hey there. live from the nasdaq on this expiration friday. karen was so excited she decided to stick around for the big show here's what's coming up. the countdown is on to big tech earnings. there's one thing about to shred it up. he'll 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's setting up for the short of the century. he'll explain. >> my father wears his sneakers

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

in the case of facebook of course going into a catalyst like earnings what you'll see is the nearer day options are going to be higher premiums, higher volatility we do see that the longer dated options aren't often affected quite as much right now we can see it is basically at the high end. we'll look to sell the near dated options and buy the longer dated ones the final point 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 and certainly relative to its growth the other thing is that a lot of the concerns that you might have about facebook, i think these are well known right now we're concerned about regulatory pressures. they've been facing the same head winds for a while when you enter into an options trade the good news is that if for some reason we get something

bad coming out of this we won't take a lot of down side risk specifically i was looking at the august 2005, january 2020, 2005 -- buying the 2005s in january, selling in august laying out ten bucks, maybe a little bit less so less than 5% of the current stock price the idea is if facebook lingers where it is right now with the near dated options going to decay the longer dated ones will not decay quite so much. if it rallies up to the 205 strike or slightly through it we'll still see benefits worst case we're risking less than 5% if it completely fell out of bed something i'm not expecting. i expect the longer dated options to preserve some value >> i would be very surprised after the quarter last april if there is a big lurking surprise. i think it's something we've talked about for this entire year that expectations have gotten really low as far as year over year earnings expectations

just ground down to a negative that's going to come back at some point in 2020 i like mike's trade. he is playing for a consolidation here if he has the stock at 205 or below on august expiration he has basically financed what, 30%, 40% of the longer dated calls. then you get set up for a move back to the prior highs at some point later this year. >> welcome to the show by the way. >> great to be here. i feel like this is my seat. >> like you belong here. >> kind of >> it was your seat. >> that would explain it >> what do you think of mike's trade? >> i think it's interesting. it wouldn't surprise me to see facebook a little bit higher but i'm curious, let's say that happens. say you're spot on and facebook goes out in august at 205 and you're just left with longer dated jan call what do you think happens? >> that is an excellent question if the stock does rally up to 205, think about this for a second the 205s in august are essentially going to be worthless, at or just out of the money. the january calls will have

appreciated somewhat they will have what we options traders call delta so they'll actually go up a little bit. you'll basically collect all the premium and now you are along the longer dated call. the question is do you just sit on it and that is the end of the trade? it isn't actually. what we're going to look for are opportunities to sell other calls against it and also get a little 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's going to be a win. one final point. looking past the past five years we've seen maybe three times where we've seen really big moves talking 14%, 15% or more to the up side after earnings. you know, so i'm not really expecting that there is a relatively low probability we see something that big happening >> let's stick with earnings tesla catching fire ahead of its report next week last month carter and dan identified key levels for the stock. >> we are actually getting down to a low that was seen only one other time in history. how far below trend it has ever been since the ipo here is the all data chart

this is literally the lowest point it has ever been i think you've got a situation of so bad it's good. i want to make the bet that tesla actually is a time if you're short to be covering and to being small speculative loss. >> if you caught carter's fast money trade and it got back to 250 that would be the level of the century to lay out shorts especially if you're as bare on the fundamentals as tim is >> well, as you might have noticed carter isn't on the desk tonight but that day did mark the bottom for tesla shares are up 45% right now to the 250 level. just above that. dan, how do you trade this >> it was really interesting that was june 3rd and the stock had just gotten slammed over the prior few months, down to 175 from the high, the previous year, of $420. the sentiment was getting really bad. we talk about it most nights on this desk. it's 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. he was looking for a move back

to 200, 220 or something like that that chart tells you that just as it over shot to the down side when it broke 250 in early may and went straight to 175 it had the potential to do so to the upside right now it is above that prior support, which was then resistance and to me that does look like a really interesting story. if you think that once again fundamentals are going to really drive the story, what is really interesting is july 2nd remember we were waiting for the q2 deliveries and they were better than expected but in their prior guidance here is the big issue. they've only delivered 175,000 cars they've guided to 380,000 cars for this year. they got a lot of stuff to do. they did not update the financial guidance and the full-year guidance and that is why earnings next week is really important. the options market implies a 20 move in either direction that's how much the stock has moved over the last four quarters, 9.5% over the lifetime

of this thing on the one day move afterward to me i think you might want to consider some protection because if they do tweak down the full year guidance in any way, maybe margins, maybe full year deliveries, that stock is going back down probably on the way back toward 200. to me it's a pretty simple trade. stock was trading 259 today. look at august expiration and buy the 250, 210 put spread paying $9 buying one of the august 250 puts for 11 bucks selling one of the august 210s at 2 it breaks even at 241. make up to 31. just again you saw that chart there. i'm targeting those levels it looks like a pretty useful level for protection i don't think it's going to be a sort of disaster but i just think some minor tweaks after the run the stock has had. you can get the stock going back the other way pretty quickly >> the stock moved about 460 today, about half the cost of your trade right here. so if you're wondering whether you could see a move that would justify spending $9 on a put spread first of all we'll just

point out it's a $40 wide put spread so you get a better than three-to-one payout if it happens to blow out the lower strike that would be kind of a big ask on the down side move given the short interest remains as high as it is generally speaking when stocks fall out of bed with the short interest it creates some measure of support which helps justify the trade structure because if you really didn't think there was anything to catch it when it fell you wouldn't put it on a put spread to me when i take a look i think this is the trade structure you'd want to use. i certainly wouldn't consider short go-to stock under any circumstances but this would be the way to make your parish bets if you're inclined to make one >> karen >> i agree generally with your direction. i have a question though so the lower strike of the lower put for $2 which is 0.8% i would think about maybe not selling that $2 put and just being long. >> it's a great point. one of the things i would just say, if i'm trading this i might buy that put i may, maybe get that move maybe

it goes back five or six bucks something like down toward 250 and then i might sell the 210 when it's 2% or 1.5% look for something that is a bit meteor i want to do it at support i do it as sort of a discipline. it makes sense mike knows this. oftentimes we do these trades because we're defining our risk and you don't always get them right. every option that you sell is helping out your odds of success even in a minor way when you're taking small losses. >> when we think about the percentage of the premium that you're getting you're looking at it in terms of the share price which is a decent way to think about it but i think the way dan is thinking about it is in terms of the premium he is spending which is 11 bucks. he is really looking at trying to shave about 20% off the cost. bear in mind when the catalyst takes place what happens to the downside put, it goes to zero. you collect that two bucks it would only be a bad sale if it draws the low down. >> check out our website while you're there sign up for

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here, hello! starts with -hi!mple... how can i help? a data plan for everyone. everyone? everyone. let's send to everyone! [ camera clicking ] wifi up there? -ahhh. sure, why not? how'd he get out?! a camera might figure it out. that was easy! glad i could help. at xfinity, we're here to make life simple. easy. awesome. so come ask, shop, discover at your xfinity store today. 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 skechers racing higher on earnings this morning. the sneaker stock has been on a tear this year up 72% in 2019. but the chairwoman says there is another sneaker stock about to leap into first place. she is over at the plasma for a very special options action edition. take it away >> so foot locker, a name for years i've known and been in and out of i got a trade with the option overlay. why i like foot locker, valuation. the first thing i look at. it is about as cheap as it's 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 look ath doing an acquisition that could be a good thing they did buy goat for a hundred million.

that was a good thing. the last thing i like, the stock consolidating actually right around here, a little bit lower. i think this is a good level to buy. let's take a look. p.e. i also want to look at the balance sheet which is very strong as a p/e ratio goes this is about as low as it has been in a long time. the consolidation, right around $40 that is as low as the stock has been even with a very tough quarter and the market got 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. what i want to do is a risk reversal thank you, dan i'm looking at buying the september 47.5 call and selling the september 37.5 put and the stock went out sort of right in the middle of those two. you get a look at earnings which will happen in august and i'm long stock i want to add, have a bigger position if the stock actually

has a great quarter and i think it'll 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 for about even earlier in the day. maybe have to pay about a quarter by the end of the day. i really like this trade because i think that your down side is minimal even if i start getting along at 37.5. there is a great balance sheet here i think there is 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's 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. >> this is a tremendous o.a. trade debut. >> amazing >> options action trade. karen, come on over to the desk. dan, your take first since you are risk reversal. >> i think she nailed a couple things we get questions about from our viewers all the time she owns this stock and is

looking to get a little more exposure and is willing to buy more down below. that's why this structure is so perfect for just her kind of trade thesis on the name the other thing karen mentioned, they invested $100 million in this company called goat who saw their sales grow from 250 to as high as maybe 600 last year, year over year this is a company that owns flight club and this online sneaker marketplace. they really want to go after the youth sneaker culture. i think that is something we'll see that 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 that she is giving herself a lot of wiggle room for a stock that's been volatile and has room to the down side and the up side. >> it's really interesting also because on the institutional side we've definitely seen, when we think about puts against stock positions, usually on the retail side people are thinking about buying puts to hedge their portfolios but oftentimes institutional investors are looking for levels where they're willing to add to their positions or looking for ways to enhance their returns on

existing positions and, also, in this instance you're also identifying a catalyst which could propel the stock sharply higher which is the reason why you're using those proceeds essentially to buy the upside call one of the things we have observed in foot locker is that the applied volatility the options prices are in fact quite high so, you know, i'm kind of wondering whether there is going to be some upside resistance, people who got clipped the last time the stock really fell back. a call spread risk reversal might be another way to do this so you get more immediate exposure thinking there could be a lid on some of the higher prices of people who got hurt the last time we saw a price gap down looking for the exits if you start to see it recover. >> would you consider that, karen? >> i did that makes sense it's similar i guess it's, i was trying to put up as little money as possible as we call do so to me being willing to take a little more risk, at 37 1/2, if things head south. i like it also coming up traders tuning out

of netflix with the stock down 16% on the back of its earnings this week. (indistinguishable muttering) that was awful. 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.

we carry flowers that signifyn why we want to end the disease. and we walk so that one day, there will be a white flower for alzheimer's first survivor. join the fight at alz.org/walk. what do you look for 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. ♪ welcome back to options action time to take a look back at a couple open trades just last week dan said netflix could be in for september to remember >> that chart, though, 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 this thing could set up for a nice, long trade into the fall you can sell the july next week, 400 call at four bucks and you can use the proceeds now to finance the purchase of the september 400 call for $12 >> netflix down 15% in just the last week, dan, the first leg of the trade expires today. >> the trade is a total loser. i did not expect the thing to break out on this earnings but 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 now is what are the reasons and is it going to continue i did not want to buy the stock into it or short dated calls so i didn't do either of those. the trade cost eight bucks about 2% of the stock price. stock is down 60 bucks this is an options trade it did not go well i got all things wrong at the end of the day you want to see this find a bottom at some point and then it may set up decently for a move back to what was the prior support of 330, 340, something like that. >> so you'd be inclined to make a long trade >> that subscriber miss was so massive it will not happen two quarters in a row. we've seen this with facebook over the last year once you have the big gaps and apple, too. then they start getting the story back together. to me let this thing wash out toward 300 first >> all right next up, back in june mike made a bet on one of the big banks into 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 80 cents you could sell the 32 calls for 20 cents against it. net-net spending 60 cents. >> bank of america is up about 4.5% since the call. what do you do >> we spent about 60 cents on this spread. it is now worth about 85 cents going up to today's prices the thing is that upper strike call is essentially worthless. i don't like being short cheap options. and 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. i probably would look to roll out something that -- the stock is not going to break out crazy to the up side but maybe do, you know, another month out on 32. >> exactly

>> i think it's interesting that the stock and all the money in the banks, they put up decent numbers and none broke out of the ranges they've been in to me that is not particularly optimistic especially with the spee just off of all-time highs. i think these things will under perform to the down side >> up next your tweets in a very special final call i don't know what's going on. 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. ♪

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 take a look at your tweets. our first viewer asks when trying to protect a portfolio how far out should someone target >> we don't typically hedge our portfolios continually we try to do it when options are cheap or identify the catalyst if you have a catalyst chances are it is sometime in the near future generally speaking i'm looking at options 30 to 90 days out in expiration >> karen, what do you do >> i look at a similar timeframe but i try to look 3% out of the

money. i don't need to hedge the first couple percent down. i'd rather have more bang for the buck >> our next viewer 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 is a very sweet treat -- tweet. i don't know who wrote that. my son maybe thank you for that >> all right time for the final call. mike, what do you say? >> i certainly hope we have karen back great having you on. i like the way it broad ens out the conversation i also think we ought to take a look at call calendars in facebook going into earnings >> karen >> yes not a giant option trader but i definitely use my portfolio so foot locker. sticking with it risk reversal 47 1/237 1/2 >> you're sticking with risk reversal >> yes you, too >> i thought her trade was really interesting i know karen obviously well and i hear her talk about stocks all the time the idea of overlaying a position like that to add

leverage makes a lot of sense. the other point about tesla i think mike said it you wouldn't be short tesla here but the idea of buying a well defined makes sense. >> that's it for us on the big o.a. see you next friday at 5:30. don't go anywhere. "mad money" starts right now .. - [narrator] the following program is a paid advertisement for the nuwave bravo xl sponsored by nuwave, live well for less. is all the clutter in your kitchen starting to look like an old junkyard? sick of spending hours cooking, only to serve mediocre meals lacking in flavor? wish your family would spend less time whining and more time dining? well, now they can! with the new bravo xl, the world's first digital smart oven with flavor infusion technology. it's a breakthrough in culinary creations! coming up next, you'll see how bravo's compact design cooks large family meals in record time! how, with just a touch it can bake, roast, grill,