hey, there we're live at nasdaq market site on a friday afternoon. here's what's coming up. >> you don't know how netflix works? >> don't worry, we have you covered. as the streaming giant gears up for if earnings next week. michael khouw will tell you how to make money if you think this hot spock is about to cool off plus, there's one casino stock that's soaring. >> gambling? it's not gambling when you know you're going to win. and brian stutland 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 the 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 the earnings report on tuesday the stock is still up more than 30% this year and the options market applying a move of about 8% in either direction this stock has had an average move of 6.5% over the past eight quarters the chart master thinks that investors should turn off this stock. carter worth >> sure. it has nothing to do other than a big competitor joining the ring so we know of course just since 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 ipo price to where it is now. long term chart if you were to take a look and see the annotations just to show you how volatile it talks about certain times, buy and hold, it comes drops 72 out of the gate drops 78%, 56, you see the numbers. we have just endured a 45% decline when the market dropped 21% in the s&p more importantly here and now, let's figure out what is going on what we know, yes, is that it's rallied but the succession of lower highs has left this stock up against this well defined line it has -- in fact, hit that line and failed and failed and failed and it did just again this past week failed.

now, take a look at the same chart but look at with relative performance. so here's the same chart here again is the failure at the down trend 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 at the market and has advanced generally since but what we also know is that yes it advanced initially, but it has underperformed ever since. that's i think the set-up that is the cause for concern i think it's risky to go into earnings long, full long, i would reduce or by puts or some other strategy to protec oneself. >> all right carter thanks by the way today we have traders around the country, michael khouw's in san francisco and brian stutland from chicago tonight. mike, what's your trade on

netflix? >> yeah, so you know netflix is an interesting case because of course anybody who is bearish on the stock is going to talk about the valuation. it's trading nearly 80 times full year 2019 earnings estimates. so it looks expensive. of course it's a stellar growth story. carter was alluding to that earlier. i mean we're talking about a stock that's going to be growing the revenues by nearly 40% but they do have a little bit of a conundrum in the content area and they have some competition coming online. obviously we have got disney, hbo's streaming and we have the big gorilla in the room, amazon, a potential competitor of theirs the interesting thing is i have tried to compare this stock many times with other big growth stories. amazon might be a notable example where people have tested the valuation question many times. but the situation in netflix is this is not a company that's generating any free cash flow. at least in amazon's case, they always did generate some cash flow i think that is one of the things that would bolster their

valuation and now they're starting to some money, maybe not so much in netflix's case. it's applying an 8% earning and maybe we have seen a 6.5% move on average i think it's important for investors to remind themselves that just because the most recent quarters didn't see big moves doesn't mean this earnings isn't going to see some. they're not overly expensive at the moment, i have looking out to june. you can spend $16 for the three 40 puts and that represents about 3% of netflix's share price where it closed at over 351 bucks. this is a situation if thestoc does continue to trend sideways you'll lose a little bit of premium. whenever we have a catalyst like earnings you will see options premiums come in afterwards if the stock goes sideways but the

only chance to lose all of your premium this this case is in the stock took off you have to ask yourself after carter's technical analysis whether that seems like a likely outcome here you know, my inclination despite the fact it has been up maybe two-thirds of the time, two months after earnings in the course of its history maybe this time is it's going to be the one-third of the time that it disappoints. i think this is a relatively inexpensive way to make a bearish bet into earnings. >> brian, what do you make of the trade? >> well, i like the trade and the reason being when you look at the option activity today, it picked up obviously on the news of disney here but more importantly is the bigger sized trades that we saw were people selling upside calls and buying downside puts if you play to the downside, clearly people are looking for some protection and playing to the full spread to the downside seems to make sense. when you look at earnings coming up for netflix going through the 340 mark is not out of the question i think it's a real possibility. you look longer term here at the

stock, versus netflix, versus disney which you guys brought up on "fast money" i think they can capture market share that's the real question when you tack at insiders out in hollywood, they have always questioned why netflix has been able to garner everything without their own sort of content. now you have a player like disney come along. and others that will probably come to market and start to share 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 like this play. >> carter, you know, mike was alluding to the fact that a lot of times it's more than a 6.5 move which is what the implied volatilities -- well, we have seen over the last eight quarters will we see a big move after earnings on netflix does it tend to hold that direction >> well, not specifically netflix but all stocks disney being a case here you had bibe plunge whether it's earnings news, fda approval or

indictment or whatever it might be, markets while they're inefficient are very efficient at rerating a security to where it belongs based on the news of the moment so typically you will gap up and hold a gap you will see it all the time lululemon did it recently. lots of examples so the direction it gaps typically you'll see a lot of backing and filling and the multiple sessions thereafter at the general level where it opens on the gap. >> mike, last word. >> yeah. you know, the thing i would just remind people of in all of the streaming services it comes down to two things. it will come down to content and competition. and that competition is also going to impact the cost of that content we're seeing very good production values coming out of the competitors. that increases costs so if you're going to try to be competitive, the costs will go up that will make it a tough road to he for netflix. all right, check out the casino stocks all up double digits this year las vegas sands expected to kick

off next week but if you're worried about the stock crapping out on the results brian has a solution. >> when you look at las vegas sands you mentioned how much it's up on the year here it's in the middle area where it's broken out to the upside but may see resistance at the $70 level. the option traders are playing it like that it has earnings next week they're looking for about a 3.5% move on earnings that would take it to right about 70 so options traders are not concerned we get through that resistance when you look at las vegas sands it's an interesting story. when you're in 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 into sports bars away from the casino, there's 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, the net is a 15 cent credit to you. if nothing happens you at least took in 15 cents but when i look at it if the stock trades above 72 1/2 by june, i get all of the upside from the call if the stock trades below $60 a share, i will have risk to the downside because i have to get long if i break even on the downside here, $59.85 that's where i'd get long stock i get some upside 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 mean i think there's something to the freshmen us to be sure when we think about sports books and the impact for these i think that's a positive but of course as brian was just alluding to this is really more a story of macao. so that's the area to focus on

i like the structure and i think we should ask carter about the technicals because we were seeing it trading below the $70 level. you often get asked in options you know the stock has already done something is there a way to use options to try to take advantage of my thesis given the fact it's already moved so we have seen the stock move up well over 10% off of those recent sub 60 levels this is a way where you get some upside exposure if it continues to rally if it does not, you'll get to own it where it was trading before that little bit of a breakout so i mean maybe we should ask carter what he thinks about it. >> carter? >> sure. so there are two ways to in principle play direction in the market you find the idiosyncratic long, disney, something unto itself or find group themes, energy stocks move as a group, sometimes, sometimes not. themes are as good as any. it's not just lvs, but wynn and mgm. the casino stocks while a small group are on the move.

they all have the common circumstances mass sit declines. 50, 60% from the highs and they have had important turns so i think it's an excellent trade and we know the highs are up in the low 80s. i think there's more to go. >> last word, brian. >> i like the stock. it's one of the top 30 picks on the year when you look at the breakout the big huge reversal to speak to the technicals that happened weeks ago that you saw huge volume and now it broke out through the 60 to me that was some positive action right there. and then you know the whole china story i got some time on this trade out to june you know if we hear more about the u.s./china deal, i think that will play to the upside that will play to the macao style that mike mentioned. >> thanks, brian for check, check out the website and check out the news liter and i hear it's got a couple of "game of thrones" spoilers in here so what are you waiting for? here's what's coming up next - >> the most terrible place there

is. >> uh-oh, where's 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 and grab your phone and tweet us your question @options action if it's nice we'll answer it on air when "options action" returns. ♪ "options action" is sponsored by thinkorswim by td ameritrade ♪♪ ♪♪ ♪♪

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welcome back to "options action." reits on fire this year with the real estate etf eyr surging back in more than a decade. but cracks are starting to spread carter, what are you looking at? >> right, so it's a circumstance where maybe it's just too much of a good thing. what we know is that a low bid area of the market reits have benefited from the very low rate environment and the plunge in rates just earlier this month. but what we also know is that being the third best performer year to date it's a little hot this is a one year chart, not a year to date chart but to put this in contrast what you see of course is the remarkable, you know, outperformance of real estate. for comparison sake over the past 12 months i have the s&p 500 which has huge movers like semis and tech and then of course the financial etf, xlf.

it's a little hot to take some profits. let's look at a couple of charts what we have here first is a chart over the past several years. we see how volatile it is. if you were just simply to put a trend line on it whether you're to do it this way or whether you're to use a moving average to capture a trend line which is all that a moving average is what we know is that it's a little bit far above trend the mean averting tendency would be to make the bet that this is going to come back, come back. okay let's look at that exact same set-up and pull it back further. here it is going back to the '09 low. again, if we put in some trend work whether to use a trend line or a moving average what you'll see here is the same circumstances. so remember what we did on the shorter term chart here is an entire decade and it's my thinking that at this point what we have is -- let's

go back one if we can. what we have here is the ability to -- well, predict a sell-off we're not going to be able to go back, oh, we're back now, watch the circumstances and it's the same circumstance, this has been going on, right, consistently and reliably. you have an overbought condition. crowded circumstance final chart, that we're 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 charts at least, mike. what's the trade >> yeah, i mean, 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. also, employment we have low unemployment that's really the two propellants. we have 5 g buildouts for the

towers and on the apartment reits we have seen them slow down some construction there's some capacity there. so you have both the valuation question and possibly some operating issues that could basically cause this rally to end. here's a situation where the options are not particularly expensive. i was looking at the june '86 puts that gives us adequate time if it does reverse the way that carter indicated i think there are good fundamental reasons it will do that even if we don't see or hear anything about a potential rate increase. this is an inexpensive way to take a bearish position in it. of course if it does continue to rally we're risking a relatively small amount of the current level here. >> the call on yrl and the trade itself. >> the direction i think is the right play because when you look actually the first chart that carter showed the outperformance of the real estate sector occurred back in november. when the ten year interest rates

got crushed down to 2.5% it looked like the fed would reverse the tone that's where the outperformance occurred now it's too late in the game. i'd rather play it in different areas. i'm in some mortgage backed securities sectors i'm not necessarily playing on real estate prices going higher that's what you have to play if you're in this sector. i would play this area to the short side it makes sense to take a cheap put, buy it, add some protection if you're long in some of the reits so i like the trade. >> carter, what should i be concerned about as i watch interest rates and their direction with the yrl >> sometimes complacency is an issue. i think we have got that in the real estate stocks in particular but a way to play it is the real estate stock might be the most vulnerable. >> mike? >> yeah, and of course this is not just going to be like the apartment realty we have the tower stocks like amt and so on. those are obviously playing into this as well. >> good point there. up next, shares of advanced

micro are up nearly 20%. we're live in times square much more "options action" after this (indistinguishable muttering) that was awful. why are you so good at this? "options action" is sponsored by thinkorswim by td ameritrade 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. ♪ ♪ our new, hot, fresh breakfast will get you the readiest. (buzzer sound) holiday inn express. be the readiest.

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welcome back to "options action." time to take a look back at a very special open trade. three weeks ago brian stutland said chips were ready to rip >> on "options action," it's how we trade like mad scientists risk less so you 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 could set him back nearly 3 grand. so instead, brian bought the april 26th strike call for $2.05. now to make money, brian just needs advanced micro to rise above that strike price by more than the cost of the trade or above $28.05 by april expiration but spending more than 2 bucks just to bet on amd >> this is your last chance.

after this there's 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 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 just 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 sold that higher strike put, brian capped his profits at $31 and since the time of the trade, advanced micro has 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 look at the story it's still there. the amd potential stuff work with google, basically the gaming community that we have positive news out of nvidia, i think the trade right now is just trading a little bit above break even right here. the call spread, slightly in the money we're a little bit up on that i actually sold the call spread a little earlier when the stock was trading above $28. i think if you get a little pop into expiration i would start to take it off. maybe look to roll and make a play on earnings which comes up the following week and play to the upside with the call spread later on next week. >> all right, thanks for that trade update, brian. up next, the final call. see that's funny, i thought you traded options. i'm not really a wall street guy. "options action" is sponsored by thinkorswim by td ameritrade 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.

final call time. carter >> reits too hot, sell yrl. >> buy the june 87 puts. >> brian >> las vegas sands, use options to play to the upside. >> that does it for us we're off next friday and we're back the following week. "mad money" starts right now (announcer) the following is a sponsored program for prostagenix, furnished by prostatereport.com. (upbeat music) ♪ hi, this is larry king. over 30 million men in america have prostrate problems. i know, i was one of them. and all these natural prostate supplements like the ones i have here in front of me are everywhere.