hey there, welcome to the nasdaq market site on this frigid january friday. the guys are getting ready behind me. in the meantime, here's what's coming up on the show. >> always go for the throat. buy low, sell high fear, that's the other guy's problem. >> and selling high is exactly what mike coe is doing with energy stocks. he'll tell you why he thinks the ride might be over and why you should trade it if you do too. plus -- >> you shouldn't like things because people tell you you're supposed to. >> and dan nathan says that's exactly how you should feel about netflix stock. he'll break down how he's playing the name after the

stock's epic run and -- ♪ welcome to the jungle ♪ it gets worse here every day >> earnings season is almost here don't worry, the guys are here to help you bushwhack your way through the thick of it. the chart master will explain what he sees that has him pushing the sell button. it's time to risk less and make more the action begins now. we start right there in the thick of the jungle of earnings season the big banks will be kicking off all the action with big moves expected from the likes of jpmorgan, goldman sachs, wells fargo and citi down just about 20% from its highs. the chart master says there could be more pain ahead carter is over to break it down. >> correlations run to almost 1 when you have an epic sell-off and epic ricochet so the behavior isn't much different than the market overall. there are some things that would stand out it's better to fade it

here than anything else. here is a six-year chart of the xlf. one thing, you can see it before i draw it, you have a well defined uptrend line and a break in trends. let's put that trend line in there's no question what has happened here. after being quite precisely trading on this trend line, you have broken. now, keep that in your mind's eye and let's look at more importantly relative performance. here's the same chart. you can draw those same circles, show the break in trend. and yet what's really important is this, we know that we are nowhere near where we were back at the election two years ago. but look at the relative performance, because this speaks to the trump bump. it's all gone, right now, same chart and now i'll put in some circles. that circle is the day of the presidential election of 2016.

there's the alpha. and financials have been underperforming on a relative basis and undone all of the relative performance that's a fairly negative circumstance both absolute and relative in terms of the xlf here and now itself, this is actually the chart. here is how i think you can draw the lines. and what we have is the reciprocal, right? when you're in a downtrend and you walk along a line, once you break that line, rallying back to said line is an inherently difficult level and the bet here is that we do what these arrows are suggesting i'm a seller of xlf. >> pretty clear where carter stands, mike what's the trade >> i think this is a situation where if you're looking at most of the names in the xlf, we'll exclude berkshire hathaway, which is the largest xlf constituent, but all the others are basically the big banks,

jpmorgan, bank of america, wells fargo, citi, all of them are trading at ten times forward earnings, it's hard to press shorts for the stock but they technically look disastrous right here i think one of the things you want to do is hedge your bets a little bit i was looking at the march 24, 22 put spread. you can pobuy them about 67 cen. net, net you're spending 45 cents. we talk about the relationship between how much premium your spending and the distance between the strikes. this is less than a quarter of a distance between the strikes here, risking give or take 2% of the current level of the underlying trade that would bet at a downward move over the course of the next 60-plus days. >> giving back a good deal of the ricochet we also had some news out from jeffries, their cash equities trading down 9%, fixed income down 14. that's not what you want to be hearing before other big broker

dealers are going into earnings. >> if you want to think about 2018, the market made two new highs and traded very volatilely in between those two highs in january and september. there was one group that if you focused on all year, we wanted to sell every rally in the banks. what happened, when the market finally collapsed in december, these banks led to the downside, including jpmorgan, best of breed, all that sort of stuff. when i think about mike's trade, he's given himself a couple months and defined a range that lines up with carter' charts and paying less than a quarter of the width of the spread so i really like the options trade. risk/reward seems pretty favorable. >> the other thing i would point out, and this goes back to those fundamentals because people will take a look at how things have done on a trailing basis and that somehow gives you an indication it's time to buy. actually the opposite is often true when you look at business cycles, you'll often find right before things get worse you'll

see things trade at cheaper valuations that's the equity market's signal to you that what has been going on isn't necessarily going to continue. there's risk if the market vaul at this time hasn't told you that already. >> i would point out, again, there's almost no difference between one financial chart and another at this moment they all have the simultaneous clap and they all have the simultaneous ricochet. it's just a function of beta we can talk about that later because there are other things that will relate to this the more beta you have, the more sort of small cap you are, the bigger the bounce. that is symptomatic of frankly a junk rally. >> in the bigger decline. >> no, no. the ricochet, the lower quality you are, the bigger the ricochet the higher the beta, the smaller the cap. that has almost been uniform throughout this entire move. moving on, it is not just the banks. netflix is gearing up for earnings and wall street has been bingeing on the stock with

three big upgrades shares of up nearly 40% but dan says don't chase the streaming giant. >> i think that's the main story is not to chase it so you had this sentiment shift very quickly over the last month or so. the stock is up 45% since christmas eve. it's up 26% on the year. i think it's important to note that this company, or this stock actually topped out way back in late june and had a 45% peak-to-trough decline there maybe there was a little equilibrium. i'll let carter speak to that. that's my scribbling that looks to me like an epic head and shoulders top a low of 250, 260, whatever that is one of the things that's driven this story is subscriber ads they're getting a disproportionate amount of those ads internationally. expectations for about 7.5 million, 1.8 million here in the

u.s. this stock has been very sensitive to misses on that front. i know that's a big part of the bear case. they spent $10 million on original content and that makes up 8% of their entire catalog. this year is the year that i think bears may get that snap. some of you marvel guys will understand what that is. because you'll have disney leave and pull their star wars stuff and marvel stuff you'll have time warner or warner media that owns hbo, they're going to take that stuff off. so at some point, they have negative load of 3 to 4 billion dollars, this could be the year. when i think about earnings, the options market is implying a 10% move either direction. that's rich to the 7.5% move they had the last four quarters. i do not think you want to chase this if you're feeling a bit sporty and want to play for a retracement of some of this recent move, put spreads and february expiration line up pretty well.

today when the stock was trading at 338, you could buy the february 330-270 put spread paying $15 you' it costs you $15 your break even down at 315. you can make up to $45 between 315 and 270. you have a month if you get that initial move wrong, i want to tell you a couple of quarters where they had these big gap openings and the stock closed on its lows and went down a lot. that's why i want to target february expiration. i'm risking $15, that's a couple percent of the stock price here to possibly make three times my money. i like the risk/reward i hate that chart. what do you think? >> right it's that countertrend rally, which we all know. if you sell off 45%, which is what it did, and now you're back 47%, that doesn't cut it if you sell off 45, you've got to go up 75 to get back to where

you were it's one heck of a ricochet. it looks extended on the ricochet basis, and you see a very nice head-and-shoulders top. >> if you ever need an assistance, buddy. >> all these years, you really caught on. >> this is one of those situations, you spoke to it, the narrative and the negative free cash flow. as long as the narrative holds up, that's where you have these situations where someone says it's trading at 50 times forward earnings, negative free cash flow, how can it go up then you see some subscriber numbers, that fits the bulls' narrative. what happens, though, in circumstances when that does start to break, and all it takes is one instance, is you could see a swift and steep down drop. one of the largest bearish moves was basically the top was in, it cracked and it was an abysmal bear move in the stock i think the only way you can try to do that, because you're trying to time this.

this is a timing type of a trade, is to use put spreads right here this is a name that can move a lot, it will move a lot and the options are fairly expensive >> that's what's going to go on. disney, all these guys are going to take this content >> for everything options action check out optionsactions.com check out our news letter. here's what's coming up next ♪ we didn't start the fire >> no, we didn't start the fire in energy stocks, but oil did. if you think the crude comeback is overdone, mike will break down the best way to profit. plus, calling all options actions. tweet us your quesonti at options action if it's nice, we'll arcnswer ito

air. see that's funny, i thought you traded options. i'm not really a wall street guy. 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 ugh 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

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who says they don't? coach mcadoo! you know, at td ameritrade, we offer free access to coaches and a full education curriculum- 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 energy falling today but still the top performing sector so far in 2019. but according to mike the energy rally could be losing steam. he's over at the plasma with the call to action mike. >> sure. so obviously anybody who's been paying any attention to the tail ending of last year and the first part of this year we've seen agreat deal of volatility in the energy space and one of the reasons was crude falling down to about 41 bucks obviously when crude starts to move a lot, the entire sector will move a whole lot. one of the things we like to do when volatility gets higher is sell it. so we'll look at selling a call

spread we're trying to sell the higher implied volatility we've seen. we've already seen very harp moves, a steep decline in energy and oil prices and a fairly sharp ricochet off the bottom. if you were going to go back in time, you wanted to bet on big moves and buy premium. once a lot of those moves have started to take place, we're going to try to collect some premium on more modest moves selling call spreads typically has a higher probability of profit so we're hoping that this is probably a 70% probability of profit we can take a quick look at xle here the biggest constituents are the big integrated names they have a very high correlation with oil prices so that's essentially what we're going to be looking at if you're selling a call spread, it's a little like selling a call spread on oil taking a quick look at the trade here i'm looking at february. earlier today you could sell the

february 64 callsand collect $ for those. then to hedge that bet, you've buying the 65 calls for 68 cents. net-net you're collecting 32 cents. this call for those who are paying attention to such things as greeks as you're looking at your own machines to figure it out, that was a 34 delta caller. when i was looking at this, that also gives you some sense of the probability that that option is going to end up expiring in the money. but of course it would have to be higher than that by the amount of money we collected before you see losses on a trade like this. so i think whenever you have a situation where you have sharp moves, option premiums are still elevated but you now think that you can fade the rally or there might be a bit of a cap on it, this is one of those situations. we don't see huge demand growth in oil, but we do have some information we didn't previously have with respect to opec cuts and maybe some ceiling potentially on how much oil might be coming out of the permean. that will create that situation

where we will get to these levels and bounce off of it. this is also a level where oil had broken down previously. >> mike, you highlighted that you want to sell a call spread because of the price of options is elevated. that makes sense but you're also making a bearish bet. how do you think about selling call spreads when you want to be bearish when you're really convicted. how do you think about conviction level for a strategy like this? >> that's a great point. it was actually if we could go back to those original bullets, that will speak to it a little bit. this is a situation where if you take a look at where crude has come from, the biggest portion of that move had already taken place. so we saw from maybe 70 bucks down to 41 bucks and change. then we've seen a bounce off of that it has been a sharp bounce but in the context of where oil has been over the course of the last 52 weeks, most of that move has been made. so the real question is where do we think crude, and obviously all of the stocks that are associated with it, where do we think those are going to trade

this bounce that we've seen in crude prices, probably anything we see further from here is relatively modest. i also suspect that that v that we put in at the bottom is some level of support, although that's something carter should probably speak to. my guess is we're fading crude but not in a huge way. that's when you start to look at things like selling a call spread otherwise buying puts is the answer. >> one thing here, if one is betting on crude and sort of energy stocks fading, falling, not maintaining the ricochet, if you think about oih is the beta trade. from the low, xle is up 8. oih, the drillers is up 16 is oih something you'd also short or in a way a more dynamic play >> that's a question, mike. >> oh, i'm sorry i was sitting here busy trying to erase these lines.

>> what do you think of oih as a fade as well against the higher beta -- >> and that actually goes to dan's point, right so when we look at xle and crude and how those two track together, they'revery, very closely correlated in terms of the percentage moves we're likely to see. they're going to be similar. one of the things you could do is also look to make a bearish bet in the oih if you're going to do that, using a put spread might be a better way to do it. the higher beta names tend to be more levered more levered names move more violently when the fundamental drivers cause them to. so that's a circumstance where you look to buy put spreads. also like xle and like crude itself, the options will be expense i've so spreads are the way to make that trade. big gains in small caps, up almost 15% since december moves. how should you play this move higher got a question good our traders have answers we'll taking your tweets later in the show.

hit us and we'll do our best to answer them. much more "options action" right much more "options action" right after this'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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♪ you're not gonna say it are you? welcome back to "options action." it's time to take a look back at some of our open trades. last month mike and carter bet small caps were gearing up for a big comeback. >> three drawdowns over the past decade you can see them here, they're very clear put a big circle around this one, down 31% in 2011, now 27 in '15, '16 versus the s&p, 20 would you rather play these? that's the bet i want to make. >> i was looking at the february 115-140 risk reversal. spend $1.25 to buy that. >> well, they were right the etf that tracks the small caps up 9% since the time of the trade. so mike and carter, what are you

guys doing now >> i'll let him speak to whether we want to press a bullish bet on iwm as a relative trade but we did send out a tweet about this one yesterday and close it for $6.30. very close to a three-bagger the put that we were short was now only 15 cents and i have no interest in being short a 15-cent put. the call option that we were long is now in the money one of the benefits that options offer you is you can make more to the upside than you can lose to the downside. when they're very deep in the money, they behave like stock and that isn't what we were looking for here so if you were inclined, you could take those profits and roll out if you're so inclined i just took the money. >> that's the theme of the whole show the ricochet is always going to be highest and the lowest quality. as a point here, this is up 50% more than the s&p. at this point, though, everything has bounced too far and i think you take the money

and run. >> also last month dan bet procter & gamble's big run was coming to an en. >> i look at this on a valuation basis. i look at that chart right there. i say to myself would i play for a breakout knowing what i know about the global economy and the strength of the dollar, knowing about investors' focus on valuation. i'd say no i could buy the january 90-82.5 put spread selling one of the 82.5 at 40 cents. >> shares of p & g tanking in the days following but have since recovered. dan, what do you do with p & g here >> i got some resistance on this trade idea from carter and maybe from mike on the structure i was a little aggressive on the width of the spread but you remember the christmas day massacre that we saw in the stock market this stock went down from 92 when we put the trade on to about 87 the trade was worth a little more than $4 at that point so in a name like this when you

get to the midpoint of a spread this wide, so short, wooyou havt take it off. it cost $1.50, it's worth 45 cents. i think you have to cut your losses if you still have this on, because the likelihood if we don't have another big 3%, 4% decline, which i don't think is a high probability event over the next thing, this thing will be a total loser. >> the thing i would point out about this trade, i don't know what i said about it at the time but what has proven to be true since, when you look at the puts you sell, look at them as a percentage of the premium you're buying > up next, your tweets and the > up next, your tweets and the final call 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.

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(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. ♪ time for the final call. carter >> financials, i think you fade them going into earnings xlf short. >> mike. >> xlf the put spread is your way to play that. >> dan. >> netflix reports next week

obviously i have no idea what they're going to do. if they guide down and miss subscribers, the stock is going down back towards 300. >> that does it for us see you back here next friday at 5:30 p.m in the meantime "mad money" 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. welcome to san francisco and welcome to cramerica my job is not just to entertain but to teach and coachia call me or tweet me. this week wasn't just positive it was tumultuously