hey there. you know what i like to do on friday's at 5:30 p.m.? host "options action" at the nasdaq, of course. here is what is coming up on the big show ♪ president trump escalating the china trade war this week, and dan nathan says there's one group of stocks that could emerge as the big losers he'll tell us what that is plus -- traders were fleeing the fang stocks in droves this week, but the chart master says there's one name that's about to bite back he'll break it down. and later -- hakuna matata means no worries >> hakuna matata

what a wonderful phrase. >> it has been a happy-go-lucky year for disney shares and mike khouw says they have no worries for the rest of the year he'll layout the trade it is time to risk less and make more the action begins now. we kick things off with a very tough week on wall street, a powell plunge escalating headlines sending the s&p 500 down 3% for the worst week of the year it is not just the u.s. under pressure though. the china emerging markets etf falling nearly 5% amid the turmoil and dans there could be more trouble ahead let's get in the money and dan break it down for us. >> one thing that is interesting when you think of a volatile week like this, the s&p relative to a lot of equity indices and the world. it showed strength if you look at the etf to emerging markets, it is very heavy on a lot of chinese names but heavy on names affected by the tariff it more than doubled the down side to the s&p this week, and

then you think about what happened to bonds. well, they went up a lot what happened to the dollar? it went up for a bitt to safetyn u.s. assets. as my friend tim seymour likes to say, when you have a rising dollar like that as a actual wrecking ball for emerging market currencies and for the equities that got me thinking about the eem. when you look at this thing, here is a 15-year chart of this. it is sitting on -- i'll let carter speak to the chart in a up can will of minutes it is sitting on a massive up trend. that loose like massive support here you know, that thing from its january 2018 high, it is in a bear market. it is down about 21 1/2% or so, and i just don't see it without a substantive trade deal why this etf should rally meaningfully one last point i will make, when you look at the implied volatility, the price of options in the eem, it has some pretty good support in the 15% range. but if you go back over the last five years in looking at the chart right now, when we get global growth scares, this thing, implied volatility, at least the price of option

rallies. that means you want to own options if you have a directional inclination, especially to the down side. so i think this trade is pretty simple if you are not optimistic, and i think the president told you this this week by first running ahead of his trade negotiations by saying, you know, we may not see a deal until after the election and then slapping on the extra tariffs, we won't see a substantive deal any time soon this is one of the shortest to find options when the etf was trading at 40.5 today, by the october '40 put for $1.10, it breaks even at 38.90, down 4%, risking 2.7% of the underlying etf price looks like a good risk/reward. finally i want to pull up a three-year chart this is how i would trade this thing. if it breaks the up trend we had in place for the last three years, i see support after $40, down there at $38. that was the double bottom from 2016 then you have an air pocket down to the mid to low 30s.

i think owning and at the money or near-the-money put in october gives you a lot of exposure to what would likely be one of the weakest equity etfs around the world if things get worse from here. >> mike khouw is joining us. do you want to take a stab at this one >> yes, sure i like the trade structure i think it is just the right way to play this you know, dan was alluding to the implied volatility of the cost of options. it is really interesting if you take a look at the implied volatility of those october '40 puts that he is buying, those actually have declined in price actually since late june. the ot thing i would do is take a look at a year ago we saw an over 14% decline just about a year ago at the same time frame that amounted to about a $6 decline. if you wanted to try to turn it into a spread, it is definitely something you want to do after etm moves to the down side look at the puts today, trading and $0.40 today. no reason to sell those to put on the spread right now when you think there's a possibility it

could make a comparable move if it did like last year and we saw a double digit percentage decline. getting less than 1% of spot to sell the down side puts wouldn't make much sense. >> all right carter >> you know, the thing that is so much about this, this is the area that was seized on by bulls to say that the market in december and this year in its entirety would be good, because emerging markets bottomed before the s&p. actually made their low in november made a sharp new low in december and eem did not. you see, it is risk on you want to be in cyclicality, off course, which is wrong the eem we know now is at a risk of a big drop. look at mexico eww is already below and making new two and three year lows. bad setup. >> dan. >> one of the reasons i targeted the last chart was a 38% level to mike's point, if it drops a couple of point quickly you sell a 35 put, lock in more premium,

reduce your break even on the trade. i think that's how you want to trade this you just want to own an option outright if you are picking a direction right here. >> all right tech taking it on the chin amid the trade tantrum with the nasdaq 100 posting the worst week since december. check out the fang drain facebook, amazon, netflix and alphabet all down sharply. amazon seeing its longest losing streak in nearly four years, but the chart master says it may be ready for a bounce we will head over to the plasma and break it down for us >> you bet >> all right. >> amazon had a lot of air let out of it. think about microsoft, barely down, or visa or any of the high-flying super cap growth names. amazon was pounded, down 11% to put it in per expect, s&p, nasdaq, semi and amazon. not to say it has to be related to any of these, the point is that it was a center of selling. this is a peak-to-trough decline over the last six to eight sessions depending where you

start your meter the point is at this point i think you have bounce potential, not just because it is down 11% but because the chart level would suggest that here is your lull in december. here is your june low and here is the sell-off. they happen to be not randomly right off of a line. you know, you kind of can't make this stuff up. the point is that does it have to go on making new highs? no but do you press it short here or do you play for some sort of bounce so, again, my thinking is that you play for some sort of bounce let's draw the green arrows in one, two, three. now, does it have to do that i'm not talking about that i'm talking about even just catching a trade, and that's what this is about so wanting to get long amazon here for a perspective bounce. >> yes so play it for us, mike. what is the trade? >> yes, so amazon -- i mean i'm not telling anybody something they don't know already. i mean it is a very expensive stock. if you were going to buy a round

lot you are looking at 181,000 bucks and change to make the bullish buck here. obviously it is a lot of down side risk. options because you are dealing with a high-price stock, individually they're very expensive. since we are playing for a bounce and a not trying to do something too complicated, i think the trade here is really to look at a very their row -- this is kind of a binary trade it is either going to work or it is not we are going to try to make sure we limit the amount of decay we are looking at specifically with the trade i was looking at the october 1800, 1835 call spread to give you an idea how expensive, they were trading for $1.02 and higher 1835 were about 83 and a half. you are spending $18.50 for that $35 wide call spread that's more than we look to spend on vertical spreads. when i was looking at this, this was actually in the money by about $17. basically what we're doing here is mitigating the decay in this

case and going to play for this very near-term bounce that carter is talking about. if it goes up anywhere close to the price target that i think he was mentioning, somewhere around 18.90 for a bounce maybe, this thing probably will be completely worth the distance between the strikes. obviously if it doesn't work out, we are taking a very small risk relative to what it would be if we were either going to buy the calls outright -- like i said, $100 a piece, that's $10,000 when you consider the multiplier this is a way basically for the price of one share of stock we get exposure to the upside for a little bit of a bounce here. >> okay. what do you think of the trade >> you know, i'm kind of mixed on it. i don't think -- i think mike laid it out really well. he is basically saying you are risking 18 to make 18 if the stock is up a little bit it is a pretty good risk/reward but he said it is pretty binary. i think it is a matter of conviction if you thought the stock could easily get back to $1,900 on a bounce based on carter's work, and if things really started going in the market, this thing

is on its way back to $2,000, you might feel like i got the direction right but the trade wrong. i'm not criticizing mike's trade by any means i think the risk/reward is there. it depends on how convicted you are on the call, how convicted this thing could get back. it sold off almost 10% if you are really convicted on that, i don't think you are doing mike's trade you are looking to roll something up and getting wider exposure. >> mike, jump back in. >> yes i mean look, this is a situation where -- look, you have the direction right, this trade will be right you will double however much you put into it. that's defining the risk how much do you want to risk, how much on a trade in amazon hoping on a bounce i could understand given how the market behaved this week why people might be reluctant here to run in and say i want to buy $200,000 worth of amazon because i think it is due for a bounce even for a good size portfolio it is a capital commitment minimizing your decay.

if carter is right, this thing will pay off if he is wrong, you define your risk to how much you are putting on the spread. it could be less than it would be if you were either buying the stock or outright option. >> in a way it is a bet on does the market have a bit of a bounce on monday, tuesday. >> sure. >> if you are betting on something bouncing -- >> that helps. >> -- it is at good a candidate as any if indeed there's going to be money going into the market for a trade, this is as good a vehicle as any, only because it has gone down more and it is a big, popular name. >> more "options action" still ahead. here is what else is coming up on the show. it has been a magical year for disney, and mike says there's a whole new world waiting for the stock out of earnings next week he'll tell you why the magic carpet ride isn't over just yet. plus, calling all "options action" fans reach into your pocket, grab your phone and tweet us your question at "options action" if it is nice, we'll answer it on air when "options action" returns. ♪

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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". check out shares of disney, up 30% in 2019 for what has been a magical year for the magic kingdom, and there could be even more fireworks when it reports earnings next week how should you play that stock into the big event mike khouw has the call to action mike >> yes so this is an interesting case you know, right now the options market is implying a move of a little over 3% when they report earnings next week

that may not sound all that big, but actually it is relatively big when you consider that this is a stock that has moved well less than 2% over the last eight quarters after they've reported. so this is a situation where the shorter-dated options are looking a little pricey relative to the longer dated ones this is a stock i like to own here i'm bullish in the long term. that may not sound all that big, but actually it is relatively big when you consider that this is a stock that has moved well they own 60% of hulu, i think 22 times earnings for something that's growing the bottom line at maybe 15% doesn't seem unreasonable, but it isn't as

cheap as it has been so if i want to make a bullish play, i would want to use options and i want to use the cheaper, long-dated options to do it. i want to take advantage of the fact that the nearer-dated ones are elevated simply, i was looking at the august/january 1, '40 call spread when i looked at that earlier today, it was about $6 i would buy those january 1st, i would buy those january 140 calls for about 9.90 sell the august for about 3.90 this is one of the trades like some of the others we talked about, because we own ones well past the next earnings even, go all the way out to january after i sell these calls in august, after they expire i can look to do the trade again, essentially working into a synthetic form of a buy right. this is a way to mitigate my down side risk remember, when you put on a trade like this the most you can risk is $6 and that's between now and january. obviously if the stock stays in this range we will benefit from the decay that's going to hit the nearer dated options. >> do you like this? >> i love this trade

i will tell you why. this stock has not moved a lot after earnings if you look at the huge gap above 120 when it happened in april, it was the result of a mid quarter update where they outlined their ott service, all of the things that mike really loves about this story, and though got investors back in the name to me, i love the idea of isolating this range, especially when you consider how volatile the market might be over the next few weeks here. i think you are setting up to really discount the cost of those longer-dated calls, which you want to call the other point i will let you speak to, the gap level from april, looks like the level we would love for it to come in and load up. >> i think you almost have to do it through options because owning the stock here, the implied move is -- its peak on monday was 147.15. even if it were to go up 3%, you would get back to where you were in the beginning of the week it is sort of a dull moment. it has been a great winner but it is stuck here so you have to do something on the options side to get juice. >> mike, last word to you.

>> yes i mean that's exactly right. when we have a situation where a stock could get stuck like this and we are playing a near-term range-bound situation, that's when a trade like this makes sense. bear something else in mind. if we get something disappointing out of earnings or if the market is hit even harder and takes this one with it, the near-term options will decay we will own the longer dated calls. one of the things we might be able to work our way into in that circumstance if we get a pop in implied volatility would be to sell some down side puts, maybe below the strike that dan was talking about, maybe around the 130 level. we probably could collect some nice premium and then you could get into a diagonal calendar -- not something we often get an opportunity to discuss here, but a nice trade indeed if it is a stock you like to own for the long term. okay up next, trade war trouble taking a bite out of apple after the stocks surged on earnings earlier this week. we will show you how to play it. plus, it is friday so you know what that means. tweet your burning options questions to @optionsaction and you may get your answers on the air. don't go anywhere. much more "options action" right after this

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of our open trades last week mike khouw and carter said it was time to cash in on the dollar >> if you have a well-defined trend line and then you break above it, the key here is after breaking above it, it checks back and is now pivoting off the line again that confirms the major reversal that's been underway here. >> look at the september 26th calls. these calls are in the money already. when i was looking at these earlier today, those were about $0.65. they were in the money by about $0.55. >> all right the dollar breaking out to its highest level since 2017 before getting slammed on the trade warhead lines. mike, what do you do now >> yeah, i mean the interesting thing about this trade was basically we were trying to get long dollar exposure with defined risk we certainly did that. there was about $0.10 worth of extrinsic premium in these calls. that's essentially gone thousand these things traded up to about $0.83 midweek and closed the day

around $0.70 my view is if you are inclined to stay long the dollar, this is a better way to do it for sure because there's no decay built into this. toes the degree anybody wants to be long the dollar here from now until september expiration, these calls remain the way to do it but i have to defer to carter on the view on the dollar here. >> tactically of course we got a nice bounce, around it has come and gone to some extent. structurally which is perhaps more important, there's every indication the dollar is headed higher it is a flight to safety environment and you want to be long uup. >> moving on, last friday dan had a way to play apple into earnings i actually think that expectations are low, they put up a decent enough print into a weird corridor i think they almost have a mulligan with the trade stuff and i think the stock goes higher and option prices are probably pretty reasonable enough where you can make and at-the-money bet to get a

breakout above that level. today when the stock was trading at 208, you could buy the august 210 call paying $4.25 for that >> well, the stock surged on the back of its report but got swept up -- but got swept up in the sell-off later in the week so, dan, how do you manage this one? >> this is interesting we tweeted this one out right afterwards and i think it is important. once this stock gapped up in line with the implied move, trading 221 in the hours after it opened after the quarter the next morning, those calls were trading about $12. at though point they are trading like stock, it is a market call and you have to make a call. my call was to take the profit and move on. we saw this last quarter on may 1st that it had that gap and started selling off. to me it was just an earnings trade. it is one of the reasons we used fairly short-dated options those calls went out at 4.25 last friday and stocks are down 1.84 and down 2 and change that's why we like to play into

defined risks with earnings. >> the key was you took your money and ran. at this point you have a fallow asset meaning the catalyst has come and gone and it is back to, blow where it is, and maybe it is sort of stuck. >> mike. >> i mean the quick point here as dan was pointing out, these options expire on august 16th. so the decay basically is really kicking in after this event takes place. the right thing to do in a situation like this, once you get the move you are looking for, take your profits because what is going to happen after that is those things are going to decay very rapidly. if you are inclined to press your bet, what you want to do is roll, not stick in those short-dated options. >> all right up next, your tweets and the final call "options action" is sponsored by -- 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?

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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 we're back on "options action." we're back on "options action. time to answer your tweets

first asked, how do i know when to exit an options trade i seem to always get the trade right but i hold it too long and watch the profit evaporate dan. >> yeah, i mean mike just answered this question a lot of times you have to say did it achieve your target and you have to be cognizant of what the decay is going to be, because if it has achieved the target and you have time, you want to get out. >> appreciate the question very much let's do the final call now. mike, you start us off have a great weekend, bud. >> sure. you know, i mean one of the first options trades a lot of people get into is they buy stock and sell calls against it but they should consider buying calls and selling calls against it it would be a call calendar with the disney, january 140 going into earnings. >> good stuff. carter. >> amazon, i think you can play it for a bounce. it is obviously a high-profile name and it comes with risk, but being down 11% i would do it if you don't like that, stick with gold and silver. >> we'll see what happens in the market next week dan. >> if you are looking to be constructive, i like amazon calls and the line

the other is eem, a great setup to press to the down side. >> have earnings next week that will be big who knows what happens on the trade front, tweets and interest rates and everything that does it for us. "options action" "mad money" is next with jim cramer - [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,