hey there live at the nasdaq market site. the guys are getting ready for the show here's what's coming up. all right, now everybody, get in crash positions >> after a big runup, dan says a nightmare is brewing for one of the travel stocks. plus -- ♪ oh yeah >> fast food stocks are sizzling but mike khouw says there's one name in the bunch that's too hot to handle. and alphabet it's the final frontier. alphabet is the last of the fang

stocks to report earnings next week as the stock has legged its peers this year, the chat master says there's no pain ahead he will explain. it's time to risk less and make more the action begins now. we start with the final fang frontier alphabet, the company set to report earnings monday after the bell the options market is applying a more than 4% move in either direction for the stock. will it follow the likes of facebook, up 10% from its earnings report this week, or follow netflix and amazon lower? let's get straight to the chart master, carter, hey. >> high-stakes poker betting against one of the great champions of all-time. its pattern is not similar to facebook, it's similar to amazon let's look at it the '09 low. 10 years put in the lines and what we know, it is ascending perfectly.

it has bounced repeatedly. off a well-defined line to the penny, to the penny, to the penny, to the penny. and then it has broken below and that's the issue is in the beginning of something worse? that's the bet let's zero in on in a little bit more current period tightened up, the past two years 0 or three zeroing in the breaking of trend. that's not the only way to draw the lines. one can draw them like this a head and shoulders top with the neckline being here. one can put in that trend line again. it all sort of sets up for something i think which is more risk than reward the bet here is that google is going to struggle very similar to the way amazon did, microsoft and other marquee names in the s&p 100. >> more risk than reward

mike >> i think the way to play this is to try to take advantage of the fact that options premiums tend to be slightly elevated going into earnings. we want to sell that i'm not looking for a really sharp move here. if we take a look at the last eight quarters, that isn't what we've typically gotten it's been really a big nothing-burger coming out of earnings the valuation on google is not wholly unreasonable right now. but it is slightly elevated relative to its own historical averages the last couple of years. i think the way you do this, look out to april by the 1,100 puts, spend $41, tell the february 1,100 puts against it, collect $22, that's a net debit of $19 a couple of ways that a trade like this can pay off. if the stock lingers and does essentially what it has been doing throughout the last eight earnings quarters or what it's been doing in the recent weeks relative to the market, that's going to pay off then once those february puts roll up, you're going to own the april puts at a fairly substantial discount

so a lot of these situations, amazon, it feels like a sharp move in dollar terms it was in percentage terms it wasn't. google, a similar circumstance this is a high-dollar stock. this strike is 25 bucks out of the money but it's a small percentage we're looking for a move over the course of the next couple of weeks that's going to be probably fairly modest but slightly weaker. >> you might have noticed dan's not here on the desk he's in atlanta hanging out for the super bowl this weekend. so dan, what do you think of mike's trade >> yeah, so i find it interesting. we've tried to focus on some call calendars, put calendars, trying not to be as directional into some of these events, especially as the market is cooling down after a very volatile period. so i kind of like mike's put calendar here because carter's not saying that this thing is going down 10% in a straight line, he's saying the technical setup is starting to deteriorate. when you look at some of these mega cap tech names over the last month that have reported

since apple's preannouncement, we've had moves that have been, other than facebook obviously, but that have been within the plus or minusof the implied move so even if you agree with carter that ultimately google may start going lower, mike's trade works out in the near term if you're not expecting a greater than expected move. so i like the trade structure. i also really like the technical setup. i just don't think you're going to get the fundamental bomb when they report on monday that's going to send the stock down dramatically in one fell swoop. >> no, that's right, it's probably not going to be anything dynamic in fact, what the implications were for 4.5% movement, it could be less than that. nothing fireworks-like but the issue is the position the stock is in, it's so similar to microsoft, so similar to amazon, visa, other super cap names that basically have held up the market, all ofwhich hav stalled. does this basically end up doing the same thing that's the bet. >> yeah, i mean, again, just taking a look at what kind of numbers are going to report, i expect them probably to be

pretty good. obviously that big fine coming out of the eu, that's baked into the cake here. it's also interesting from a strategic point of view, what's the company trying to do seems they're trying to get back into hardware, it's kind of interesting when you think of them rolling into and out of motoro motorola trying to find a sweet spot, i think that they've identified some of the things that apple is doing right. not everything i think that's kind of the direction they're taking the net result of that is, i expect people to come out of the earnings report and try to digest what's going to happen, i expect the movements to be relatively modest. vacation stocks taking off the past month airlines, cruise liners, booking sites all getting a boost in the new year dan says the setup in one of these names is nothing more than a travel nightmare what are you looking at? >> look at expedia one of the reasons why it's obviously a u.s. multi-national, a little less than half their sales are external to the u.s. you know, this stock has been in a pretty well-defined down trend. there's been a couple of times,

including just today, it's picked itself up above that down trend. they report next week and the options market is implying a 7.5% move in either direction. and i want to go back to december i want to start thinking about some of the reasons why stocks were plunging. one of the reasons why is obviously the fed and the fed action there the other one was trade and global growth. and during that period we had a couple of disappointing preannouncements we had carnival cruise line in late december preannounce. we had delta right in the beginning of the year preannounce bad results. we had marriott, one of the largest hotel operators, by revenues and market cap, down a whole heck of a lot insympathy i think this is a group where even if you're feeling better about u.s. fed policy and better about u.s. growth, there's still a lot of concerns about global growth a company like expedia really depends on global growth for their future growth. the other point is that the dollar's been strong we've heard warning about adverse effects of the dollar.

when i think about the revenue exposure outside the u.s., i think about weak european and chinese economies, i say to myself, i'm not really sure that i want to make a bet expedia's going to have a lot of visibility into the spring we had this five-year. i'll let carter speak to it. doesn't look too different than the chart he had of google a really well-defined head and shoulders, top of the neckline, down near 100. i think you look at this earnings event, you've got to give yourself a little time for this one if that chart tells you anything, some of those moves take time to develop april expiration, the stock trading at 122, you could buy the april 120, 95 put spread buy one of the april at 560, selling one of the april 90 puts at 60 cents, that cost you $5, your max risk, 4% of the underlying stock price it breaks even at 115 and 95,

you can make up to $20 i like the risk/reward i'm trying to get as near to the money as i can with this but i'm also trying to give myself a bit of time here for this thing to play out again, stocks don't always go down in a straight line. expedia, when they miss and guide down, it does. to me this may be one where you get paid off initially, or it may take a little time, but i do not like the fundamental setup here in expedia. >> you know what's interesting to me, first of all, spending 5 bucks for a 25 wide put spread, thels a good risk/reward relationship going into a catalyst, we talk about this all the time, you do want to try to when you can collect a little bit of premium. the 60 cents might not seem like much but that would represent a very sharp move lower for the stock. and that's a good thing too. because we've seen a couple of earnings where it has had exceptionally sharp moves to the downside in the last six quarters or so, two where it just in the following week the thing has dropped more than 16%. so the risk, 4% or so of the current stock price to make a

bet on something that's made those kinds of sharp moves, i think that makes a lot of sense. it certainly makes a lot of sense relative to shorting the stock as an alternative way to make a bearish bet which i wouldn't do. >> it's clear in terms of the formation. it's very similar to the google head and shoulders top yet what's important about a formation is the duration of the formation. you can have minor, intermediate, and major tops and bottoms. and this has taken place over the course of three years. it's a major head and shoulders top, which has major implications the google is about a year in the making so it only has intermediate implications meaning this is a bigger setup and has a bigger, more dynamic perspective sell-off >> okay. for everything options action, check out optionsaction.cnbc.com this week, we reveal the winner of the super bowl, wow. here's what's coming up next

what's there to eat? >> make yourself a damn quesadilla. >> investors have been into chipotle but mike says, buyer beware, the stock is too hot to touch. he'll give us the trade. calling all options action fans reach into your pocket, grab your phone, and tweet your question @optionsaction. if it's nice we'll answer it on 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 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

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welcome back to "actions action." chipotle shares up 20% so far in 2019 and one of the best performing s&p stocks over the last year as the company gears up to report next week mike says the stock is looking a little too rich. >> yeah, so we're going to take a look at putting on a put spread going into earnings in chipotle here are a couple of the reasons i'm looking at a trade like this first of all the stock is quite expensive right now. trading nearly 50 times trailing earnings to put things in perspective, we'll use round numbers. if they were able to achieve 10% net income margins, substantially higher than what they are getting, could make maybe $500 million a year, that's still going to be 30 times at the $15 billion current valuation. i'm a little uncomfortable with that the other thing is this has already made such a sharp, bullish move going into earnings this stock is up well over 30% in a relatively short period of

time the other nice thing about a put spread is if you happen to have been lucky enough to have caught that ride, you could also use this as a mechanism to hedge your long equity exposure as well as just using it as an outright bearish bet take a look at the chart and we can obviously let carter speak to that. here's where we can see basically the nature of this exceptionally sharp move right up to basically the highest valuations that the company has ever seen. to me i don't really like that setup going into earnings because it's hard to see how it's really going to propel much higher coming out of it. let's take a look at the trade here i was looking out to march looking at the 500 puts, 17.50, selling the 450s against it for 5.5, spending about 12 bucks, approximately a quarter of the distance between the strikes we're talking about a high-dollar stock. this seems like a big move and it is. that would represent well over 10% to the downside from where the stock is currently trading

this is a stock that can move, it has demonstrated that, so to me i think this is probably a good way to look to mitigate some of the high costs of options, but at the least, hedge a long exposure if you own the stock. if you're inclimbed to believe, as i do, the run is coming to an end, a way to make a bearish bet as well. >> dan what do you think >> mike gave a lot of good reasons why someone might want to use a put spread, especially in a stock that trades at a high dollar amount. if you're considering a short trade on this thing, that means you are a trader the idea of defining your risk in a high-priced stock like this and trying to get to a quarter of the width of the spread in a realistic range and time period into an event makes a lot of sense. i like it. if you agree with all the reasons that mike lays out why you might want to do this, this trade makes sense. >> a couple of things. first, the group acts poorly you've got a lot of big names like eat, texas road house, cheesecake factory that are

heavy, not acting well it doesn't have momentum as a theme in the market. the stock itself, we know it peak around 5.25, 3.80 in the december low, now it's back to its former high, september, october highs. in principle a rally to a difficult level where overhead supply comes into play is it already pricing in a prospective earnings beat? i'd say yes. >> management is trying to do a lot of the right things, trying to go increasingly digital, working on delivery, trying to improve same-store sales they've gotten a lot of the food safety issues behind them. that's all good news but the stock is very expensive here it's not 2,400 outlets already this is not a shake shack with 200 stores there's not an explosive growth story here and there could be menu fatigue put all that together and i don't see a lot of potential upside but there is downside risk for sure. amazon falling more than 5% today, sinking back into a bear

market is this the beginning of a bigger sell-off? got a question for the traders? send us a tweet @optionsaction we'll try to read it later in the show 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. ♪ (coughing) need a change of scenery? kayak searches hundreds of travel sites and filters by cabin class, wi-fi and more. so you can be confident you're getting the right flight at the best price.

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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 to take a look back on some of our open trades. last week they said amazon was prime for a breakdown. >> this security which has been in a perfect uptrend repeatedly over and over and over, clearly broke trend. when it broke trend it dropped about 37%. and it has ricocheted. the stock is a better sale than a buy. >> what i'm looking at here was the february 16.80, 16.70 put spread, costing about $4.80. >> well, the stock sank 5% today, falling back into a bear market so mike, what are you doing now? >> this is an interesting situation. we said when we put this trade on it was essentially a binary, that this was either going to be out of the money or in the money. if it was in the money, you were going to make all the money that you could.

it didn't need to move very much because it was a $10 spread on a nearly $1,700 stock. and it worked our way. it didn't need to go very far, it went as far as it needed to, we actually tweeted about this earlier. 80% profits in a week. i think we take the money and run. >> interestingly, this is a great example where options -- so think of that, 80% profits. it rallied all the way till earnings day, then collapsed 5%. putting on this strategy, you made a lot of money. >> also last week, dan said he was cautiously optimistic about facebook into earnings >> here's the chart. you see that well-defined down trend since that gap last summer it's back the an interesting level. you could buy the february-april 160 call calendars what my trying to do here? thread the needle, playing for consolidation. i think there's a chance the company advertise appoints next week but maybe the stock's down enough year over year where it's a good spot to set up for higher

highs. >> facebook earnings, dan, this is a case of right direction, wrong trade. how are you managing this? >> great, thanks a lot for that one, mel no, it's a great example of just overthinking thing at little too much, you know i got a lot of things right but the most important thing wrong, trade structure. here's the good thing. this stock was up 10% week over week, and this trade is still profitab profitable it's not the trade i would have donefy had high conviction that the stock was going to rally 10% following the results but i'm still in the game. because i'm short the february 160 call and long the april 160 call that has two and a half months, that april has a lot more time value than that february if the stock were to continue to kind of come in a little bit here over the next week, week and a half, into expiration, then this trade should be set up pretty decently. i don't know what carter thinks but 160 should be really good support going forward.

so here's the thing. the trade cost 3, it's worth 5 now, not a great setup, you know, if you were cautiously optimistic or bullish. but i'm kind of still in the game here. i think this stock works higher in the next couple months. >> i think you're being a little too hard on yourself hindsight is always 20/20. the straight structure a statistical point of view was a good one you faded in the correct direction. these are the types of trades that work out more often than not. this one did slightly. maybe it didn't make as much money as you might have done doing something else, but winning lottery numbers would have won too stick with the smart trades and be happy this was smart. >> it went up and that's what you were generally anticipating. here's the thing i think it went up a little too much the move feels impulsive, impetuous. it is such a reset for the stock that i think at a minimum it either backs and fills, doesn't make forward progress, or gives back and works back toward the gap. i would say if one made money, however they did it, take it and

run. >> all right up next, your tweets and the "final call. you traded options.y, i thought 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

(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. time to take your tweets dan asks, eye on the june 9 calls for 75 cents, should i take my profit and run or will it continue to rise? thanks, love the show, new to options, you help a lot. >> well, good trade, first of all. i'm assuming you bought it when it was well below $9 here the thing this was once a $400 billion company. while that does seem sharp in percentage terms now, given the leverage on their balance sheet, this move actually seems relatively mod toast me. the thing is your calls are now in the money, so what i would do is be inclined to press your bullish bet but probably sell the end of money calls and look to launder out of the money calls. >> in terms of the chart, controversial stock. it has doubled off the low it doubled with a gap. it sets the low, a major low,

which means it's asymmetrical, further upside versus falling back i would stick with it longer term, trade notwithstanding. >> wow, all right. our second question is from tony wondering if dan could update his u.p.s. trade, referring to the february-march call calendar you recommended a couple of weeks washington. >> tony, what i was trying to do here is kind of target mid-february with some of the dates that we have and getting up to that trade deadline on march 1st. and i'm thinking if there's any result, positive result, as far as trade's concerned, u.p.s. should benefit here's the thing, results came out, the stock acted better than expected sentiment's been really poole poor this trade is unchanged. i'd think about getting out of it and think about a call spread in march or april. >> "final call." dan? >> yeah, so i can't even remember let's root for the rams down here in atlanta. >> carter?

>> gg. google down, gold up. >> yeah, i like gold i like doing put spreads, calendars in google. actually i'm going to have to say go pats. >> that does it for us on "options action. see you back here next friday at 5:30 "mad money" with jim cramer starts now the following program is a paid commercial presentation for total gym fitness. [music] everybody work out. feel the energy. build a better body. the best you can be. another body easy as 123. oh. ahh. better body as easy as 123 with total gym.

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