hey there, live from the nasdaq market site new york city times square the guys getting ready for the show in the meantime here is what's coming up next. >> houston, we have a problem. >> stocks have spiralled in correction with the fed decision, a looming government shutdown and options expiration next week, we show you how to protect yourself from more pain. plus -- retail stocks are reeling. with just 11 days left until christmas. and mike khouw and carter wirth say the next retail shoe is about to drop. they'll lay it out

and -- >> broken down piece of junk. >> transports are nearing bear market but dan nathan says one name in the group could be so bad it's good it's time to risk less and make more the action begins now. ♪ >> we start with the transports bear market down 18% from the high planes trains and annihilation for the group this month check out hard hit names fedex and american airlines down 20% ups, jb hunt, norfolk southern all getting crushed. with fedex earnings out next week could it deliver a bounce dan makes a contrarian call and today. fedex is down 20% since that december 3rd post g20 gap. remember we had the trade deal with china and the stock market gapped up. we have sold off since fedex has been down about 21% since then most of the 25% decline on the

year the options market is implying about a 5.5% move in either direction next woke. that is rich to its average over the last four quarters of 3.75%. moved on average the last ten years about 3.5% i think given in massive move over the last few weeks there is a lot of bad news that is probably in the stock right here that being said, i think it's kind of a poster child for all of the issues you mentioned that are weighing on u.s. stocks and global stocks for that matter. so to me the way i look at this thing is it's trading about 11 times this year's expected earnings growth of 14%, 9% sales growth it's trading like investors don't believe that those numbers are accurate, they're lowered when they report next we can if they don't report, guide down, the stock is likely uncling to up and if we get any resolution to the issues overhanging stocks multinationals like this in the new year it's going up then. so the trade that i want to do is a bit contrarian. it's with defined risk i want to target the earnings

date next woke and a call calendar look out of the money and sell an out of the of the money short dated call to finance the purchase of a longer dated call where i think maybe fedex could see some better skies today when the stock traded at about 184 you could buy the december next woke expiration february 195 call calendar for 4.50 selling you one of the december 195 calls at $1.50. buying one of the february 195 calls for $6 that costs you $4.50 about 2% 5% of the stock price what do you want to do next woke you want it moving higher close to the 195 strike. the december call expires worthless you own the february foshag $4.5. 2.5% of the underlying stock price. important level get to two charts and hand it over to these guys one-year chart look at the downtrend and making lower highs and lower lows fell out of bed that's the move over the last

month then a 5-year chart i hope whiches showing some key support on a long-term basis between 180 and 185. i'm playing for it's really bad gets support deent news bert than expected and move higher into the new year. >> the valuation that you see here on fedex i think is pretty amazing. i don't think it's trading like they're not getting the growth that people look for it's trading like it's going to have negative revenue growth, negative the ep growth the options market may have given a sign that it agreed with you. we started seeing the relative premiumser start to decline a little bit that with the market trading essentially on its dead lows with the close so it might be that some people are starting to take a look at

this and say maybe we are getting too pessimistic. >> one thing to note is that the action in fedex is not specific to fedex ups and fedex do the exact same things that's not always the case even though they are largely in the same business. from my point of view, dan cited the key levels this feels as though it's a security that's been rerated to where it belongs and that getting long is maybe as 50/50 as getting short and that frankly it's going to back and fill here just as you see oil plunge and start to consolidate. i think the stock goes dead after being highly dynamic, becomes dull >> i wouldn't buy this stock here and wouldn't short it but the call calendar is it gives me the one-week opportunity to have it trade up maybe $10. if that's the case then the february 195 call i'm long is going to appreciate, gain some delta there. then i have optionalty turn it into vertical spread, a calendar again. i like it as options trade because it's an interesting setup for a couple of reasons. >> on the options trade front it makes sense.

although we see the relative premiums come in a bittner above average. when you try to figure out what do i buy what do i sell? you buy and try to sell things expensive what's expensive right now oh are the front month options in earnings. going into a turbulent market. to me that makes sense an ongoing trade alone. >> another group of stocks wrecked and that's retail. the xrt retail etf ending in bear market as costco cratered that's one piece of the puzzling tiffany, l brands and best buy seeing double digit declines in the past few weeks the chart master says there is another retail that could drop. >> looking at nike what you find is the setup is similar to costco that of course wouldn't be good if nike does what costco did a comparative chart. xrt, nike the big outperformer

but add a third line just for comparative purposes coastco and nike have been the darlings they're both trading at or near record evaluations each a different business. i know that. but they've been treated the same in the market that's one of the setups for nike to the downside nike itself how to draw the lines, so many ways. this is one. head and shoulders top another way, a break in trend. let's put it together. you've got both. neckline is here a break of the neckline. with give you a costco type selloff. earnings coming up, i'm a seller >> all right he is a seller mike what's the trade. >> you know, this is a situation

probably like a lot of others. in a market like this it's esz easy to be exceptionally pessimistic given what we are seeing what we are seeing is that this stock is not insubstantially off the recent highs as well what we have seen in nike. what we have seen is the direct to consumer business, that helped promote higher multiples. it's an area that we have seen higher multiples recently. it has come off a bit. you might say it's hard to press a short here the thing i point people to is that the multiples still remain relatively elevated. this is still a name that trades at a premium to the market still a name that trades at a premium to some of the historical multiples we have seen on the stock in the last couple years the thing is not wanting to get naked short a stock, especially going in as we did today on the dead lows, i think the way to do this is to simply look at a relatively near dated put spread i was looking to january the 72.50/65 put spread. spend $3.05. sell the 65s for 807 cents i sell the lower strike put largely because into a catalyst

in a volatile market we are looking for opportunities to sell options against the ones we are buying. kind of as dan was with the trade he outlined because the rebound that can happen if the news proves nothing can be sharp. that's a good way to offset the elevated options premiums we are seeing >> this is a great example where the option trade fits with the charts when you think about the premium mike is spending he gets to the $70 breakdown level and look where it has sport at 65. that's the profit potential for this trade and i also like one thing. listen, we do not like doing weekly options into earnings events that sort of thing. because if mike gets the original magnitude of the move wrong or direction wrong or maybe the timing by giving himself january he can be bailed out in a lot of ways here. when you mary the inputs i like this trade here and then you got to think a name like nike is in the middle of the storm with global trade that could be some of the things that take it lower.

>> i mean it is a poster child for trade. >> all of those things currency, trade wars, and it's still loved on the street, right. short interest is very, very low. it's a darling darlings have a way of sometimes coming apart costco today. >> i think an important to point and dan alluded to this as well. i was talking about the fact that when options premiums are expensive you want to look for other options to sell against it but the other critical thing to do is to try to look at levels where you think the stock might find support if you buy a put spread or where it might run into resistance if you buy a call spread for example. a reason why you want to sell those way out of the money options. the likelihood of getting to that 65 strike is actually significantly lower than it is of either getting to the break even or hitting the first strike

they tend to be most expensive on the board. >> for everything "options action." check out the website. sign up for the news letter. in week's edition reechls all of this carter's hair secrets. a great head of hair here is what's coming up next. >> announcer: stocks on the fast track lower. and if you're worried it could get worse, dan has a way to guy correction protection. 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 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.

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just to help you improve your skills. boom! mad skills. education to take your trading to the next level. only with td ameritrade. welcome back to "options action." stop me if you heard this before stocks are plunging. the s&p 500 firmly in correction down nearly 20% from the late september high down nearly 3% on the year as we head in the important week for wall street. the fed meeting on wednesday the december options expiration. given all the turmoil how can you hedge against more loss sns dan is at the plasma with a special call to action. >> very special. the options mcis implying about a 2.5% move in the s&p 500 between now .the end of the week the s&p was down about 2% today. pricing like cheap movement

between now and the end of the next we can. when you think about two weeks to the end of the year, a stock market down more than 10% from the all-time highs but the s&p is down about 2.% on the year i keep getting the question how do i hedge about an uncertain period the next couple months we know there is a deadline on china trade. the mueller investigation is heating up and other issues about global growth into the new year let's look at the spy. you have stock poefrmted correlated to the s&p 500. here is a chart. a couple of levels people focused on from earlier in the year 2750, that was the closing low here we have not gotten there today but we closed at a 7-month closing low. that's important this is kind of important near-term support. let's go to the 5-year chart quickly. we have had the beautiful uptrend not much volatility and not any deep pullbacks in 2017 the s&p was up almost 20% on the

year look how volatile we have been and now we are limping in. 235 is the interday low from the year, the extra day low that's a key level. and an air pocket below process that was the late 2016 post election breakout. as you head in the new year you get nervous about the price action right now that could continue into the new year and maybe we get a 10%, 15% drop as we did last january and february, you may want to think about spy put spreads. today when the etf was trading at 261 you could look out at a put spread that would capture the whole range i talked about between 260 and 220. you could look to buy the 260, 220 put spread in february paying $7 for that, buying one of the february 260 puts for $$8 and selling one of the way out of the money 220 puts at $1.

that costs you $7, breaks even down at 253. you can make up to $33 between 253 and 220. you know, the risk/reward of this hedge is pretty interesting here $7 it's just 2.5% or 3% of the underlying etf price but you are getting protection down to that really important support level over the next two months i like the risk reward here if you are getting nervous into the end of the year. >> what do you think of the levels here, carter? >> that's the importance of levels what cause as breakout or breck down is you return to a common level, intermediate high or low repeatedly at some point all the supply or interest gives way and you break out or break down. the thing is, everyone is watching it. that makes it more important, because if and as you break it becomes a self-fulfilling phenomenon but here is key if you look at the three-year chart, after a great period of ascent volatility happens and transition periods, tops and bottoms. we have been going on ten years this is not a bottom

this is volatility is symptomatic of people making big decisions mostly downside trying to get away from equities. >> that's a good point on volatility i think back to big market turns like the tech wreck in 2000. that is one of the things we absolutely saw generally speaking as the market is in a period of ascension what you find is that volatility tends to come in. >> or come down it's quiet to too. >> things can be quiet but when you get to these transaction periods, news is jerking the market around violently and big gaps in volatility just about this structure, importantly, look we had a big move today we could have a very big move on monday look at this the structure rather than the specific strikes, i think, that dan is choosing or the prices at the very least there is that level of maybe support we might find, down 15% from where we are obviously peak to trough would be a sharp and stark decline i would say. and you can speak to how often that happens but the important thing to remember here is when you put

the put spreads on you get favorable risk rewards in things like spy right now because especially if you go out to february, the implied volatility of the options while higher is not completely off the charts we did have actually even higher prices earlier this year when we saw the collapse of the short volatility funds. >> dan. >> i would mention earlier in the show we mentioned some of these next week catalysts. we could see a bump after the fed meeting. this is the strategy you want to be tactical about. you want to not do it too frequently it could be a huge drag on the results. you have to be smart about the timing don't do it frequently and look for opportunities like maybe one of the weirdo bounces we get that gets sold off after a phoney event like a dovish rate hike. >> coming up, costco crashing nearly 9% great news for khouw and carter we tell you which. do you have a question about the crazy markets. send us a tweet. the traders try to answer later in the show. live in times square

more "options action" still ahead. >> announcer: "options action" is sponsored by think or swim by td ameritrade. 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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last week carter and mike said costco was heading for a crash on earning. >> what's so telling is that when you do adhere to a trend line beautifully and perfectly and 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 your head and fail at that line is not what you want to see that's bad action. >> i was looking at january, the 230/240 call spread looking at this earlier you could sell that for $4.10. sell the 230 call for $7.45. >> it was a great call shares down now more than 8% since the time of the trade. what do you do from here >> you can close this because the money is made. that options you could have sold for $7.50 was less than a dollar be sure to follow us on twitter

because this was not the only bearish note we had on costco. we mentioned earlier this week we saw unusual activity. somebody bought puts on this thing. this is definitely something to do follow us on twitter. >> here tactically we were in it for a reason it was the earnings. that part has come and gone. to that extent you take the money and run. more importantly or separately does one have to make a major judgment not about the earnings, but what this is for coastco on an intermediate basis. and the implications are that there is more to go. >> you actually said that about xrt as well. >> as you lose one player and another player, think how much damage has been to things like tiffany and tap evidentiary. this is day one for costco. >> it's interesting costco was down 8, 9% but up double digit% per year and he see that in prior leadership it feels like the year can't get done fast enough

we still have amazon and microsoft up a lot it seems like at as long as 2018 is open for business, it could keep going >> the thing they lost is margins. so the revenues came and went but it was the eps that missed when we think about one of the things propelling the bull market great margins, they have been maintaining or even widened as revenues increased. if that's a trend we see margin compression that really is real trouble. >> also there was consistently -- costco had trouble with the amazon scare. that's that always can return, too. >> up next, the tweets and the final call s, 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

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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 become to "options action." time to take tweets. our first viewer asks the ibb

jan 108/33 call trade is down 75% any hope left. >> not a lot of hope so first of all where more time has passed less time for the trade to work out and further from the strike. the probability has gone down when you're in the long premium trade, dan said this many times, you should cut your losses if you lose half the premium walk away you have to reassess. >> this is a little bit when you hope it's hopeless if and as the market goes liar ibb goes lower and the time is out of reach. >> one other quick thing part of the thesis was that it would outperform the market it has done but the market is punched in the nose. buying the calls was supposed to risk less than the stock and it has done because you lost $2 instead of the 7 or so that ibb gives up but i don't think this is likelihood in the long run now. >> time for final call carter braxton wirth.

>> nike, it's my estimation it could well do what costco did. >> mike. >> the 72.5, 65 put spread innic nic yee is a bearish bet in earnings. >> with hedges, be tactical spy hedge wait for a little bit of a bounce next week. >> see you back here next friday at 5:30 p.m. eastern time. don't go anywhere. "mad money" starts right now the following is a sponsored program paid for by my pillow do you find yourself sleeping too hot or too cold, not getting the support you need to help relieve painful pressure points or struggling just to get comfortable? then get ready for a revolutionary, new sleep experience. introducing the my pillow mattress topper, the next generation in sleep innovation from the company that brought you the world's most comfortable pillow. [applause]