hey there. the guys getting behind me in the meantime, here's what's coming up on the show. >> do you like coca-cola >> the chart master sure does. he said the sleepy stock is about to pop reports earnings next week plus, nvidia share have

plunged. >> i declare bankruptcy! >> not so fast mike khouw says the worst is behind him he'll break it down. and -- ♪ go on take the money and run >> the longest winning streak in years. after soaring off december lows, it is time to take your money and run. he'll lay out the trade. it's time to risk less and make more the action begins now. and we start with the financials snapping the longest weekly winning streak since 2012 this could be the end game for the sector hot in the first few weeks in the year despite the selloff citi and bank of america are up. morgan stanley, jpmorgan and wells fargo up about 3%. and dan is taking a look. >> we touched on the banks in the first week of december on the show i think we were all in agreement

that the underperformance for 2018 was a really bad tell for this group what happened in december? the bank group crashed, at least the u.s. banks did citibank in particular dropped 25% in a month down to its christmas eve lows that's the one we're going to focus on again what are some of the reasons over the last couple of days that maybe have been spooking bank investors there's been a lot of rumors that deutsche bank is going to be in a forced merger with commerce bank. we have a 20-year stock of the euro stocks banking index. this thing is banging along the lows it's not just deutsche bank that european investors are worried about there. and i also want to say there was a really interesting deal this week now we have the two regional banks, bb&t and suntrust merging in a $66 billion deal. they're the sixth largest bank kind of weird, the biggest deal in ten years i just want to make a point. when you're talking about forced mergers or a merger done out of strength, let's go back and look a decade ago, 2008, when jpmorgan was forced to buy bear stearns for two bucks on its way to ten

it's really interesting. the s&p was in a correction at that point it rallied 15% after that. people thought it was swept under the rug subsequently from may in 2008 to the lows of '09 it dropped 15% now, the u.s. treasury yield on the 10-year is 2.63% people were talking about 2016, that was a generational low. we might have just made a generational double top breaking that uptrend here's the long-term chart of the 10-year treasury yield maybe we have been in a decades process where yields are never going up i don't think that's good for banks right here i don't think it's good for the global economy lastly, let's just get to citibank because this is the one i was picking on in early december look at that, carter will speak to that v and talk where it stalled out right here

what is the next identifiable catalyst for citibank? it's going to be q1 earnings there's going to be some stuff going on in europe, whether you like it or not i think this is a great opportunity to pick on a name like citi group so i want to catch their next earnings event and catch the fact that this stock rallied 30% in the last month. it's pretty simple, you buy a put spread when the stock was trading at 62, you can buy the april 60-50 put spread paying $1.60 for that that breaks even down at 58.40 my target on the low ending, 50, because that's where it bottomed out around christmas eve so i like the risk/reward here i'm risking 2%, 2.5%, to make 5.5 times my money. >> i think a lot of people will be interested in this trade precisely you said because of the rally we've seen in citigroup shares in the last month or so. there are a couple of elements to the argument that i think people will be hung up on because they're shocking

to compare suntrust and bb&t with -- >> we were talking about commerce bank and deutsche bank. the interesting there when you start talking about investment banks that are in a little bit of a death spiral, which i think deutsche bank is, bear stearns was, the problem is that you start to see a combination of things working against them and their only remedy is to try to look at cutting their expenses you start seeing a flight of talent they start losing business there's just really no good way out except a merger for them, and that's not even a good solution, but it's a solution. i will say when you take a look at the valuations for money center banks, they're clearly telling you something is very, very wrong and when we look globally, we can see what's wrong it's just in the united states that it isn't. i would suspect if you're going to be in financials, you probably would want to be in the regionals, although they didn't perform particularly well after

that merger news either. i wouldn't want to short this thing at eight times forward earnings. >> do you like this trade? >> i do like the trade a lot you're talking about a $10 wide put spread which makes a lot of sense. we're talking about how volatile the stock can be and you're spending $1.60 >> is there any difference between citibank and all of them they all have the common circumstance of a collapse they all have a common circumstance of a ricochet whether it's big money center like bac but it's also met and pru and travelers, it's goldman sachs, it's morgan stanley i think the real concern is how poor those two major brokers are. goldman and morgan stanley are making 52-week lows in their sector and that's the leading edge in many ways. yes, rates, we know that's the story, but the whole thing is heavy. it doesn't act well. >> i want to make one really clear point.

i'm not saying we're on the cusp of the 2008 bank thing if you look at their valuations and their exposure to risky assets, it just doesn't exist. it doesn't exist the way it did in 2008. that's not my point. if you're looking at citigroup, it sold off to $50 last month for a whole host of reasons that we've been talking about for months there's a good chance it could happen again if some of those reasons come to pass my point about mentioning that regional bank is that, okay, these guys have the foresight they're going to make this really killer, the sixth largest bank maybe they do, maybe they don't. who knows what is going happen when we have forced bank mergers in europe. citibank will be back in 2019 if a lot of bad stuff comes to pass. >> you have three months until this expires less than two months ago the stock was sub-50 you're risking a small amount to make that bet. shares of coca-cola up 14% over the last year, one of the best performing dow stocks the chart master says shares could explode higher when the company reports earnings next week carter, head over to the plasma. break it down.

>> maybe fizz higher, pop higher, explode? it is fizzy water, they're in the water business but i like it long three simple charts. first, the chart with nothing said but what is interesting is that this sell-off basically comes down and finds support, plus or minus, and comes to life another way to draw the lines would be this way, right the well-defined trend line from which the stock has bounced three times. and then finally if you leave the bottom trend line on and put in a descending upper line, you have the setup that i think is ultimately the breakout. simple chart, simple breakout bet, earnings coming i like coke long. >> simple chart, simple breakout, simple trade mike. >> it is a simple trade actually because like a lot of staples stocks, this is a name that has relatively inexpensive options and so it does not make sense to

complicate the trade at all in a situation like this. i'm just looking at the may 49 calls. you could spend $1.60 for those. when i was looking at this earlier today, it obviously represents a relatively small percentage of the current stock price. they were actually slightly in the money when i was looking at that part of the reason that they are at that low price is when you own a call option, you don't get a dividend, when you own the stock you do that's going to amount to a little over 40 cents nevertheless, you are also dealing with a stock and one of the reasons you're looking to use call options instead of buying the stock, it is at essentially very close to its all-time peak valuation. despite the fact that the top line, if we think about the fizzy sugared water business, it hasn't been a great story the last couple of years

revenues are substantially lower. they are managing their business effectively and do have a very good earnings growth trajectory an i think that's the reason you'd be making a bullish bet here. >> you might also have the circumstance that let's say it's all wrong. it's going down less than market in the event of a general market sell-off. >> it looks great. how many charts look that constructive in this market, especially in the stock market mike's trade is simple but it's also risking 3% for in the money participation and vol is kind of cheap. even if it sticks around here, you're in the game for a few months the only thing i don't like about it, i don't like the fact it's coca-cola trading at 22.5 times. it's not investable to me. it's a great options trade based on your technical analysis, that's the way i think about it. >> proctor just broke out and proctor is no more exciting than coke. >> i hated that too. >> first of all, the top line story as we already talked about, that isn't the story here it is about whether or not they can manage that story, though. and a company is doing that part

fairly effectively we are seeing eps growth, despite the fact that revenues are probably $10 billion lower than they were at their peak so you're basically banking on a stable business, a relatively stable stock and maybe looking forward to what we consider some trouble spots coming up ahead and you're not spending a lot on these options. if you think the stock might go higher, you could risk a little and potentially make a lot. >> for everything options action, check out our website. while you're there, sign up for our news letter. it's got juicier stories than "the national enquirer." nvidia's freefall from the highs has investors breaking out but mike khouw will give us the trade. plus, calling all options action fans. reach into your pocket, grab your phone and tweet us your question @optionsaction. if it's nice, we'll answer it on air when "options action" returns. 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 need a change of scenery? kayak searches hundreds of travel sites and lets you filter by take-off time, layovers and more, so you can be confident you're getting the right flight at the best price. ♪ kayak. search one and done.

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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 semi stock nvidia taking investors down a spin down 50% since hitting a high in october. shares sinking 20% in a single day after reporting weak guidance in november and getting crushed in late january after warning its earnings next week could come up short. despite the moves, wall street expects the stock to recover at least some of those losses

the price target is $179 a share, 20% higher from where it is trading with a 7% move, should you bet on a rally with nvidia. >> i think if you're inclined to make a bullish bet you might want to do it in a fairly cautious way we'll look at a call spread risk reversal here's some of the reasons we're looking at that. first of all, as you alluded to, after they announced they basically had that preannouncement, we saw a sharp decline in the stock price it's rebounded fairly sharply off of that but let's pay attention, i think we should, to that recent low which was right about $130 here's a situation where you're potentially looking for exposure to the upside. maybe you think the worst is over because they have given that poor basically preannouncement but now we'll have earnings. if you want to have upside exposure in a structure like this, you do need to be willing to get long the stock at a lower price let's take a look at what the stock has been doing we can see this very poor performance. this is the level that i'm talking about right down here. basically hit a bottom, i think it was about $131. that's basically the level we're thinking we want to give ourselves some cushion in the event that it goes back to that level. how do we put this trade on? i was looking at the march 130, up with call spread. we're buy the 130 and selling the 160. net-net you're spending 65 cents to put this structure on when earnings are going to be announced, typically what you're going to see is the implied volatility, the price of options

will decline what is likely to happen if the stock doesn't move very sharply is that this call and this put are going to decline in value more than the call that you're long, so that 55 cents, if it sits right here, chances are you're not going to lose that money. if the stock rallies because you own the 150 call, you'll have exposure to that that's up about 3% from here on the other hand if the stock does give us further disappointments and starts to settle in a little bit, you're going to the net long the stock at $130. that's a decline of 10% from here i would point out also this expires in march if you take a look at how the stock has behaved after earnings, the month after earnings, typically you see a move up or down by an average of about 10%. those are pretty key levels that

we're looking at here. i wouldn't want to buy the stock right here given the news we've seen two consecutive quarters of fairly weak guidance and fairly weak performance if you're inclined to make a bullish bet, this would be a way to do it. >> dan, what do you think of this trade >> a couple of things i really like about it. to the downside you put the stock at 130 what i also like is he's not paying a lot of premium and he is very near the money participation to the upside. he also is not too long dated here you're really playing this sort of event i would just make one other point. apple, they did preannounce on january 2nd, the stock got murdered when they actually got around to reporting their quarter and spending some time with investors, the stock rallied and

has been pretty strong to me this sets up pretty good if you were inclined to buy the stock, this is really a good way to do it as an alternative. >> right and this is asymmetry to the upside in that sense if you have preannounced, you're not going to come out typically with something that's worse. so if it's going to be a surprise somehow, even though you've preannounced, it's going to be something that's positive more likely than not in terms of the actual pattern of the stock, having dropped from 292 down 57% and basically the stock is fair price, it's been rerated here. it has no character. sometimes, again, stocks are at great inflection points, big breakouts or rollovers, cups and handles, all the things we talk about together on the desk this is an instance where nvidia belongs here technically and it could well be fundamentally. >> mike, last word. >> i think the important thing to think about, we're a show

about options. this is a situation where you mine looking at this and say i can buy this stock at a discount what i'm saying is maybe it is a discount to where it was trading, but this is a way you can get exposure to the upside and if you are forced to buy it, it's a 10% discount to this discounted price. shares of chipotle sizzling after reporting earnings we'll tell you if it has room to run. do you have a burning question for one of the traders? we're taking your tweets later in the show. live at the nasdaq in times square, much more "options square, much more "options action" right after thisnt free. 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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welcome back to "options action." time to take a look back last week mike thought the run at chipotle was overdone. >> this has already made such a sharp bullish move going into earnings this is up well over 30% in a relatively short period of time. looking out to march, looking at the 500 puts, 17.50 you could spend for knows and selling the 450s against it, net-net you're spending about $12 that's a quarter of a distance between the strikes. >> that stock has been soaring

off its earnings report. mike, how do you manage this trade? >> i think you just have to admit that that direction was wrong. i felt that the stock had gone too far too fast i wasn't crazy about the valuation, but the street disagrees with me and i think i'm going to walk away and nurse my wounds. >> carter. >> certainly it's a breakout so there are two ways to handle that if you're long. you take half off and let the rest ride because after a gap often you get follow-through if you're short, the way you handle it is like you hands any mistake. get out. >> also last week dan said expedia was headed for a travel nightmare. >> the stock has been in a pretty well-defined downtrend. there's been a couple times, including just today, where it's picked itself up above that downtrend. there's still a lot of concerns about global growth. a company like expedia really depends on global growth for their future growth. you could buy the april 120-95 put spread paying $5 for that, buying one of the april 120 puts

at 5.60, selling one of the april 95 puts at 60 cents. >> that stock is getting a boost off its report dan, are you holding on? >> we had a bad week last week. >> this is kind of interesting carter may speak to the technicals that that was obviously a breakout from that downtrend. when i listened to that ceo on cnbc earlier today and read their guidance last night, i just didn't buy what they were selling. you know who else didn't buy it? investors gapped this thing up it was trading up 10% at one point. it closed on the low of the day. i had a $25 wide put spread out to april it cost $5 it's worth about $2 right now. normally i would say you've got to cut your losses and a 50% premium stop but i've got a lot of time here monday if this thing continues to the downside, you may have this thing right where you want it

i'm going to say give it a little time here. >> when you're trying to manage a trade where you still believe in it but obviously got the move wrong initially. if you have a long enough term trade you can stay with it another thing you can do is look to adjust your strikes had you shorted the stock, the pain would have been much greater than putting the options trade on you still have an opportunity to do a little bit of a reset give yourself some time for it to play out. i do agree it didn't trade particularly well. that was in a tape today that did very well. we started very poorly and finished basically on the highs. the stock did the exact opposite. >> that's the most salient point here if a stock has news and it gaps up and all day long momentum continues and people are buying into the close, versus a stock that intraday starts to see exhaustion, it's not that bullish a day at all. >> i want to make one last point. when we do these event trades, they're really, really hard to make money timing is really important so when we do a trade id on a friday afternoon and the company is not reporting until thursday, you've got to use your head about entries. put the trade on first thing

monday morning can be tough too. you might want to adjust strikes, that sort of thing. so to me timing is one of the most important aspects of these trades. >> up next, tweets and the final >> up next, tweets and the final call 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.

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 time to take your tweets our viewer asks what are your views on the march 8th weekly 160 calls in salesforce. mike. >> you know, so this is a critical level and a critical time we have earnings, 160 looks like the level it will break out. if you're inclined to do that, i'd rather do that than buy the stock. >> it gapped on its last earnings it's a well defined top. it's been contending on the high >> competitor had sales results. it was one of the first big cap stocks to make a new high. >> time for the final call carter braxton worth. >> coca-cola, long safety net >> michael khouw. >> calls in coke and risk reversals in nvidia rather than buying the stock. >> daniel nathan. >> i didn't mean to sound so confident with the bank stocks or with any certainty things will go the way it did but it seems like an easy one. >> it's kind of scary, your lead-up to that trade. >> it was scary. >> all sorts of scared there. >> gloom and doom. >> that does it for us on "options action.

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