hi there live from the nasdaq on this exploration friday karen was so excited she decided to stick around for the big show here is what is coming up. ♪ the countdown is on to big tech earnings, and there's one faang name mike khouw says is about to shred it up he will tell you how to trade it plus -- ♪ -- tesla earnings are on tap next week. don't get too giddy, elon, because dan nathan says it is setting up for the short of the century. he'll explain. and --

>> wears sneakers in the pool. sneakers. >> maybe so. but there's one soggy sneaker stock karen finerman says is about to kick up dust. she'll tell us what that is in her "options" debut. it is time to make more. the action begins now. >> let's get right to it because next week is one of the busiest weeks for earnings and it will be all about the faang stocks facebook reporting on tuesday. the options markets on fang are more than 6% move in either direction. amazon and alphabet could see a 4% jolt when they report thursday together. that accounts for nearly $110 billion and a potential shift in market cap. with netflix posting a huge miss this week, how should you play these names into the reports let's get into the money, kick it off with mike mike, what are you looking at? >> i'm looking at facebook i think it is probably the biggest name that will be reporting next week. you know, often times on this show we talk about our desire to try to sell things when overpriced and buy when cheap.

in the case of facebook, of course, going into a catalyst like earnings, what you're going to see is the nearer dated options will see elevated premiums, higher implied volatility we do see that the other thing i would point out is longer date it options often aren't affected quite as much we could look at the difference between the longer and shorter dated ones and say it is at the high end what we will look to do is sell the near-dated options and buy the longer-dated ones. the final point i would make, talking about cheapness, facebook, despite the fact that obviously we've seen a very strong move in the share price over a long time, is not particularly expensive we really need to think about these things in terms of valuation, not price on that basis it is actually probably inexpensive, certainly it is relative to its growth the other thing is that a lot of the concerns that you might have about facebook, i think these are pretty well-known to us right now. we are concerned about regulatory pressures they have been facing these same head winds for a while, they've faced them pretty well when you enter into an options trade like this, the good news

is for some reason we get something bad, we're not taking a lot of down side risk. i was looking at august 2, '05, january 2020 205 call spread in january. net, laying out about $10, maybe a little less than that. we are laying out less than 5% of the current stock price the idea is if facebook lingers around where it is right now with the near-date it options are going to decay, the longer dated ones will not decay so much if it rallies to the 205 strike or slightly through it, we still will see benefits. worst case, risking less than 5% if it completely fell out of bed, something i'm not expected. i would expect the longer dated options to preserve vaul. >> dan >> i would be surprised after the quarter they put up in late april if there was a big, lurking surprise one way or another from a guidance standpoint it is something we talked about on the desk this entire year, that expectations have gotten really low over year over year

earnings, expectations have ground down to a negative. it is coming back some point in 2020 but i like mike's trade because he is playing for consolidation here if he has the stock on 205 or below with august expiration, he has financed the later dated calls and you are set up for the later calls later in the year. >> welcome to the show, chairwoman. >> great to be here. i feel like it is my seat. >> well, it was your seat ten minutes ago. >> that would explain it. >> what do you think of mike's trade? >> i think it is interesting it wouldn't surprise me to see facebook a little high he. i'm curious. let's say it happens and you're spot on and facebook goes out in august with 205 and you are left with the longer dated january call what do you think happens to -- >> yes, i think that's an excellent question if the stock does rally up to 205, let's think about this for a second the 205s in august essentially will be worthless, right they will expire at or just out of the money the january calls will have appreciated somewhat they have what we options

traders call delta, and so they're actually going to go up a little bit you will basically collect all of the premium and now you're long, net long dated call. the question is do you sit on it and it is the end of the trade it isn't actually. what we will look for are opportunities to sell other calls against it we will get a little bit of color about what is going on with the company at that time. that's probably going to frame our judgment as well if it goes out at 205, that will be a win one final point. we look past the last five years, we haven't seen -- we only have seen maybe three times or so where we've seen really big moves, i'm talking 14, 15% or more to the upside after earnings you know, so i'm not really expecting that it is a relatively low probability we see something that big happen. >> let's stick with earnings tesla catching fire ahead of the next report next week. last month carter and dan identified key levels for the stock. we're actually getting down to a low that was seen only one other time in history. how far below trend it has ever been since its ipo, here is the all-data chart

this is literally the lowest point it has ever been i think you have a situation of so bad it is good. i want to make the bet that tesla actually is a time if you're shot to be covering and being small speculative longs. >> if you caught carter's "fast money" trade and it got to 250, it would be the level of the century to layout, sure, especially if you are bearish on the fundamentals as tim is. >> well, as you might have noticed carter isn't on the desk tonight but the day marked the bottom for tesla shares are up 45% right now to the 250 level, just above that dan, how do you trade this into earnings >> it is interesting, that was june 3rd and the stock was just slammed over the prior few months, you know, down to 175 from the high the previous year of $420. you know, the sentiment was getting really bad i know we talk about it most nights on the desk and it is hard to find too many bulls, at least among our group. you know, at that point it just seemed like it was a coiled spring carter made a great, great call. you know, he was looking for a move back to 200, 220 or

something like that. that chart right there tells you that just as it overshot to the down side when it broke 250 in early may and went straight to 175, another potential to do so to the upside. right now it is below -- excuse me it is above that prior support, which was then resistant to me that does look like a really interesting story if you think that once again fundamentals are going to really drive the story, when it is really interesting that july 2nd, remember, we were waiting around for the q2 deliveries and they were better than expected, but in the prior guidance here is the big issue. thief only delivered 175,000 cars they have guided to 380,000 cars for this year. they have a lot of stuff to do when they gave that delivery, guys, they did not update their financials they did not update the full year, guys that's why earnings next woo are really important the options market is implying a $20 move in either direction that's 7%, how much the stock has moved.

9 1/2% in a one day move here is the trade. if you are long in this thing you might want to consider protection, because if they tweak down the full year guidance in any way, shape or form -- maybe it is margins, full-year deliveries -- that stock going back down, probably on the way towards 200 it is a simple trade stock was trading 259 today. look at august expiration and by the 250, 210 put spread, buying one of the august 2, '50 put for $11, selling one of the august 2, '10s at 2. that breaks even down at 241 you can make up to 31 between 241 and 210. again, you saw the chart there i am targeting those levels. it looks like a pretty useful level for protection i don't think it is going to be a sort of disaster, but i do think some minor tweaks after the run the stock has had. you can get the stock going the other way pretty quickly. >> the stock moved about 4.60 today, half the cost of your trade right here if you wonder if you could see a

move justifying spending $9 on a put spread, just point out it is a $41 put spread, so you're getting a three-to-one payout. it would be a big ask given that the short interest remains as high as it does. generally speaking when stocks are falling out of bed you have the short interest, it creates a measure of support which, by the way, helps justify the trade structure because if you didn't think anything was there to catch it when it fell, you would just buy puts outright i think this is the trade structure you would want to use. i wouldn't consider shorting the stock under any circumstances but a way to make your bearish bets if you are inclined to make it. >> karen. >> i agree generally with your direction though i have a question. the lower strike, the lower put for $2, which is .8 of a per september se cent if it is me and i'm trading this, i might buy that put i maybe get that move. maybe it goes back $5 or $6,

something down towards 250 i might sell the 210 when it is 2%, 1 1/2%, something like that. look for something that's a bit meteor but do it at support there. i use it as sort of a discipline because i think it just makes sense. often times, mike knows this we do these trades because we're defining our risk and you don't always get them right. every option you sell is helping your odds of success even in a minor way if you are taking small losses. >> when wethe percentage of the premium you are getting, you are looking at it in terms of the share price which is a decent way to think of it. but dan is looking at it in terms of the premium he is spending, so he is looking to shave 20% off the cost let's bear in mind when the catalyst takes place, the down side put is going to zero so you collect the $2 it only would be a bad sale if the strike -- >> check out everything "options

action". sign up for the newsletter to keep you cool in the summer heat here is what is coming up next. >> shoes are the best kind of shoes. >> they sure on, and karen finerman says one sneaker stock is about to take off she will break it down in a special "options action" edition of "finerman's fine print. plus -- calling all "options action" fans reach into your pocket find your phone and tweet us your question at "options action". if it is nice we'll answer it on air when "options action" returns. "options action" is sponsored by think or swim by 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 welcome back to "options

action". skechers racing higher on earnings this morning. that sneaker stock has been on a tear this year, up 72% in twpt but the chair woman says there's another sneaker stock about to leap into first place. she is at the plasma for a special "options action" edition of "finerman's fine print. karen, take it away. >> all right as melissa said, foot locker it is a name i have owned for years and been in and out of i got a trade with the option overlay, but let's go through why i like foot locker in first place. valuation is the first thing i look at, and valuation is about as key as it has been in years the second thing is they didn't buy back stock in the second quarter which they normally do, and i think one of the reasons is possibly they're looking at doing an acquisition i think that could be a good thing. they did buy get for 100 million. it was a good thing for them the last thing i like about it, the stock consolidating right around here, a little lower, i think it is a good level to buy it let's go through and take a look pe, something i look at, i also want to look at the balance

sheet, which is very strong here as a pe ratio goes, this is about as low as it has been in a really long time so i like that that's important to me the second thing that i like about it is this consolidation i talked about so right around here at about $40, that's about as low as the stock has been even when they had a very, very tough quarter, and then the market was crushed in may still, it didn't break that level. so that's what fundamentally i like about it. now let's look at the trade. so what i want to do is a risk reversal -- thank you, dan what i am looking at is buying the september 47.5 call and selling the september 37.5 put and the stock went up right in the mild of those two. what you get, you get a look at earnings, which will happen in august, and i'm long stock, but i want to add -- i want to have a bigger position if the stock actually has a great quarter, and i think it will go up a lot. but i'm also willing to even get longer if the stock gets put to me, i start to lose money below 37.5 you could put this trade on about even early in the day,

maybe you have to pay about a quarter by the end of the day. but i really like this trade because i think that your down side is minimal. even if i start getting along at 37.5, it is a great balance sheet here i think there's a real chance that they put up decent numbers after a terrible quarter and that there's momentum back in the stock and we see it significantly higher than -- even if it is not at 47.5, you have some time to go so good earnings will make this trade work even if it doesn't get to 47.5. >> i have to say this is a tremendous "oa" trade debut, the first "options action" trade karen ever presented karen, come back over to the desk dan, i want to get your take first since you are a risk reversal. >> yes, a couple of interesting things she nailed things we get questions about from viewers all the time she owns the stock, willing to get more ek poexposure and it i perfect for her trade thesis on the name

karen mentioned they invested 100 million in this company called get they saw sales grow. year over year this is a company that owns flight club and an online sneaker marketplace they want to go after the youth sneaker culture and i think it is something we will see the partnership expand over time that could be the sort of thing that gets investors to maybe revalue the opportunity in foot locker i just like the fact she is giving herself a lot of wiggle road for a stock that's been volume she has room to the down side and room to the upside. >> yes, i think it is interest ingalls becau ing also because on the institutional side, usually on the retail side people think about buying puts to the portfolios oftentimes institutional investors are looking to add to their positions or looking for ways to enhance returns on existing positions also in this instance you are identifying a catalyst which could propel the stock sharply higher which is why you are using the proceeds to buy the

upside call. one of the things we observed in foot locker is the calls are quite high i wonder if there will be upside resistance, people clipped the last time the stock really fell back a call spread risk reversal here might be a way to do it so you get more immediate exposure, thinking there could be a lid on it at the higher prices of people that were hurt last time we saw a price gap down, or looking for the exits if you start to see it recover. >> did you consider that, karen? >> i did that makes sense it is similar -- i guess i was trying to put up as little money as possible, right as we all do so to me, willing to take little more risk being i have to own it at 37.5 if things said south i like it also though. >> all right coming up, traders tuning out of netflix with the stock down 16% on the back of its earnings this week we will tell you how to play this move. plus, it is friday so you know what that means. tweet us your burning options throughout "options action" and you might get your answer on the air. what are you waiting for live at the nasdaq market site

que.imes sar much more "options action" right after this (indisting "options action" is sponsored by think or swim by td ameritrade y? 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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no platform fees. no trade minimums. and yes, it's all at one low price. td ameritrade. ♪ welcome back to "options action". time to take a look back at a couple of our open trades. last week dan said netflix coul be in for a september to remember. >> that chart, and mel said it before, tells you that for whatever reason since january this thing has been range bound between 335 and 385. i suspect it is going to continue to be range bound after earnings, but i do think that this thing could set up for a nice, long trade into the fall you can sell the july next week, 400 call at $4 and you can use the proceeds to help finance the purchase of the september 4, '00 call for $12 >> netflix down 15% in just the last week. dan, first leg of the trade expires today. >> yes the trade is a total loser i did not expect the thing to breakout on the earnings

i expected to trade within the range we identified on the chart but it blew through that and the trade is a total bust right now. the thing you have to think about it is what are the reasons and is it going to continue. i did not want to buy stock into it or short-dated calls into it so i didn't do the trade costs $8, the stock is down 60 bucks. it is an options trade it did not go well i got all things wrong, but, you know, at the end of the day you want to see this thing kind of find a bottom at some point and it may set up decently for a move back to what was that prior support at 330, 340. something like that. >> so you would be inclined to make a long trade? >> that subscriber miss was so massive, it will not happen two quarters in a row. we have seen it with facebook over the last year, once you had the big gaps -- apple, too -- then they start getting the story back together. to me less it wash out towards 300 first. next out, up in june mike made a bet on one of the big banks in earnings. >> obviously if you have very low valuation, some of the bad

news is priced in and options are exceptionally cheap as we were just talking about. now you have an opportunity to try to use those options and get long them to make a bet here, in this case to the bullish side where you're not risking a great deal specifically, i was just looking out to august. you could buy the 29 calls for $0.80. you could sell the 32 calls for $0.20 against it net/net you are spending $0.60. >> bank of america is up about 4.5% mike, what do you do >> we spent about $0.60 on the spread, it is now work $0.85 going up today's prices. the thing is the upper strike call is essentially worthless. you might roll this further out in time as well. but otherwise i'm staying with it. >> what would you do, karen? >> i agree with mike i hate being short anything that's really cheap, so i would buy that back and i would probably look to roll out something -- i mean the stock is not going to break out crazy to the upside, but maybe you do, you know, another roll -- another month out on 32.

>> exactly. >> i think it is interesting that this stock, all of the money center banks, they put up decent numbers and none broke out of the ranges they've been in to me it is not particularly optimistic, especially with the s&p off all-time highs i think the things will underperform ithe f s&p goes lower. >> up next, your tweets and a special final call "options action" is sponsored by think or swim by td ameritrade 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. ♪

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". time to look at your tweets here viewer asks, when trying to protect a portfolio, how far out should someone target? professor khouw. >> we try to do it when options are cheap when we identify a catalyst if you have a catalyst, chances are in the near time future. generally speaking i'm looking at options 30 to 90 days out in expiration when doing something like that. >> karen, what do you do when buying protection? >> i look at a similar time frame, but i try to look 3% out

of the money i would rather have more bang for the buck. >> next asks, why has it taken so long to have karen finerman on "options action"? >> karen >> why has it taken so long. >> this is tremendous. >> that's a very sweet tweet i don't know who wrote that. my son maybe >> thank you. >> time for the final call last word from the options might. mike khouw, what do you say? >> i hope we have karen back it was great having you on i like the way it broadens the conversation i think you ought to take a look at "call calendars" in facebook going into earnings. >> karen >> yes i'm not a giant options trader but i use it in my portfolio, so foot locker, sticking with the risk reversal, 37.5, 47.5. >> you are sticking with risk reversal >> yes. >> i thought her trade was interesting. i know karen obviously really well and hear her talk about stocks all the time. the idea of overlaying a

position like that to add leverage makes sense another point about tesla and mike said it, you wouldn't be short tesla here but the idea of buying a well-defined put spread makes sense. >> that does it for us see you back here next friday at 5:30 don't go anywhere. "mad money" starts right now my mission is simple, to headache you money i'm here to level the playing field for all investors. there is 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 other people want to make friends. i'm trying to make you money my job is to entertain, teach, coach and call me at 1800-743-cnbc or tweet me at jim cramer is there a real slowdown coming or a lull before the fed cuts interest rates and reignites the economy. we'll give