely to happen, you know, i'm targeting 160. that's about 10% higher than where we are that's about the implied move. if i get the direction right, this options trade where i'm risking 1.5%, i have a lot of optionality and very few scenarios this is a total loser a week from now or on november expiration i'm not saying that i would short the stock or buy the stock, but it's binary, you're correct. >> for everything "options action," check out our website and while you're there, sign up for the newsletter, 100,000 more -- more than, have already subscrib

subscribed don't be the only one missing out. here's what's coming up next ♪ the markets are having their worst month in nearly a decade but don't be scared. because mike khouw has a way to buy cheap. plus, reach into your pocket, grab your phone and tweet your question @options action if it's nice we'll answer on air when "options action" returns. i don't know what's going on. i've done all sorts of research, read earnings reports, "options action" is sponsored by thinkorswim tradin. 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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only with td ameritrade. welcome back to "options action." it has been a wild month on wall street as the dow has dropped nearly 7%. dom chu is here to break it down. >> the worst october in history. and each of those three benchmarks have the worst percentage drop since 2008 yep, worst october since the financial crisis meanwhile, the tech heavier nasdaq composite having the worst month period since november of 2008 at least in terms of percentage declines now the market turmoil has been pretty broad based with losses heaviest in the materials, consumer discretionary, energy and industrials and more defensive sectors like utilities and consumer staples are

outperformers. the downside moment hot spots are still in play like with banking, home construction and of course semiconductors still on sharp downward trends this month's losses also mean that both the dow and the s&p 500 are back to around flat for the full year. volatility is also back at a pretty big way the vix is elevated at levels well above the average over the last 50 days the vix was also at the highest level since february, tied to fears of the fed and rising interest rates the traders and investors throughout are very in tune and aware of the current downside risks in this market pack over to you. >> all right, dom, have a good weekend. if you're worried things can get worse before better, how can you protect yourself mike khouw has more. >> we'll look at looking a put

spread and do something like this i think the most obvious thing the market is whipping around and if you're thinking okay, well, maybe this is an opportunity to short stocks i would be very cautious doing something like that. when you short stocks you are taking an unlimited list to the -- risk to the upside. we are seeing the vix at levels we haven't seen before, so options premiums are elevated. the nice thing about using a put spread you can reduce the cost of the trade so we can look over here at where we have come from. now one of the points i would very quickly make, we are going all the way back to the 2016 election so that's -- we have another election coming up that's kind of what we're looking at if you're long a basket of stocks that probably replicates the s&p, you're probably not down on the year you're likely flat maybe net of dividends up a little bit. so you might be thinking to yourself, well, if this is going to get worse, i might want to put a hedge on here. so let's look at one of the hedges i was taking a look at today. you could look out to january.

by the january spy 260, they were trading at $2.95. sell the 235 puts and net-net, this is a $25 widespread you're spending 5 bucks so that pays 4-1 something else to think about $5 is less than 2% of where s.p.y. was trading when i looked at this earlier so this is a way -- it might seem like with the vix at the elevated levels it might seem like it's still too late to put some hedge on, but actually i think it isn't i mean, i think it's very easy to imagine that the s&p could move 5 or 10% between now and january. probably more. >> yep dan, what do you think of the strategy >> i like the trade. i like the width of the strikes. i like the fact that it's a put spread, especially like mike said and options has been elevated during this period of volatility right now we're down 11%, when you think of the peak to trough

decline from january to february it was 11% if there was a growth scare here, or other things to go on i would expect it to be deeper when you think back to january or february, we had another retest of the low that came in march. when you look at the prior volatility we had in q of 2016 also a double bottom so double bottoms seem to happen timing the hedges makes a lot of sense and it's hard to press lows on day like today after we have been down so much. >> so let's put this all in context. to say is this an average or a more important decline there are 218, 5% sell-offs in the market the reason you start with 5% a lot of stop losses kick in a lot of risk managers say you have to pull the book in if you look at these, 218, 5% plus, the average decline is 11.9% of the -- and the last 40 sessions this sell-off is 10.6 and it's 25 sessions.

10.6 versus 11.9 this is 25 sessions in the making typically it's 40. there is nothing out of the ordinary about this. the real question is the way certain parts of the market react, whether it's financials the fact that small cap growth is now 18%. >> does it make it worse >> makes it worse. >> all right still ahead, netflix shares are in a free-fall plus, we have a question about the crazy market moves, we have you covered send us a tweet @options action, we'll read it later on in the show much 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. ♪ ♪ ♪ our new, hot, fresh breakfast will get you the readiest. (buzzer sound) holiday inn express. be the readiest. even when nothing else is. gopi's found a way to keep her receipts tidy,

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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." earlier this month, mike and carter bet netflix shares were heading for a break down and boy, did they fall here's how that trade worked out. on "options action" it's how we stream ahead of the competition. risk less so you can make more and that's exactly what they did. carter thought that the netflix looked dicey at the earnings >> we're going to come back to trend that the head and shoulders top is in effect and

that would take us down. looks like nothing, but that's another 10, 12% to get down to that level. >> hmm, mike thought carter's charming, good looking and smart. he might be on to something. >> melissa, may i jump in here >> take it away, mike. >> okay. where were we? oh, right. carter didn't like the looks of netflix, but just shorting the stock can lead to infinite losses so instead i decided to buy the november strike put for 17 bucks now to make money i just need netflix shares to fall below the 325 strike by more than the cost of the trade or below 308 by november expiration. but spending 17 bucks just to bet against netflix, cue the dramatic movie clip. >> oh! >> so to cut costs i decided to sell the 275 strike put for 5 bucks and created my put spread. here's how it works. between the 17 i spent on buying the higher strike put and the 5 i collected by selling the lower

strike put i cut the cost of the trade down to 12 bucks and now i see profits of netflix shares fall below that 325 put by the reduced cost of the trade. or in this case, below 313 by november expiration. roll the celebration clip. don't get too excited because there is a tradeoff. and because i sold that put i capped my profits at $275. how did we do on this one? >> well, mike, since the time of the trade, the netflix shares were down more than 10% and now "options action" vegas fans want to know one thing -- what will they do now? all right. how are they trading netflix, mike >> i'll tell you how i actually traded it today. i had a put spread on netflix, i took it off today. we actually hit exactly the number you were talking about, which is down 10%, 335 or so what are your thoughts >> i mean, that's sort of the price objective has been met also, just for keeping -- it

printed really against us, obviously, in the night market but that's the problem with a bad tape, in a bad tape things go down anyway. >> things were looking bad after earnings we definitely had a really sharp spike but it traded badly overnight. opened even more poorly and traded badly that whole day. >> which is a tell something supposed to go up and it fades it's that much worse. >> it will be the biggest tell if this correction is deeper than it is right now everyone remember, this stock is still 56% on the year despite being down 35% up next your tweets and the 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...

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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 the final call. carter worth. >> apple will make the bet that it will be okay long. >> mike -- >> apple is elevated so i'm

using a call spread to make that bullish bet. >> if you get one next week, put it on and february -- excuse me, facebook. >> that does it for us on "options action. see you next week. don't go anywhere. "mad money" with jim cramer starts right now >> announcer: the following is a paid presentation for the nuwave oven pro, brought to you by the makers of the nuwave precision induction cooktop. stay tuned. to celebrate the amazing success of the nuwave oven pro, with over 5 million sold, today we're offering an incredible deal. order right now and we'll upgrade your order to the all-new nuwave oven pro plus for free. the pro plus features advanced temperature control for perfect meals every time. it also has new features like delay cooking and warm, so your meal is ready when you are. keep watching to see how you can upgrade to the all-new pro plus