live at the nasdaq market site after another wild week for the markets. the guys getting ready behind me in the meantime here is what's coming up on the show. >> stocks are getting crushed. and as investors run for cover, dan nathan says even the so-called safety sectors are dangerous. he will give us the trade. plus. look up in the sky it's a bird it's a plane. >> nope it's just tesla. taking off as the rest of the market crumbles. but if you missed the rally mike khouw has a way to get in.

and dsh retail is getting wrecked ahead of the holidays. >> how horrible our christmas will be. >> that's exactly what carter werth says he has the charts to prove it it's time to risk less and make more the action begins now. and we start with the markets as the selloff went from bad to worse this week the s&p 500 falling nearly 5% straight back to the october/november lows. now tracking for the worst quarter in seven years as the broader markets plunge investors run for cover in the so-called safety sectors utilities, reits, staple all higher but dan nathan says there is danger in one of the groups. let's get in the money looking at utilities etf >> trading at new 52 week hey pap up 20fers from the 52 week lows back in february. one of the things interesting we have a one-year chart it was tracking the performance of the s&p most of the year and there's been a bit of

differingens the last couple months you see the orange line where it's gone up to the right. the snpd has done down to -- gone down to the right to me that doesn't make a lot of sense. i get the notion of going to safety when you look at components of the xlu these are expensive utilities stocks trading above market multiples so i just don't get it if you go back and look at a 20-year chart and look relative outperformance for a little bit in utility stocks, in the xlu, into the past market corrections or market crashes, ultimately it follows suit not too long after either. so one of the reasons i was looking at xlu is there kind of a heads you win tails you win sort of option if we stay volatile into the year the s&p goes down further if the s&p finds it's footing and makes a march back towards the prior highs at some point in the next couple months. utilities get sold

we are in the in between period where investors don't know what to do, just flocking to the safety lastly look at the five-year chart. i let carter speak to the collars. we are close to possibly a new double top and maybe a re-test back towards that five-year uptrend to me i think this sets up interesting. options prices are scheep. look out to march expiration and today i think the new high was about a a, 60 or so when it was trading about 55.5 you could look out to market expiration by the march 55, 49 put sprid buying one of the march 5 a puts for 1 p 1252307 boying one at 25 cents you can make up to $50 between 5 a and 49 near the uptrend and the max risk is the dollar between dollar between 54 and 55 i like the risk reward i have four months to play it out. we have a lot of ways to win. >> this pays five to one that's one thing to pay attention to another thing to think about is the xlu mike constituent stocks

pace a hand some dividend and going x difficult before the march expiration date. the reason that's relevant to pgs ohs tradeder is you think i'm looking at 5 a strike looks like it's $1.45 out of the missouri en. 95 cent dividend when it goes exdifficult usually drops. how far is out of the money only about 45 cents when you think about how much xlu needs to be declining for this to be profitable if you held untilled expiration but but which you beneficial won't need to to. >> what this is it's a money flo issue just as money can get overexcited about big fang names and then decide it's reversing, it's now and has been happening a while getting overexcited about staples, utilities, health care the thing is you need the market to do well for tahoe on a relative basis to really win because even though when you cited that dan it drew down,

utilities drew down as much as the market during the 2000, 2002 sell off and 07, 09 sell i don't have they perform well on a relative basis until the end i like this better if the market somehow comes to life. because if the market is going to sell off utilities almost definitionally will sell off but less. >> the relative outperformance is definitely an issue and timing that if you go back and look at the 20-year chart it's hard to do that's why i look out to march expiration options prices cheap but the exdifficult makes a point. you may take the trade the point is the risk reward sets up well i think the chance of a runaway breakout above that prior high is not particularly great right now. and i think we know this that if everything goes down in a straight line -- let's be frank, the s&p is down less than 2% on the year yes in correction territory down 10 but if we go down 10% in january everything goes with it. >> this will go down less. >> yes. >> now to retail nightmare

before kmms final pretrial the xre is downs 15% in three months nearly every stock in the group is sitting in correction or worse down more than 10% offer the respective highs the chart master says it's getting uglier carter head over to the plasma and break it down. >> look we know that consumers has been sort of a myth for a long time. the sector was propped up by amazon, home depot and other high fliers. and individual securities and businesses are basically in trouble. and there are others that held up well. we're looking at costco at the end of this story here so retail. familiar with the xrt looked at it many times with in skreep and it's 90 plus stocks. frfrg amaze ton home depot and lulu lemon and so forth. it's a well defined head and shoulders top. that speaks for it's specify if i love the lines and put them forward we also know it's come down to -- look at this, right

to a trend line. and there is a case to back and fill at a trend line for a while. but here is the thing. if i clear those out wsh watch what it is you're right back to the prior lows, which is also support until it's not and i think that's what we are setting up for we are breaking the trend line and break below the well-ed defined 52-week lows let's look at now costco comparing costco to equal weight etf is maybe not the best or fairest. and costco of course is a staple making most of their money selling fruits and vegetables so to speak but this divergence is interesting. because ultimately costco is a retailer and have to produce christmas results. i think this is the opportunity costco held up too well and i think it ultimately will break down so costco, a few ways to draw the lines no drawings draw it this way you have a well defined

break in trend and what's so telling, right, is when do you adhere to a trend line beautifully appear perfectly and then finally break, notice when you get back to the underbelly of the line that's where it failed that's deadly. to recover back only to hit the head and fail at that line is not what you want to see that's bad action. all right. one or two more charts so here another way to draw the lines. now -- some people talk about heads and shoulder ep diamond formations. penants they don't have to have a name but any represent consolidates after a big move. the big primary drop, then measure the width of the diamond and it gives you a resolution or a measured move. that implies as much as 10% lower. i think you get out of costco if you are long into earnings. >> worse than the death cross diamond of death, carder

>> diamond of death -- meaning -- you know, those things have their implications when something has dropped aggressively then has a debate there are people making a huge bet it's doing well in the number or plunge, usually you get resolve in the direction of the primary move and a measured move, how far could it go is done by taking again from the top to the bottom off the consolidation range. >> okay. so mike how do you trade this diamond of death >> the diamond of death is the first time i've heard of it. i don't like the sound of it i have to say. two things i would point out about costco number one, when you have as much volatility as we have seen recently options prices rise that's why volatility rises. the options are costco are expensive. well above average the other thing is expensive is the stock. 28 times forward earnings, well above it's historical averages it's tough to press shorts in circumstances like this. dan just is looking to short something that is basically

trading at its peak. after we have seen a nearly 5% decline in a week i have a hard time pressing shorts but i don't mind selling over priced options. i was looking in january, the 230, 240 call spread when i was looking at this you could sell it for $4.10 sell the 230 for 7.45 buy the 240 calls against it to hedge the upside at you collect $4.10. more than 40% of the distance between the strikes. if the stock sits where it is now you collect the premium. if it rises slightly you still get it the worst thing that can happen to you is that the stock rallies up to the higher strike and you hold that all the way to expiration which you'd be unlikely to do because presumably you get that we have new news about the market. so you actually are not really even making that 60/40r trade off really it's a 50/50 trade off and already having it work in your favor. that's the way you can basically make a somewhat neutral bearish bet on costco. >> i think it's important to the

difference between what carter said he thinks is it's breaking the diamond of death and go down 10%. but it's important to understand the news why are options prices elevated he announced same store sales beating expectations also reporting earnings on december 13th. there is a lot of uncertainty how that's going to go here. you know, mike's trade is really interesting. it's obviously revocable trust near the money if it's below here on december expiration mike collection the $4 and change. if it's up $10 if it's up three ob 3 and a half% he loses six that's really. >> hold it to expiration. >> to me it's not exactly commensurate with the bearish call you make but it's good options trade because you like to sell expensive options. >> a little bit like utilities is very defensive security in fact if you look at relatively pormtz to the s&p it's new all-time highs even as it trends sideways it's a grocery storp it is a place where money if things get bad will go to hide. >> and a lot of it does.

we seem to find powers as costco now citi bank. this is part of the holiday indicator. lulu hasn't been showing up but costco continues to. if you've been to one lately and tried to find a parking spot you know what i'm talking about. >> for everything "options action" check out the website. "options action".cnbc. and sign up for the news letter. it's a great weekend read. here is what's coming up >> sosa. >> tesla shares are raising higher and mike cho says they could soon reach uncharted territory he will tell us how to trade it. plus, calling all "options action" 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 "options action" returns. "options action" is sponsored by think or swim by td ameritrade eh, it just feels too complicated, you know?

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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." amid all the recently volatility tesla shares surging the stock up 40% in the last three months and trading back to the funding secure level phil lebeau is back in chicago to break down what's behind the rally. phil. >> one interesting note about the rally as it moved higher 359.88 why is that important? because it's at that price that the next round of debt financing and about $920 million of convertible bonds, that's when those bond holders when they come due in march they can convert that over or tesla can say look you can have curates instead of cash if it's below that, it's a cash payment. so clearly this would help tesla in terms of conserving cash. one other piece of information regarding tesla, actually two,

the first being this sunday you don't want to miss 60 minutes because there is a profile and interview with elon musk in which he explores a number of topics the most interesting that we have heard so far, his penchant for social media here is his take >> there are people who say that the company can't survive with you. >> ha ha, that's hilarious. >> they say it because of the way you acted over this summer. >> yes. >> doing things that seemed impulsive, unceoish. >> first of all, i am somewhat impulsive. and i don't really want to try to adhere to some ceo template. >> he talks about the fact that he thinks twitter a war zone, melissa. if you are in the arena, let's go that's why he uses twitter to convey thoughts on a number of topics jeffers upgraded to buy.

price target, $450 that gave the stock a boost today. now trading what, at -- just under 358. 359.88 that's the level to focus on gets a lot of attention heading toward the debt payment maturity coming up in march melissa, back to you. >> thank you, phil. well if you missed the tesla rally relax because mike cho says the stock is heading higher he is at the plasma with the call to action. >> we're talking about that i call spread to action action when the stock goes higher or lower that's still a questionable situation i do own march puts in the stock. but thing phil talked about that's significant was the convertman bonds it's astonishing how the stock seems to hold in when it gets around the 360 level which is also where those krert the $920 million put in perspective as of the last earnings they had about 2.9 billion in cash. they have had continuous free

cash flow problems up until the last quarter and the next $1500 million they expect. what can support a stock that doesn't give up the ghost when everything does? a really high short interest there is a high short interest in the stock some of the shorts are going to be in a bad position if they are margined on longs dropping that puts them in a tougher spot just out of interest, out of humor, whatever, we're looking at this 420 level. that was the level he had referenced for reasons might have involved smoking joints, who knows. but that was what he talked about when he talked about taking it private. so that's essentially the level that i'm looking at since i think it's highly unlikely the jefferiy's target of who where it gets. i imagine at the 420 level it runs in resistance when i looked at it earlier it was significantly higher on the back of price target raise it was trading around 370 at the time the levels i was looking at trading at that level was the

375 calls in january you could spend about $24 for for those and sell the 420s against it for 6.60. this spread ended up the day keeper because the stock ended up lower than the levels where it was when i was looking at this and i think the critical thing to think about here is do you think the shorts could get squeeze the out? do you think the stock is holding above the 360 level when the converts come due in march if you go and inclined to make a bullish bet this is the way to do it. i kind of feel like it's a binary situation either they hold above that level and it could go higher or they fail and they are coming up with the $900 million and it could go lower. >> so, what do you think, dan. >> well i think targeting that level is an interesting psychological level. the targeting the shorts into you know the convert -- i think march is a very, very long time. the stock has been extremely range bound. although very volatile it's a large range. and we know there's been

volatility on their deliveries if model 3 were less than expected when we get news in january the stock could be back down 10, 15% easily. >> carter. >> as a technical setup goes it's about as pree precise as it can be you have well defined tops at a common level,right over the past 24 months repeatedly pushing up against the 385, 390 level and i would say it has as good a chance as any stock in that position to break out to new highs. it also has of course the short interest, which becomes an accelerant the further gou, the more difficults it for one in a bad position to retain short. >> mike, last word. >> you know, i mean dan referenced the model 3 and one of the things we did hear recently was that they may have actually gotten a lot of the problems sorted out and maybe we start seeing them hit some of the targets that elon previously identified. if they hit the targets and this interview thams are that's coming up we see on sunday is well received it wouldn't surprise me to see the shorts squeezed this coming week.

and month. >> all right thanks for that. mike still ahead bank stocks slammed on 7% in week. crashing to the lowest level in more than a year we'll tell if you there is more pain ahead plus got a question. send as you tweet to "options action" we'll try to hanse it later in the show. life at the nasdaq in times square more "options action" coming up. what do you look for when you trade? i want free access to research. >> announcer: "options action" is sponsor bid think or swim by td ameritrade. 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. ♪

♪ there's no place likargh!e ♪ i'm trying... ♪ yippiekiyay. ♪ mom. ♪ so lionel, what does 24/5 mean to you?rade well, it means i can trade after the market closes.

it's true. so all... evening long. ooh, so close. yes, but also all... night through its entirety. come on, all... the time from sunset to sunrise. right. but you can trade... from, from... from darkness to light. ♪ you're not gonna say it are you? welcome back to "options action." time to look back at some of our open trades. just last week dan said shares of citi were going from bad to worse. >> citi bank is what i want to focus on the thing acts downright horrible 60 bucks where it bounced off the important level it goes through that in early 2019 you have a stock probably in the low 50s. it's when the stock was trading today at 64.75 you could buy the december 64.660 put spread for a dollar

breaking even at $63 >> and it was a great call citigroup slammed with the rest of the financials this woke. down more than 9% since the time of the trade what are you doing here dan. >> it's not just this week i think we've been consistent on this devg it's been all year the underperformance and the crapout in the last couple months is troubling. informs a short dated trade. december expiration. paid one for a 4 dhar wide it can be sold right now for the three. you take the profit and move on but i'm going to be consistent i think the highs are in for all the bangs for a long time. you continue to sell rallies into the new year. >> mike. >> definitely a great call and i'm inclined to agree. i don't see how they could get back to those prior highs and we're well off them now for sure so they'd have to go pretty far pretty fast to come close. >> right and given also in the event of further market weakness which is the high add event this is the beta trade to the downside they can collapse zpl they will

trade as a group no matter what. because the bulls say some stories are. idiosyncratic. >> well there will be a regional baepg who says the loans are fine and hold up but big banks, wnowd ents ents of the kr trae do ler together. >> up next your tweets and the final call >> announcer: "options action" is sponsored by think or swim by is sponsored by think or swim by td ameritrade. is sponsored by think or swim by td ameritrade. 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. ♪

what do you look for 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. ♪ welcome back to "options action." time to take your tweets jim asks, jim by the way has a great twitter handle whatever happened to mike's spy put spread from several weeks ago? do we hang on or liquid eight the position. >> what do you tell him. >> that depends on this coming week because the higher strike was at 260 we were looking at last time we tested these levels how do you buy the protection? this is the protection if you hold it against the stock. you can hang onto it sell it if

you make money. >> final cull call, cart. >>reporter: retail not good. i'd best against costco into earning. >> the retail is horrible. the but the xlu ready for bullback. >> see you next friday at starts right now >> 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. people want to make friends. i'm just trying to save you money. my job is to entertain, educate, and teach you. today we have a lighter than expected job growth. middling wage gains. not exploding wage gains which

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