hey, there you know what i like to do on fridays at 5:30 p.m. host "options action" at the nasdaq, of course! and here's what's coming up on the big show ♪ wa, hoo, yeah >> 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 f.a.n.g. stocks in droves this week, but chartmaster says there's one name that's about to bite back. he'll break it down. and later -- >> hakuna matata it means no worries! >> hakuna matata

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

downside to the s&p this week. then you think about what happened to bonds? well, they went up a lot what happened to the dollar? it went up for a bit it was a flight to safety in u.s. assets. and as my friend, tim seymour, likes to say, when you have a rising dollar like that, it is an actual wrecking ball for emerging markets, currentsies for the equities and that got me thinks of the eem. here's a 15-year chart of this it's sitting on -- and i'll let charter speak to the charts in a couple minutes -- it's sitting on a massive uptrend that looks like massive support here and you know that thing from its january 2018 highs, it's in a bear market. it's down about 121.5% or so an i don't see without a substantive trade deal why this should etf rally and when you look at the price of options in the eem, it has pretty good support in 159% range, but if you go back over the last five years and looking at that chart right now, when we get global growth scares,

implied volatility rallies that means you want to own options, specific if you have an inclination to the down side i think this trade is simple if you are not optimistic, and i think the president told you this week, by first running ahead of his trade negotiations by saying that we may not see a deal until after the election, and then slapping on those extra tariffs -- we're not going to see a substantive deal any time soon i think in the eem, this is probably one of the better shorts out there in the market using defined risk with options. i think you look out to october separation, when the etf is trading at $40.5 today to buy the october $40 put for $1.10, breaking even at $38.90, down 2%, risking 2.4% of the underlying etf price, looks like a good risk-reward and finally, the three-year chart. this is how i would trade this thing. if it breaks the uptrend we've had in place for the last three years, i see support after 40 bucks, down there at $38 that was the double bottom from 2016 and then you have an air pocket

down to the mid to low 30s i think owning an 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. >> all right mike khouw's joining us as well tonight. mike, do you want to take a stab at this one? >> yeah, sure. so, i like the trade structure i think it's just the right way to play this you know, dan was alluding to the implied volatility of the cost of options. it's really interesting. if you take a look at the implied volatility of those october $40 puts that he's buying, those actually have declined in price actually since late june. the other 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 were going to try to turn this into a spread, it's definitely something you want to do after eem starts to move to the down side. look at the 38 puts. those were trading around 40 cents today. there would be no reason to sell those to put on that spread

right now when you think there's a possibility this thing could make a comparable move if it did like it did last year and we saw maybe a double-digit percentage decline. getting less than 1% of spot right now to get the downside puts wouldn't make much sense. >> the thing that's interesting about this is 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 then s&p made a sharp, new low in december and eem did not, said see, it's risk on, you want to be in cyclicality, banks, industrials, of course which is completely wrong and we know now the eem is at risk of a big drop and certain other light things are already doing it look at mexico the eww is already below and making new two and three-year lows bad setup. >> dan, last word on this. >> one of the reasons i targeted that last chart with a $38 support level, to mike's point, if this thing drops a couple points quickly, what you would look to do at maybe $38 is sell

a $35 put, lock in some more premium, reduce your break-even on the trade, and i think that's how you want to trade this you just want to own an option outright if you're picking a direction here. tech also taking it on the chin amid the trade tension with the nasdaq 100 posting its worst week since december. and check out the f.a.n.g. drain. facebook, amazon, netflix and alphabet all down sharply,losing streak in nearly four years, but the chartmaster says it may be ready for a bounce want to head over to the plaza and break it down? >> you bet amazon has had a lot of air let out of it. think of microsoft, barely down, or visa, or any of these high-flying supercap indio sin democratic growth names. amazon really did get pounded, down 11% s&p, nasdaq, semis and then amazon not to say that it has to be related to any of these. the point is that it was the center of selling. this is the peak-to-trough decline over the last six to eight sessions, depending on

where you start your meter but at this point, i think you have bounce potential, not just because it's down 11%, but because the chart level would suggest that so, here is your low in december here is your june low and here is the sell-off. well, they happen to be -- not randomly -- right off of the line i mean, you know, you kind of can't make this stuff up so, the point is, 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 pay for some sort of bounce. let's just 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 prospective bounce. >> yeah, so play it for us, mike what's the trade >> yeah, so, amazon -- i mean, i'm not telling anybody something they don't know already. it's a very expensive stock. if you were going to buy a round

lot, you're looking at 181,000 bucks and change to make your bullish bet here, and obviously that's quite a lot of downside risk options, of course, because you're dealing with a high-priced stock, individually they're also very expensive. since we're really just playing for a bounce and not doing something too complicated, i think the trade here is really to look at a very narrow call spread this is kind of a binary trade it's either going to work or it's not we're going to try to make sure we limit the amount of decay we're looking at specifically, the trade i was looking at was the october 1800, 1835 call spread give you a sense of how expensive those were, those were trading for $1.02 when i was trading earlier today and the higher were about $18.50 so net-net, you're spending $18.50 for that $35-wide call spread now, that is more than what we usually look to spend on vertical spreads, but the reason is that when i was looking at this, this was actually in the money by about 17 bucks. basically what we're doing here

is mitigating the decay in this case and we're just going to play for this very near-term bounce that carter's talking about. if it goes up anywhere close to the price target that i think he was mentioning, somewhere around $1,890 for a bounce, this would be completely worth the distance between the strikes. and obviously, if it doesn't work out, we're taking a small risk relative to what it would be if we were just going to either buy the calls outright, 100 bucks a piece, that's $10 about you consider the multiplier this is a way that, basically, for the price of one share of stock, we can 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, and i think mike laid it out really well. he's basically saying you're risking 18 to make 18 if the stock's up just a little bit, so it's a pretty good risk-reward, but he also said it's pretty binary i think it's a matter of conviction if you thought the stock could edwar easily get back to $1,900 on a bounce based on carter's work,

and if things got back working in the markets, this thing's on the way to $2,000, you might feel a little bit 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 just depends how convicted you are on the call, how convicted you are that you think this could get back. it just sold off almost 10%. >> well, 11 -- >> if you're really convicted on that, i think you're looking to roll something up and getting wider exposure to the upside. >> mike, jump back in. >> yeah, look, this is a situation where, look, you get the direction right, this trade is going to be right, or you're going to double however much you put into it, and that's really defining your risk how much do you want to risk how much capital do you want to put on a trade in amazon to get a bounce and i can understand how the market behaved this week why people might be reluctant to say i want to buy $2,000 worth of amazon here because i think it's due for a bounce that obviously even for a good-sized portfolio is a capital commitment here's the way to do it -- and look, you can size the trade however you want, but you're

minimizing your decay. if carter's right, this will pay off. and if he's wrong, you'll define your risk to how much you're putting on this spread and that could be much less than if you were either buying the stock or an outright option. >> in a way, it's a bet on does the market have a little bit of a bounce on monday-tuesday because if you're going to bet on something bouncing, this is as good a candidate as anyway, but the market doesn't bounce, individual stocks bounce if there is going to be money going into the market for a trade, this is as good a vehicle as anyone to own because it's gone down more and technician a big, popular name. >> more "options action" still ahead. here's what else is coming up on the show >> it's 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 @optionsaction. if it's 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." shares of disney up 30% in 2019 for what's been a magical year for the magic kingdom, and there could be even more fireworks when it reports earnings next week so, how should you play that stock into the big event mike khouw's got the call to action mike >> yeah, 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 bit pricey relative to the longer-dated ones this is a stock that i like to own here i'm bullish in the long term you know, this is a stock i think that's basically the best of breed some of the troubles that basically caused lower valuation multiples for this stock historically, things like cord-cutting impacting espn, that problem has slowed. we were seeing maybe 4% losses year on year before. now we're down to about 2% plus they're picking up some subs on the direct-to-consumer streaming side i think that's a positive. they own 60% of hulu i think that's also a positive probably 25 million subs there by 2024 or so. so this is a stock that i'd like to own the thing is, right now it's trading close to its all-time highs. 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'd want to use options and i'd want to use the cheaper long-dated options to do it and i'd take advantage of the fact that the nearer-dated ones are pretty elevated so simply, i was looking at the august-january $141 call spread. earlier today that was about 6 bucks. i would buy those for about $9.90, sell the august $140s for about $390 this is also one of the trades kind of like some others we've talked about, where because we own ones that are 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 this trade again, essentially working into a synthetic form of a buy rate and this is a way that i can mitigate my downside risk. remember, when you put on a trade like this, the most that you can risk is 6 bucks, and that's between now and january, and you know, obviously, if the stock stays in this range, we're going to benefit from the decay that's going to hit those nearer-dated options. >> yeah. you like this? >> i love this trade and i'll

tell you why this stock has not moved a lot after earnings if you look at the huge gap above $120, when that happened in april, that was a result of a midquarter update where they outlined their ott service, all of the things that mike really loves about this story, and that got investors back in the name so 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're setting up to discount the cost of those longer-dated calls, which you want to own. and the other point i'd just make -- i'll let you speak to it -- that $130 gap level from april looks like the level we'd love for it to come back in and load up. >> i think you almost have to do this through options, because just owning the stock here, the implied move is -- i think its peak on monday was $147.15 even if it went up 3%, you won't even get back to where you were just at the beginning of this week it's sort of a dull moment it's been a great win. >> but i think it's stuck here so you have to it do something on the options side to get a little juice. >> mike, last word to you.

>> yeah, that's exactly right. when you have a stock that gets stuck like this and it's a near-term range-bound option, a trade like this makes sense. but bear something in mind, if something disappointing comes out of earnings or if the market gets hit harder and takes this one with it, those near-term options are going to decay we're going on own those longer-dated calls one of the things we might even be able to work our way into in that circumstance, if we get a pop in implied volatility, would then be to sell some downside puts, maybe below the strike that dan was talking about, maybe around the $130 level. we could probably collect nice premium. then you could get into a diagonal calendar, not something we often get an opportunity to discuss here, but a very nice trade indeed, if it's a stock you'd like to own for the long term. okay, up next, trade war trouble taking a bite out of apple. after the stock surged on earnings earlier this week we'll tell you how to play it, coming up. plus, it's friday, so you know what that means tweet your burning options questions to @optionsaction, and you may get your answer on the air. don't go anywhere.

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action." time to look at a couple 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 checked back and is now pivoting off the line again that confirms the major reversal that's been under way here. >> look at the september 26 calls. these calls are in the money already. when i was looking at these earlier today, those were about 65 cents they were in the money by about 55 cents >> all right, the dollar breaking out to its highest level since 2017 before getting slammed on the trade war headlin headlines. 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, and we certainly did that there was about 10 cents worth of extrinsic premium in these calls. that's essentially gone now. these things traded up to about

83 cents midweek and closed the day around 70. my view is that if you're inclined to stay long the dollar, this is a better way to do it for sure because there is no decay built into these and they've already defined our risk can't lose money below $26 so, to the degree anybody wants to be long the dollar here from now to september expiration, these calls remain the way to do it, but i'm going to have to defer to carter on the view on the dollar. >> all right, so, tactically, of course, we got a nice bounce and that's come and gone to some extent structurally, which is important and perhaps more important there is every indication the dollar is headed higher. it is a flight-to-safety environment and you want to be long uup. all right, moving on, also 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 quarter. 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 at at-the-money bet to get a breakout at that level. when it was trading at $2.28, you could get the august call. >> 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? >> well, this is interesting we tweeted this one out right afterwards, and i think it's really important once the stock gapped up in line with the implied move it was trading about $221 in the hours after it opened, after the quarter the next morning those calls were trading at about 12 bucks they cost $4.25. at that point, they are trading like stock it is a market call and you had to make a call my call then was to take the profit and move on, and we saw this last quarter on may 1st, that it had that gap and then it started selling off. so to me, this was just an earnings trade that's one of the reasons why we used fairly short-dated options. the stock close ad at $204 today, it was $208 last friday the calls went out at $4.25 last

friday, went out at $1.85. so the stock's down $4, the stocks are down $2.30, something like that, that's why we like to play with implied risk into uncertain events like earnings. >> the key is that you sort of took your money and ran. >> yeah. >> because at this point now, you have a fallow asset, meaning the catalyst has come and gone and now it's back to and below where it was on its may beat, sort of stuck. >> mike? >> yeah, 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're looking for, take your profits, because what's going to happen after that is those things are going to decay rapidly and if you are inclined to press your bets, you'll want to roll, not stick in the short-dated options. up next, your tweets and the 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

we're back on "options action." time to answer your tweets our first fan asks "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? >> mike just answered this question a lot of times you have to say, did it achieve your target and you have to be very cognizant what that decay's going to be, because if it has achieved that target and you have a lot more time, you want to get out because ultimately it will just decay. >> appreciate the question very much now "the final call. mike, start us off and have a great weekend, bud. >> sure. you know, one of the first options trades a lot of people get into is buy stock and sell calls against it, but they should consider buying calls and selling calls against it that would be a call calendar in the case of disney the august 1 $140-january $140 going into earnings. >> you could play amazon for a bounce it's a high-profile name and comes with a risk, but being down 11%, i'd do it. and if you don't like that, stick with gold and silver. >> we'll look at the markets next week to direct that trade. >> if you're looking to be

constructive, i like the amazon call and like those lines. and eem, this looks like a great setup to press a short here to the down side, maybe the mid-30s. >> got earnings next week. that will be big who knows what happens on the trade front, tweets, and about interest rates and everythin else that does it for us on "options action." have a great weekend "mad money" with jim cramer is next the following program is a paid commercial presentation for total gym fitness. [music] everybody work out. feel the energy. build a better body. the best you can be. another body easy as 123. oh. ahh. better body as easy as 123 with total gym.