hey there. we're live at the nasdaq market site on what has been a wild day for the markets. the guys are getting ready behind me for a 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 five 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 co and dan nation than have you covered with the trades. carter worth is on the charts. it's time to risk less and make more the action begins now. and we start with that final countdown with the two events that could rock the markets next week, that would be facebook and apple's earnings facebook is out on tuesday that could swing 9% in either direction. apple could see a 5% move 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 a correction so how should you play these stocks heading into these events let's start with apple and go straight to the chart master, carter. >> this is the biggest one of all as everyone knows. we have a repeating circumstance big marquee names reporting their results and not acting well post results.

meaning going up and action going straight down. s we'll make the bet that apple can sustain the pop. this is going back the past decade we know apple has been in an uptrend. let me just 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 peeked 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're going to make the bet that apple is going to be okay post earnings in terms of the charts, here is the chart, no drawings, no judgments, no annotations by me. here is the well-defined channel in which apple has lived the better part of two years very precisely responding as is so often the case. i mean, makes you wonder why

study the fundamentals my hunch is you move towards the top end of the range here and i'm going to make that bet zeroing in on the here and now this is the very short term chart. again, i think you could join the lines this way a lot of tension the bet is we break out of this apex and we make it back to the former high. that would be about a 5% move which would get you back to the high of october 3rd. its all time high. >> thanks, carter. how are you trading apple? >> it is interesting you were highlighting earlier that it's implying about a 4.7% move and that is extraordinary given this is a $1 trillion company this is one of the situations where we've seen obviously a lot of volatility in the market. that has shaken out a lot of stocks we might use this as an opportunity to try to look for opportunities to sell higher priced options i think that's what i want to do here at apple. what i was looking at specifically out to december, i could do the 195/220/240 call

spread risk reversal i'm buying the 220 call paying 10.50 and selling the 240 calls against at 3 bucks net-net i'm spending $4 on the trade which is 2% give or take on the current stock price this is a situation where if the stock was going to linger here, the wing options will decay somewhat more after options are announced. i don't need something to happen for this to be profitable. one other quick point i would make is in the month following earnings, this is not a stock that has moved very sharply to the down side going back 12 quarters past three years or so we are not seeing big moves to the down side that said, this is also a situation where the valuation on apple is maybe a little bit higher than it has historically been trading about 15 times x cash. and so we could take a look at the probabilities now of what it

would be that the stock might hit that lower 195 strike is about a 48% chance given the volatility that we're seeing that it could touch that strik between now and december perks rags there's a 90% chance that it could hit the 220 call strike. in this kind of market environment i think a move that much to the up side is less likely than that >> so what i really like about this trade is if you were going to go long into this event, this has actually better odds to have a risk adjusted basis for all intents and purposes, you could run the -- the worst case scenario in this trade is the stock is down a little and you lose 1.5%. very worst chance is that you get put the stock at 195 on december expiration and that lines up well with the breakout from the last quarter. that's probably a level as long as there's no fraud here or anything like that, you'd want to buy apple at 195 at those levels 240 seems like if it's between here and there on december

expiration, it makes a lot of sense. i'm making one point about what the expectations are in this quarter. listen, they launched those phones last month. they launched a new one this month. it might be a little messery this stock may trade sides ways, down a little bit, up a little bit over the next few weeks. i don't think it will be a disaster i think investors will say whatever they missed in this quarter, they'll pick up in the holidays. >> the hope is they're going rely on some other product of iphones, 62% of revenues we are expecting announcements for ipods and macs so that is something else that investors might potentially be looking forward to even if the earnings come out as expected, that might help the stock hold up a little bit as people are, you know, looking forward to that event. >> makiing guesses on earnings. gaps come in twos or threes.

two gaps will you get a third earnings beat that's the bet. let's move on to facebook. the last of the fang trade to report so far it has been ugly. amazon announced that they are a day in the red netflix's stock is down 14% since last week. with facebook shares down 30% since its high dan says the stock might finally be finding a bottom why don't you walk us through your trade >> there's a chart up there. the marleaus was 150 we came back and this week it was holding through. that's the chart since the ipo it's a pretty nice, pretty consistent up trend that it just broke and it just went through that most recent support it's a pretty dicey time, i think, to try to catch a falling knife in its name in front of two things earnings next week and it's implying a $13 move between now and nextfriday most of that 8.5%.

for a stock that's been as volatile as it has this year, it's safe to say this stock will move between 5 and 10% after earnings here's the thing i think the name is kind of in derisk a little bit. estimates have come down fairly dramatically it's trading 18.5 times next year's earnings which are only supposed to be 13% here's the key thing sales are expected to grow 24% from 5 billion to $68 billion. i think the earnings estimates for 2019 are likely very low so here's the setup into next week. if they don't guide down again, the stock's not going down it's just done, okay, as far as i'm concerned. if they're able to kind of guide up a little bit, i think you have the stock moving back towards a recent breakdown level of 160 or so to me what i want to do is set up by selling shorter dated out of the money calls to finance the purchase of longer dated out of the money calls this is a call calendar. today the stock closed at 145. i could do the november/january

160 call calendar paying 250 for that what am i doing here i'm selling one of the november 160 calls at 270 and buying one of the january 160 calls for 520. that costs me 270 actually that is my max risk here what i want the stock to do is move up close to that 160 strike between now and november expirati expiration then i end up owning this january 160 call, what i think is an important technical level. then you possibly get investors looking at this name again into the new year setting up for a bounce maybe back towards the prior highs or getting close to 200 bucks. >> it's really interesting i think people should pay attenti attention. that november call expires on the 16th that expiration is relatively close. you can 2k4rek9.5 bucks for that we were looking at this earlier. i think this sets up very, very nicely as far as the multiple is

concerned, this stock is trading as cheap as it has the conservative estimate is that it's going to see year on year eps growth of 12% you're not going to see a lot of opportunities like that and because you're doing this call calendar, if it turns out that that's unfounded, if there is another shoe to drop in facebook, your risk is really very low squl that's just it this almost has to be an options trade because this is as binary as it was going to get here we are, october 26th. july 26th this stock dropped 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's -- >> wait, the highs in the stock forever have been put in >> i think that's the case. >> wow >> wow. >> i mean, that's a long time. >> forever is a long time, meaning does that mean ten years? in this business a year to three, that's forever. could it get back there in five? who knows that not this year, not next year,

not the year after facebook climbing back through that kind of overhead supply when you have that aggressive -- >> now you have the benefit that it's plunged 34%. >> this show is called "options action." i wouldn't say you should buy this stock into that event i'm not pounding the table on bullest events i'm targeting 160. that's about 10% higher than where we are that's about the implied move over the next week if i can get the direction right, this options trade where i'm risking 1.5% into the event, i have a lot of optionality. there are very few scenarios where it's a loser i'm not saying i would short it or buy it, but it is binary. >> check out our website optionsaction.cnbc.com 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 koh has a way to buy protection for cheap. he will explain. plus, calling all "options action" fans reach into your pocket, grab your phone and tweet us your question @optionsaction. 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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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%. our dom chu is in the newsroom to break down this brutal october. hey, dom >> well, the worst october in a decade, melissa. that's what it's shaping up tort for the s&p 500, the dow, the nasdaq as things currently stand. each of those benchmarks have the worst percentage drop since 2008 yup, worst october since the financial crisis meanwhile, the tech heavier nasdaq composite having the worst year, period, since 2008 this ter in terms of percentage declines. materials, consumer discretionary, energy and industrials, while more defensive sectors are relative outperformers.

the down side momentum hot spots are still in play with industries like banking, also 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 in a pretty big way the segul volatility or vix is elevated over the levels in the last 50 days the vix was at the highest level since back in february tied with the fears of the fed and rising interest rates it's pretty safe to say the traders and investors are very in tune and aware of the current down side risks in this market back over to you. >> dom, have a good weekend. dom chu in the newsroom. if you're worried things could get worse before they get better, how can you protect yourself mike has it at the plasma. >> we're going to take a look at using a put spread why might we do this

the first and most obvious thing, the market is whipping around if you're thinking maybe this is an opportunity to short stocks, i would be cautious doing that when you short stocks you're taking an unlimited risk to the up side. buying puts, of course, is a nice way to limit your risk. as dom was pointing out, we're seeing the vix at levels we haven't seen so options premiums are elevated nice thing about using a put spread, it's a way to reduce the cost of the trade. we can take a look at it over here one of the points i would quickly make, we're going all the way back now to the 2016 election so we've got another election coming up that's kind of what we're looking at if you are long a basket of stocks that probably replicates the s&p, you're probably not down maybe net of dividends you're probably up this maypotentially get worse. you can look out to january, buy

the january spy. sell the 2 poin235 puts for 2.9. you're spedding 5 bucks. that pays four to one. something else to think about, $5 is actually less than 2% of where spy was trading when i was looking at this earlier. this is a way it might seem like with the vix at the elevated levels, may seem like it's too late to put some hedge on but actually i think it isn't. i think it's very easy to imagine that the s&p could move r5 or 10% between now and january, probably more >> 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 implied volatility has been heightened i'll make this one point right now we're down 11% from the highs. when you think of the peak to trough decline is out 11 to 12%.

if there's a real growth scary would expect it to be deeper that's why mike is suggesting this trade when you think back to january or february, we had another retest of that low that came in march. back at the prior bout of volatility in 2016, then another so double bottom seems to happen timing the hedges seems to make sense. it's hard to make lows after we've been down so much. >> let's put this all in context. is this an average more important decline there have been 218 5% plus selloffs in the market the reason you start with 5%, a lot of stock options kick in if you look at all of these, 218, 5% plus, the average decline is 11.9% this selloff is 10.6 and it's 25 10.6 versus average 11.9

this is 25 sessions in the making, typically it's 40. there's nothing out of the ordinary about this. the real question is the way certain parts of the market have acted, whether it's financials, the fact that it's small cap growth is now 18%. >> does it make it worse >> it makes it worse. still ahead, netflix shares are down but that's great news for koh and carter plus, the crazy market moves we have these covered. we're live at the nasdaq in times square 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.

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♪ ♪ our new, hot, fresh breakfast will get you the readiest. (buzzer sound) holiday inn express. be the readiest. 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." mike and carter bet netflix were headed for a fall. here's how that trade worked out. >> on "options action" it's how we stream ahead of the competition. risk less and make more. that's exactly what koh and carter did with their bearish bet. carter thought the netflix looked dicey into earnings. >> we are going to come back to trend but the head 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. >> h'm, mike thought he's charming, good looking and smart. he might be on to something. >> melissa, may i jump in here >> take it away, mike? >> where were we right. carter didn't like the looks of netflix, but just shorting the stock could lead to infinite losses i decided to buy the december 317 put for 10 bucks now to make money i need netflix to fall below the 325 or by the november expiration. spending 17 bucks to bet against netflix. cue the dramatic movie clip. so to cut costs i decided to sell the 275 strike put for five 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 total cost down to 12 bucks now i see profits if they fall below the 325 put or below 313 by november expiration roll the celebration clip. don't get too excited because there is a tradeoff. because i sold that put i capped my profits at 275. how did we do on this one, melissa? >> since the time of the trade netflix shares are down more than 10% and now "options action"s biggest fans want to know one more thing. what will koh and carter do now? >> how are they trading netflix? mike, what do you say? >> i'll tell you how i actually traded it today. we hit the number you were talking about on that trend line which was down 10% from 335 or so which is about where it was trading. what were your thoughts? >> the price objective is the net. also, just for keeping score, we

got bailed out it printed really against us in the net market in a bad tape things go down. >> overnight that was looking bad after earnings we definitely -- we had a really sharp spike but it traded badly overnight, opened even more poorly and traded badly that whole day. >> which is a tell if something is supposed to go up and fades, it's that much worse. >> it will be the biggest tell if this correction is deeper than it is right now i want to have everyone remember, the stock is still at 56% despite being down 30%. 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... 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 the final call. carter worth. >> apple will make the bet that it's going to be okay. >> mike koh. >> options prices in apple so i'll make a call spread risk

reversal. >> i like mike's spy put spread on a pop february -- excuse me, facebook, november/jan call calendar. >> that does it for us on "options action. we'll see you back here next friday at 5:30 p.m. eastern time don't go anywhere, "mad money" with jim cramer starts right now. - [announcer] the following is a paid advertisement for the philips smoke-less indoor grill. authentic grilled taste, virtually no smoke. the innovators and engineers at philips love to grill. but they know from experience that you can't always grill outside, so they reinvented how to grill. anytime, anywhere, and anyplace you want. this is the latest kitchen innovation from philips. the smoke-less indoor grill. it brings the best of the outdoors, inside, with authentic grill flavor at the flip of a switch. whether or not the sun is shining, there is snow on the ground, or it's raining all day long. grilling season is always open.