hey there, we're live at the nasdaq marketsite on this friday afternoon. the guys are getting ready for a big show here's what's coming up. >> you really don't know how netflix works? >> don't worry we've got you covered as the streaming giant gears up for earnings next week and mike ko will tell you how to make money if you think this hot stock is about to cool off. plus -- there's one casino stock that's soaring >> gambling? who said anything about gambling in it's not gambling when you know you're going to win >> brian stud has the perfect trade for you to cash in on the rally. he'll tell you the name and how to trade it and later --

>> one group of stocks is trading near its highest level in more than a decade, but the chart master sees something that has him sounding the alarm he'll break it down. it's time to risk less and make more the action begins right now. and let's get right to it. netflix falling ahead of earnings reports as disney unveiled its new streaming service and the stock is up more than 30% this year and the market implying a move of 8% in either direction and this stock has had an average move of 6.5% over the past eight quarters the chart master thinks investor should turn off this stock carter worth is over thea tat te plasma. >> it's a big competitor joining the rank and what's important about netflix is how important it's been acting over the past two, three months and more since its inception it's one of the great winners of all time.

just to put this in context, you're talking about something that's basically gone up from zero effectively, the ipo praic to where it is now long-term chart, if you were to take a look and see the annotations, buy and hold ask wh is what you want to do it drops right out of the gate and advances considerably, and drops 78%, 53, 56, you see the numbers and we just endured a 45% with the peak to trough drawdown when the market dropped 25% in the s&p more importantly here and now let's take a look at the chart and try to figure out what is going on what we know, yes, is that it's rallied and the succession of lower highs has lift this up against this well-defined line and it's hit that line and failed and failed and failed it and did just again this past week, failed

>> now take a look at the same chart, but look at with relative performance. so here is the same chart. here again is the failure at the downtrend line repeatedly and consistently and what we have here, though, is relative performance and this is what i want to zero in on. take a look at the following same chart and what we know, yes, is that yes, netflix advanced off the low with the market and has advanced generally since, but what we also know is that, yes, it advanced initially, but it has underperformed ever since, and that's, i think, the setup that is the cause for concern i think it's risky to go into earnings long, or full long and i would have puts or some other strategy to protect oneself. >> all right, carter, thanks >> by the way, we have traders around the country and mike ko in san francisco and brian sullivan in new york and what's your trade on netflix?

>> netflix is an interesting case because, of course, anybody who is bearish on the stock is always going to talk about the valuation and it's trading nearly 80 times full-year 2019 earnings estimates so it looks expensive and we're talking about a stock that will be growing its revenues by nearly 40%, but they do have a conundrum and they have a conundrum in the content grar a area and we've got disney and hbo's streaming and of course, we have the big gorilla in the room, amazon, that is a potential competitor of theirs and amazon might be a notable example where people have tested the valuation question many times and the situation in netflix is this is not a company generating free cash flow and at least in amazon's case they always did generate cash flow and that is one of the things

that would bolster their valuation and you were talking about the fact that it's imfliing about an 8% earning and over the last eight quarters we'll see a 6% move. we've seen really big moves and i think it's important for investors to remind themselves that just because the most recent quarter didn't see big moves doesn't mean these earnings won't see some. i think these options aren't overly expensive at the moment, and i was looking out to june the 340, the 300 put spread and you can spend 10.5, and spending three with the puts and the other one is against it with five and a half dollars and netflix price where it closed today at around $361 bucks if you continue to trend sideways you will lose premium whenever you have catalyst, you will see options premiums after ward if the stock goes sideways and the only chance to lose all

of the premium in this case is if the stock took off and you have to ask yourself after carter's technical analysis whether that is like a likely outcome here and my inclination despite the fact that it's been up two-thirds of the time two months after earnings in the course of its history that maybe this time it's going to be that one-third of the time that it disappoints and i think this is a relatively inexpensive way in a very expensive stock to make a bearish bet going into earnings. >> brian, what do you make of the trade? >> i like the trade and the reason being when you look at the option, it picked up obviously on the news of disney here and more importantly the bigger size trades that we saw were people selling offside calls and buying downside puts and clearly people were looking at some sort of protection or playing to the short side here and mike following along seems to make sense and when you see the earnings going up to netflix i don't think it's out of the question and i think it's a real possibility and you look longer

term at the stock versus netflix or disney, and i think disney has a real chance to capture market share and that's going to be the real question and when you talk at insiders out in hollywood and they always question why netflix has been able to garner everything without their own sort of content and now you have a player like disney come along and others that will probably come to market and start to share the market share from there and that's a real concern. i think netflix has a lot of problems going forward over the next few months so i do like this play. >> carter, mike was alluding to the fact that a lot of times it's more than a 6.5 move, and over the past eight quarters will we see a beg move like that after netflix. does it tend to hold that direction? >> not specifically net flishgs, but all stocks, disney being the case today and it plunged after a major reset whether news related or not and typically yes, and whether it's earnings news and fda approval or

indictment or whatever it might be and the markets while they're efficient are very efficient to where it belongs based on the news at the moment so typically, you will gap up and hold the gap you can see it all of the time lulu lemon had just adapts and typically, you will see in the multiple sessions thereafter at the general level where it opens on the gap. >> mike, last word >> the thing i would just remind people of in all of the streaming services it comes down really to two things and it will come down to content and it will come down to competition and that competition is also going to impact the cost of that content. we're seeing very good production values coming out of some of their competitors and that increases cost. so if you're going to try to be coveragetive, you will see the cost go up and that will make it a tough road to hoe for netflix. >> from streaming to machines, and all of double digits las vegas sands expected to kick

up earnings next week, but if you're worried for the stocks crapping out on the result, brian has the results. why don't you break it down? >> if you look at las vegas sands, it's an interesting play and you mentioned how it was up. it's in this middle area where it's broken up to the upside and may see resistance at the level and they're playing with just that and when you look at the implied volatility and they're looking at a 3.5% move on earnings and that would take it right to 70. so options traders not too concerned that we get through that resistance. i think when you look at las vegas sands and it's an interesting story and here is a company when you're in sort of this big box where you're stuck inside the brick and mortar, to get out of that brick and mortar, they have a way to do that if we see casino gambling move into sports books and into sports bars away from the casino there are opportunities for restaurant mergers and casinos to sort of come together so that combined with the china story, i like it i'm playing options here to the

upside i like buying the june 72 1/2 call at the same time, selling the june 60 put. when you look at the cost difference between the two of them the net is a 15-cent credit to you. so if nothing happens you at least took in 15 cent, but when i take a look at it, if the stock trades 72.5 by june i get all of the upside from the call. if the stock trades the dollars a share and on the downside, 59.58 and that's where i'd get long the stock and i'm waiting to see if it breaks out of this trend and i get longside exposure and wait to see if that happens. >> what do you think of the premise of the trade and the trade itself >> yeah, so, i think there is something to the premise to be sure when we think about sports books and the impact and that's a positive and as brian was just alluding to, this is more of a story of macau, isn't it that's the area that you need to focus on, but i do like the structure and we should probably ask carter about the technicals

because we were seeing it below the 60 level and this is one of those situations you often get asked in options and is there a way i can use options to take advantage of my thesis and we've seen the stock move well over 10% over the sub 60 levels and this gets upside exposure if it continues to rally and you will actually get to own it where it was trading before that little bit of a breakout. maybe we should ask carter what he thinks about it >> carter? >> there are two ways to play direction in the market. you're finding it idiosyncratic long, disney, or you find group themes and energy stocks move as a group. sometimes, sometimes not, but themes are as good eating as any and guess what we have here and it's not just lvs, it's wynn and mgm. the casino stocks as a group, while the small group are on the move they all have the common

circumstances, and massive decline, 50, 60% from their highs and all have had very important turns and bearish to bullish reversals and so i think that's an excellent trade and we know the highs are up in the low 80s, and i think there's more to go >> brian, last word. >> yeah. i've owned las vegas sands from the start of the year and it's one of the top picks on the year and when you look at the breakout, the big, huge reversal to speak to the technicals where you saw huge volume and it broke out through that 60. to me that was positive action right there and the whole china story, i got time on the tradeout in june and china starts to continue to bottom off its lows and i think that will play the macau story that mike mentioned. >> for everythinging ones action check out cnbc.com while there, check out the newsletter and i hear it's got a couple of game of thrones spoilers what are you waiting for >> there's a terrible place for

risk. >> where is that the chart master says winter is coming to one area of the market and there could be big trouble ahead. he'll explain. >> plus -- calling all options action fans. reach into your pocket, grab your phone and tweet us your question at options action if it's nice, we'll answert ion air. when "options action" returns. ♪♪ ♪♪ ♪♪

i'm not really a, i thought wall street guy.ns. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade >> welcome back to "options action," reits on fire and surging back to its highest levels in more than a decade and carter says cracks are starting to spread. carter, what are you looking at?

>> so it's a circumstance where maybe it's just too much of a good thing what we know is a low bid area of the market like this, reits have benefitted from the very low rate environment and the plunge in rates this month. >> what we also know is being the third best performer year to date it's a little hot this is a one-year chart and just to put this in contrast and what you see, of course, is the remarkable, you know, outperformance of real estate. i've got here just for comparison's sake over the past 12 months the s&p 500 which has huge movers in it like system is and tech, and then, of course, the financial etf and xlf. at this point the presumption is that it's a little too hot and take some profits. >> let's take a look at a couple of charts. what we have here first is a chart over the past several years and wye see how volatile it is and if you put a trend

line on it whether you were to do it this way or whether you were to use a moving average to capture a trend line which is all that a moving average is, what we know is it's a little bit far above trend and the mean reverting tendency here would be to make the bet that this is going to come back, come back. okay let's take a look at that exact same setup and pull it back further and here it is going back to the '09 low and again, if we put in some trend work, whether you use the trend line or a moving average, what you will see here is the same circumstance so remember what we did on the shorter term chart here's now an entire decade and it's my thinking that at this point what we have here is the ability to, well, predict a sell-off we're want going to be able to go back. hold this. we are back. now, watch the circles and it's the same circumstance,

this has been going on, right? consistently and reliably. you have a crowded circumstance. at this point, my bet is this. final chart, that we are going to fall back to the level from which this breakout occurred that's the price objective right here i'm a seller >> all right pretty clear on the chart, at least, mike. what's the trade >> we have the highest valuation in three years we have the lowest dividend yield in this sector in three years and of course, the rates are really the story here and also employment. we have very low unemployment and that's the two propellants and 5g buildouts on the towers and for the apartment side on the apartment reits, we've seen them slow down some of the construction and there is some capacity there and you have both the valuation question and possibly some operating issues that could basically cause this rally to end here is the situation where the

options are not particularly expensive. i was looking at the june 87 puts and those were $1.85 and that gives us adequate time and reverse the way carter was indicating and there are good fundamental reasons if they do that even if we don't see or hear anything about a potential rate increase and this is an inexpensive way to take a position in it and if it does continue to rally, we're risking a small amount of the current level right here >> brian, your thoughts on the direction, the call on nyr as well as the trade itself >> the direction i think is the right play because when you look at the first chart that carter showed and the outperformance of the real estate sector, really occurred back in november and it all happened there when the ten-year interest rates got crushed down to 2.5% and it looked like the fed would reverse its tone and that's where the outperformance occurred and now it's too late in the game and i think that reversion has a good chance of happening and i would rather play in different areas and i'm in mortgage-backed security sectors and i'm not necessarily playing on real estate prices

going higher i think that's what you'd have to play if you were in the sector and it makes sense to take a cheap put, buy it and add some protection if you are long in some of these reits and take a shot so i'd like the trade. >> carter, what should i be concerned about as i watch interest rates and the nyr >> sometimes, complacency is an issue and i think we've got that in the real estate stocks in particular and the way to play it would be the ayr regardless of which real estate stock might be the most vulnerable >> mike? >> of course, you know, this is not just going to be the apartment realty and we have amt and so on and they're playing into this, as bell. >> up income, share was advanced meeker up 20% in the past month and we'll tell you why that's great news for the traders much more "options action" right after this

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.

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>> welcome back to "options action." time to take a look back at a very special open trade. chips were ready to rip. >> on options action, it's how we trade like mad scientists, risk less so they can make more and that's exactly what brian did with his bullish bet on advanced micro brian thought amd looked like it could defy gravity, but just buying the stock would set him back three grand so instead brian bought the april 26th call for $8.25. now to make money brian just needs advanced microto rise above the stock price above $28.05 by april expiration, but spending more than two bucks just to bet on amd >> this is your last chance. after this, there is no turning back >> brian, you're a brainiac.

let's do this for less so to reduce the cost of the trade, brian then sold the april 31 strike call for 35 cents and created his call spread. here's how it works. between the $2.05 he spent on the lower strike call and the 35 cents he collected on the higher strike call brian cut the total cost of his trade down to just $1.70. now brian needs amd shares to rise above the lower strike call by the reduced cost of the trade or above $27.70 by april expiration >> brilliant >> maybe so, but remember, there's a tradeoff and because he's sold the higher strike put, brian capped his profits at $31 and since the time of the trade, advanced microhas rallied more than 3% meaning that the trade is looking pretty good and now options action fans all over the world want to know one thing,

what will brian do now ♪ >> well, amd is up nearly 20% over the last month so brian, what are you doing now >> well, i think when you take a look at the story is still there and the amd potential stuff worked with google and basically the gaming community and positive news out of nvidia and the chip is to the upside and it is trading above break even here and the call spread slightly in the money and we're a little bit up on that and i actually sold the call spread earlier when the stock was trading above 28 and i think if you get a pop next week into expiration, i would start to take it off and maybe look to roll and make the play on earnings which comes up the llinowing week and play to the foowg side for next week >> tafrpgs fhanks for that trade up next the final call 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 you know when your dog is itching for an outing... or itching for some cuddle time. but you may not know when he's itching for help... licking for help... or rubbing for help. if your dog does these frequently. they may be signs of an allergic skin condition that needs treatment. don't wait. talk to your veterinarian and learn more at itchingforhelp.com.

(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. final call time. carter >> rates are too hot

sell lyr. >> mike? >> the june 87 put in lyr. >> brian sullivan? >> las vegas sands earnings next week use options to play to the upside. >> that does it for us we're of 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 cramerica my job is not just to entertain, but to teach call me at 800-743-cnbc. or tweet me. today, we got about a year's worth of major business stories in a single news cycle disney reinvented itself jpmorgan had a stunning