welcome to the nasdaq market site on this frigid friday the guys 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 enjoying with energy stocks. why he thinks the ride might be over and how you should trade it if you do, too plus - >> you shouldn't like things because people tell you you're supposed to. >> 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 starting with the banks 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, morgan stanley, wells fargo, and citi, all on deck. it's been a rough run for the sector still hovering near bear market territory, down 20% from the highs. the chart master says there could be more pain ahead carter's breaking it down. >> correlations run to almost one when you have an epic sell-off and ricochet. the behavior of this group isn't, frankly, much different than the market overall. there are some things that stand out that would suggest it's better to fade it here than

anything else. here's a five, six-year chart of the xlf. and one thing, you can see it before i draw it, you have a well-defined uptrend line and break in trends. let's put the 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, you can 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 look at the relative performance. this speaks to the trump bump. it's all gone, right now same chart, and now i'm going to put in circles. that circle is the day of the presidential election in 2016. there's the alpha, it lasted for six weeks, and basically financials have been

underperforming on a relative basis and have undone all of the relative performance that's a fairly negative circumstance absolute and will 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 down trend 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 >> yeah, i think this is a situation where if you were looking at most of the names that are in the xlf, you know, we'll exclude berkshire hathaway which is basically the largest xlf constituent. but all the others are basically the big banks, the money center banks, jpmorgan, bank of america, citi, wells fargo, all of which are trading at ten

times forward earnings, give or take or less it's hard to press shorts with the stock. they technically look disastrous right here so i think one of the things you'll want to do is just hedge your bets a little bit i was looking at the march 24 put spread you can buy them for 67 cents when i looked earlier. sell at 22 against it, 22 cents. net-net, you're spending 45 cents. we often talk about the relationship between how much premium you're spending and the distance between the strikes this is less than a quarter of the distance between the strikes here risking give or take about 2% of the current level of the underlying for a trade that would bet on a downward move of about 10% over the course of the next 60-plus days >> giving back a good deal of ricochet word from jeffries, the cash equities trading down 9%, fixed income down 14 that's not the kind of thing you want to hear before other big broker dealers are going into earnings >> yeah. i would mention if you want to think about 2018, the market

made two new highs and traded volatilely in between the two highs in january and september but there was one group that literally if you just focused on all year, and i think this show did, we wanted to sell every rally in the banks what happened when the market finally just collapsed in december, these banks led to the down side including jpmorgan, best of breed. when i think about mike's trade, he's giving himself a couple of months, to march expiration. he's defined a range that lines one carter's charts here -- up with carter's charts here. he's playing less than a quarter of the width of the spread i like the options trade risk-reward seems favorable especially given how much time >> this goes back to the fundamentals because people often will take a look at how things have done on a traily basis and say -- trailing basis and say that gives an indication that it's time to buy. the spoot often true when you look at business cycles you're often going to find that right before things get worse you're going to see things trade at cheaper valuations. that's the equity markets signal

to you that what has been going on isn't necessarily what's going to continue. obviously valuations by themselves alone are telling you there's risk if the market volatility we've seen hasn't done that for you already. >> i would point out that again there's almost no difference between one financial chart and another. this particular moment, right. they all have the simultaneous clap which is the case in general and they have the simultaneous ricochet. it's just a function of beta we could talk about that later at some point 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's almost been uniform throughout this entire move. >> all right moving on. it is not just the banks netflix is gearing up for earnings next year wall street has been binging on the stock with three big upgrades in the new year shares are up more than 40%

since the december lows. dan says don't chase the streaming giant. what are you doing into earnings >> i think that's the main story is not to chase it you had some sediment shift quickly over the last month or so the stock up 45% since christmas eve. it's up 26% on the year. it's important to note that the company, the stock topped out way back in late june and had a 45% peak to drop decline we got to the point where there's equilibrium except that the stock has gone straight up in a straight line i'll let carter speak to that that's my scribbling. that looks like some sort of epic head and shoulders top right now with a neckline well below the level it bounced off of down near, i don't know, 250, 260. here's the thing, one of the things that's driven the story has been subscriber ads. they're getting a disproportionate amount of ads from internationally i think expectations for about 7.5 million internationally, 1.8 million ads here in the u.s. the stock has been very sensitive to misses on that front. when you think about all the

contend spend, that's a part of the case they spent $10 billion on original content last year that makes up less than 8% of their entire catalog this year is the year that i think bears may get that snap, something you marvel guys will understand you're going to have disney leave, their own streaming performance. pull their "star wars" stuff, their marvel stuff you'll have time warner or warner media that owns hbo now they're going to take that stuff off. so at some point, this increased spend on original content and they have negative free cash flow of $3 billion to $4 billion on the $10 billion, this could be the year. when i think about earnings next week, the options market is implying about a 10% move in either direction that's rich to the 7.5% move it's had the last four quarters. i do not think you want to chase this if you're feeling a bit, i don't know, sporty here and you want to play for a retracement of some of the recentmove, i thin put spreads in 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 for that. buying one of the 330 puts for $20. selling one of the 270 puts in february at $5 it cost you $15. you break even at 315. you could make up to $45, between 315 and 270. here's the key thing you have a month if you get the initial move wrong, i want to tell you guys a couple of quarters last year with big gap openings, the stock closed on lows, it went down a lot. that's why i want to target february expiration. i'm risking $15, just a couple percent of the stock price here, few percent of the stock price, to possibly make three times our money. i like the risk-reward i like it's up on a spike, and i hate that chart. what do you think? >> right the 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 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 -- >> scribble -- >> if you ever need an assistant, buddy >> wow, all these years, you really caught on >> this is one of those situations where if you're just taking a look -- you spoke to it the narrative and the negative-free cash flow. for as long as the narrative holds up, that's when you have these situations where someone says it's trading at 50 times forward earnings, they have negative free cash flow, how can it possibly continue to go up. you see good subscriber numbers, that fits the bulls' narrative they evolve the business model slightly with the content creation that fits the bulls' narrative what happens in circumstances when that does break, and all it takes is one instance, is you could see a swift and steep down draft. one of the largest bearish bets i was part was in netflix in my days as a canner that's what happened the top was in, it cracked, and it was an abysmal bear move in the stock. i think that the only way you can try to do this because you're trying to time this, this is a timing type of trade, is to

use put spreads here this is a name that can move a lot. it will likely move a lot, and the options are fairly expensive. >> the thanos snap - >> i don't know what that -- >> the yellow stones, half the universe - >> kill half of it >> that's what's going to go on. disney, they'll take the content. >> right for everything options action, check out optionsaction.cnbc.com check out the weather. the weathermay be cooling off, but this newsletter, it's hot, hot, hot here's what's coming up next ♪ we didn't start the fire >> no, we didn't star the fire in energy stocks, but oil did. and if you think the crude come back is overdone, mike coe will break down the best way to profit plus, calling all "options action" fans reach into your pocket, not your phone, and tweet u us @optionsaction if it's nice, we'll answer it on air when we return

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 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 (danny) (client's voice) ...that you're not using smarter tools to manage your business. you work too hard to work this hard! collecting receipts? is it the 80s? does anybody have a mixtape i can borrow? you should be chasing people's pets... ...not chasing payments! quickbooks gives you a sweet set of business tools... ...that do all the hard work for you. you may groom corgis, but you don't have to work like a dog. (vo) you earned it, we're here to make sure you get it. (danny) it's time to get yours.

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(indistthat was awful.tering) why are you so good at this? had a coach in high school. really helped me up my game. i had a coach. math. ooh. so, why don't traders have coaches? 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. according to mike coe, the energy rally could be losing steam. he's got the way the hot trade has popped out he has the action. mike >> sure. obviously anybody who's been paying attention to the tail end of last year and the first part of this year, you've seen a great deal of volatility in the

energy space one of the reasons, of course, was crude falling down to about $41. it's obviously -- when crude starts to move a lot, the entire sector's going to move a lot one of the things we like to do when volatility gets higher is sell it. we're going to look at selling a call spread here we're trying to sell the higher implied volatility that we've been seeing recently the other thing i would point out is that we've already seen some very sharp moves. we've seen a steep decline in energy, a steep decline in oil prices then a fairly sharp ricochet off the bottom if you were going to make -- go back in time, you wanted to bet on big moves, you want to buy premium. once a lot of those moves start to take place, we're actually going to try to collect some premium on more modest moves the other thing is that selling call spreads typically has a higher probability of profit in the case of the one here, we're hoping that this probably is maybe a 70% probability of profit we can take a quick look at xle here the biggest constituents of xle are the big integrated names xle overall has a very high

correlation with oil prices. that's essentially what we're going to be looking at if you're selling a call spread on this, 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 when i was looking, you could sell the february 64 calls. you could collect $1 for those then to hedge that bet, you're 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, and you're looking at your own machines trying to figure out which one we're looking at, that was about a 34 delta call or so 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. of course, it would have to be higher than that by the amount of money we collected before you actually see losses on a trade like this. so i think whenever you have a situation where you've had sharp moves, option premiums are still elevated but you now think that you can basically fade the rally or that there might be a cap on it this is one of those situations.

we don't see huge demand growth in oil, but we have 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 permian. that's going to create that situation where i think we could get to these levels and maybe bounce off of it this is also a level where oil, we're getting close to it now, where it had broken down previously >> dan's got a question. >> you highlighted that you want to sell a call spread because implied volatility, the price of options in the xle is elevated and that makes sense you're also making a bearish bet. how do you think about selling call spreads when you want to be bearish, when you're convicted -- how do you think about conviction level for strategy like this? >> that's a great point. and it was actually, if we could go back to the original bullets, that will speak to it a little bit. you know, this is a situation where if you take a look at where crude has already come from, the biggest portion of that move had already taken place. we saw from maybe $70 down to $41 and change then we've seen a bounce off of

that it has been a sharp bounce in the context of where oil has been over the last 52 weeks, most of that move has been made. 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 things will trade. i think what i'm saying here is that this bounce that we've seen in crude prices probably anything we see further from here is relatively model and i also suspect that that v that we put in at the bottom is probably some level of support although that's something carter should probably speak to my guess is that what we're doing here is we're fading crude. but not in a huge way. so that's -- when you start to look at things like selling a call spread. otherwise, buying puts is the answer >> so one thing here, i mean, 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, so from the low, xle is up eight oih, the drirls, up double, 16,

and credit caude oil up as exped is oih something short or in a way more dynamic play? >> that's a question, mike >> sorry i would say -- busy trying to erase these -- >> what do you think of oih here as a fade, as well meaning it'sa t the higher beta energy company - >> that also goes to dan's point. when we look at xle and crude and how those two track together, they're very, 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 oih if you were going do that, using a put spread might be a better way to do. it for one thing, 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 probably look to buy put spreads. also like xle and also like crude itself, the options are going to be expensive there. spreads are going to be the way to make that trade

>> all right coming up, big gains in the small caps up almost 15% since december low how should you play the move higher we will discuss that ahead got a question good, our traders have got answers. we're taking your tweets later in the show. hit us @optionsaction on twitter. eel do our best to answer em we're live at the nasdaq in times square much more 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. ♪

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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 it's time to look back at some of our open trades last month mike and carter bet that small caps were gearing up for a big comeback >> three drawdowns the past decade you can see them here. they're very clear put a big circle around this one, down 31%. in 2011, down 27 in, '15, '16, peak decline of 27 versus the s&p, 20 the issue is would you rather play these for a catchup trade to the overall market? that's the bet that i want to make >> what i was looking at was the february 115-140 risk reversal you could spend $1.25 to buy that >> well, they were right the iwm etf that tracks the small caps up 9% since the time

of the trade make 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 we actually did send out a tweet about this one yesterday and closed it for about $6.30. very close to a three bagger the issue here was that the put that we were short was now only 15 cents i have no interest in being short a 15-cent put on the index here the call option is in the money. one of the benefit that options offer you is convexity you can make more to the upside than you do in the down. when they're deep in the money, they behave like stock that isn't what we were looking for. if you're inclined and you can tell us whether one should be, you can take the profits and roll out if you're soin clined i took the money >> this is the theme of the show that the ricochet is always going to be highest, and the lowest quality and/or highest bidder as a point here, this is up 50% more than the s&p. at this point, though, everything has bounced too far

i think you take the money and run. >> all right last month, dan bet procter and gamble's big run was coming to an end. >> i look at this on a valuation basis. i look at that chart there i say to myself, would i play for a breakout here knowing what i know about the global economy, the strength about the dollar, knowing about investors' focus on valuation i would say no i can buy the january 90, 82.5 put spread paying $1.50 for that, buying one of the january 90 puts at $1.90 selling one of the 82.5 puts at 90 cents shares of p&g tanking in the days following but have since recovered. what do you do here? >> this is a tough one i got resistance on this trade idea from carter i think also maybe on mike on the structure. i think i was a little aggressive on the width of the spread and the timing was a little bit short but like you said, you remember the christmas day massacre that we saw in the stock market, the stock went down from 92 when we put the trade on to 87 it was worth a little more than

$4 at that point in a name like in when you get to the mid point of a instead wide, so short, you kind of have to take it off now here we are, one week to expiration costs $1.50. it's worth about 45 cents. you really are only dealing with the long put at this point i think you have to cut your losses if you still have this on the likelihood if we don't have another big 3%, 4% decline, which i don't think is a high probability of that over the next week, this thing's going to be a total loser >> the thing i would point out about the trade and i don't know what i said about it at the time, but what has proven true since is that when you look at the puts you sell, look at a percentage of the premium you're buying selling the puts helped out a lot. up next, tweets and the final call 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. ♪ (danny)'s voice) of course you don'te because you didn't!? your job isn't doing hard work... ...it's making them do hard work... ...and getting paid for it. (vo) snap and sort your expenses to save over $4,600 at tax time. quickbooks. backing you.

(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, you fade them going into kperns. xlf, short >> xlf, the march put spread is

the way to play it dan? >> netflix, i have no idea what they're going to do, if they miss subscribers, the stock's going back down. >> that does it for us see you next friday at 5:30 p.m. eastern. have a great weekend in the mean time, "mad money. 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]