everybody. i'm melissa lee live from the nasdaq market site here is what's coming up on the big show >> on the big show tonight. >> the whirlpool duet. >> carter werth finds a way to catch up on the home builder stocks. >> chant as much as you want the dan nathan warns the semis aren't coming back. >> costco run, huh. >> yes and mike khouw says it's over he scripts out the next plot twist. it's time to risk less and make more "options action" starts right now.

>> let's get right to it, it's been a sturdy here with the xhp etf tracking the group outperforming the broader markets. look at some of the names leading the space. dr horton. lennar all surging double digits and less than 5% from fresh 52-woke highs. the chart master says one name is building up for an even big are break out. carter head over to the plasma and break it down. >> sure looking at whirlpool not a home builder but related nonetheless. and whirlpool has been a laggard i think that's the opportunity here the five-year chart two lines you can see the divergence lennar, pulte and other names. orange whirlpool basically what you are talking about is no progress for the better part of five years. literally -- not no progress -- bad versus this. now watch. here is the chart.

how can we draw the lines? one way we can draw the lines is call this a double bottom you can also call this a fairly big head and shoulders become. you can all this a cup and handle any way you splice it or dice it suggesting the bottoming out has follow-through if you put in the moving average you see a way to measure trend this is clearly a down trend for what its worth a uptrend a sequence of higher lows and higher highs the betting here is this breaks out let's zero in on the chart here and now a lot of tension you can see, again if you wanted to put in a cup and handle part you can do it that way but this is important. what i see is the breakout above the top. you will see it here slight gap above. the tension is there

the levels are remarkably precise as is so often the case with a good setup. here today, the last two days we just punched about -- i think we have plenty to run here i want to play whirlpool on the longside. >> carter come on back mike, what's the trade. >> whirlpool is interesting of course because this is not a growth story we are looking at revenues approximately now where they were about five years ago. marginally higher. earnings improved so margins getting better look at this trading low double digit pe here. about 8 times ebidta it's not a big growth story. not expensive. what's interesting is that the options are quite expensive. looking to december what we can see is that the options market impling this thing moves about 21, $22 higher or lower. consequently, the options are fairly expensive

in this market environment and given the fact that options are expensive my inclination is call spread on the long spd looking at december 160, 175 call preyed that was $5 looking earlier today. you'd spend 7.85 the 175 gets it for 285 that's the next debit of $5 a little bit more than we like to spend on convert calcium. but it's a situation where because the options are expensive and this is going to help mitigatethat a little bit this is one of the situations where if you just buy outright options you are paying up process here we limit the premium to 3% of the current stock price. and obviously if we get a move certainly a plof pliek the one the options market implies in our favor direction that we should do pretty well this way. >> dan, what do you think? >> i personally don't have a lot to say on whirlpool in general the charts carter showed on the home builders is instructive

this is a name downtrend for years. it break broke tout the breakdown level landfall last year that is a lot of sales outside the u.s. it's the whole strayed trade situation is interesting for this one so i don't really -- i don't know how it shakes out with whirlpool. i don't like or dislike mike's trade one way or another i don't like the idea of risking five to make ten you got to get the direction right and the stock has to be up $10 to break even. >> your view is shared by most on the street. and the street is indifferent on this stock it's a competitive business. there is only a handful of players in it. we were talking about earlier. it's not likely to get exciting but i think carters point is a good one these are the types of things where there tends to be a potential flar somebody could step in and say all right well if i can at least pay for the low cost of debt at this point that you create a potential bid underneath it by the private equity community or something like that. really was to fall out but i

don't like being long, i don't chase the home builders. we saw bullish active len nar we were talking about earlier this week and last and here we are in that space. very close to or on the all-time highs. it's a bit of chasing that's why you want to use options if you are pressing bullish bets after you see big runs >> and whirlpool however is not at all-time high it's quite a bit that's either the opportunity or trap but what we know is it's very cyclical business and cyclical stock. here it is at 155. the day to day action is good better to be long than short. >> chip stocks put a spin cycle of their own and if you think this is the beginning of semi smackedown dan has a way to play it. >> just go look at this group you know within technology it's highly cyclical and we know it's been very volatile the last two years and obviously like we were talking about have been subject to the trade headlines i would tell you that the fact that they have made some new highs this year where some other groups in tech have not confirmed the broader market highs tells you that this is a group that people are gunning

for when they think that the trade talks get better or when we get better commentary about global growth. that chart there is pretty interesting to me because there have been two new highs this year one came in april and one in july and in both instances, the april new high found a 19% peak to trough decline. just so you know that came after q1 earnings. then go to late july the smh, the etf space tracking semi space had a 13% peak to trough decline there. obviously you can see the uptrend from the december lows come a long way. here we are no new high. but what's most important that the guidance we got from micron last night should have set alarm bells off on a lot of investors who thought we were closer to a bottom in the cycle. and it may not even be we're that much further from a bottom. it might be a much less profitable rise from that bottom because if you think about what micron said, they are seeing pressure on gross margins and headwinds because of trade specifically with china.

when i think about this as we go into quarter end a lot of the semi conductor companies used to give mid-quarter updates they don't like transparency anymore, maybe because they don't have the visibility in the businesses they used to have but i think we could get a couple more negative preannouncements and you might see this group top out as they've that he done the last two quarters around earnings season you take a shot it goes back to the uptrend somewhere down here yb i don't know maybe a little below it 105 or so today when the smh trading at 117.75 you could look to november expiration by the 117-106 put spread paying three resist dollars for buying one of november 117 puts for $4.50. selling one of the november 106 puts at 1.5 breaking even at 1.14 and make up the as and i play the sentiment the sentiment got bullish in the space we got a negative fundamental

data point the fds look constructive but it could be a full back on fundamental news back to the weak. >> like on negative trend we saw the -- in particular down already and took a leg lower when we heard about the delisting story. >> the thing is one could say it made new highs but the thing about the new high it's like any new milestone. you got to make it achieve the goal to make a slight new high and fail it's a triple top think about the individual securities intel has never made nvidia the number one performer for six eight years is not working it's not the clear indication people would think any weakness here would trap a lot of people. >> two things i would point to look how the smh formed performed to the second quarter. you saw a 20% decline in five

weeks. that gives you a sense how far and fast in thing can move the other thing is because it can do that often times you have the etfs, the options are cheap. we talk about that all the time. here you want to use the put spread though. the reason is if you look out to november if there was a vix november vix for smh we'd be in the mid to high 20s. it's not cheap optionality you get. you definitely want to use the spread here. this is another one of those situations like the one we were talking about before spending $3 for an 11-dollar put spread maybe more than we otherwise would. but well justified by the fact we have the catalyst coming up we see the volatility we've had and you get the lead in with what we saw from micron. this is one of those situations where you get to see smoke and now you get to bet essentially you get the fire insurance. >> i'll mention you talk about the high price of options and it's been volatile and around trade headlines.

we've seen kbr intraday moves from low or high going off the trade headline to me it makes sense to spread it that's why you do it here. if you are really convicted and you think we get a move you buy the puts outright and wait for the move and look to spread but that's how you choose to do it i like the risk reward of three to possibly make 8. 2% of the underlying stock price. >> is there one chip bellwether you look to. >> carter mentioned a couple of names. nvidia down 40 peppers from the pie xy links guy adami wouldn't show up about every day. now down 30% and looks like it's breaking down. amd was a darling. it just broke the uptrend from the december lows and looks like it's about to fail so you know, intel is in the -- in the midpoint orp below the midpoint of the one-year range i don't see anything. >> in the whole smh. >> two charts that looked good taiwan semi conduct ertz made and texas instruments that's it. if texas.

>> mchp tourp. >> and that's what's hold going up because those are constituents one and two i think. >> correct. >> for everything "options action" check out or website "options action" cnbc.com much more "options action" ahead here is what's coming up. >> there is a reason why the phrase too much much a good thing might soon apply to costco mike khouw explains. calling all "options action"s fans reach into your pocket, grab your phone and tweet us your question at "options action." if it's nice we'll answer it on air when "options action" returns. "options action" is sponsored by "options action" is sponsored by think or swim by td ameritrade 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.

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>> welcome back to "options action." check out shares of costco down more than 2% this month after jumping to a monstrous 40% gain this year. mike says the party might be over in the pantry over at the plasma with a call to action, mike. >> we're looking at a put calendar we use this strategy quite often when we go into catalysts like we are in the case of costco here are the things you should be paying attention to because probably like my family you're at costco a lot we go there because things are cheap. but costco itself is not right now quite an elevate the valuation. we look at that in a second. the other thing seeing elevated valuation are options into earnings right now implying a move about 4.5% above the 3.8 it averages the

last 8 quarters on these moves the thing is i like the company. i just don't like the stock. for me this is kind of a hold situation. rather than an outright sell so going into the earnings less let's just take a quick peek at the valuation. how do you like this 36 times trailing 12-month earnings, that is a history of that valuation over the course of the last ten years. so this is essentially right now a peak valuation over the course of the last decade we can see that in the stock price as well and here we are. we can see what melissa was talking about, this huge move we have seen here i do think that we're in this sort of tricky spot where you have to do incredible things essentially to justify a big move up after you see valuations like this. so very simply, i was just looking at the october 4th weekly november 280 put spread you could sell these puts, the

280 weeklies that expire next friday more 3.95 by the ones in november for $7.80 obviously if you hold this after the expire appear you wait until november expiration you need it to fall below the 280 strike price by about whatever four bucks that you are spending a little bit less. but the other thing is that if it actually just comes right into here and sits here. this option's going to decay away this one could appreciate. so this is a situation where you can own longer term protection if it does this you want to hold that put but it can profit actually if the stock languishes and fails to make new highs. >> mike why don't you come back over carter what do you think of the charts and mike's trade. >> within retail we know we had the great bifurcation. losers and winners dollar general, costco home depot, target. all big moves to the upside but

the ones that has had that are full, if you will. i think there is a lot of risk of those giving ground and costco is in the bucket. the recent fading i think is not over but likely to be the beginning of more trouble. >> you know, that's from a guy who i think months ago called the break out and this thing has been off to the races since. i think that's having the stock has taken a pause and interesting to focus on the fact that wal-mart, target, costco home depot had the breakouts run away breakouts this one in particular feels like it's getting heavy. mike's trade is interesting. if you don't think it's a strong move lower following results, that trade makes total sense if you think this stock could go down a lot next week, the 285 weekly puts are the $6 that's about 2% of the stock price to the point if you are convicted on a down move, the options look cheap, in my opinion, on just playing that but that's just a five-day trade and basically like flipping a coin with worst odds. >> that's the key here do you think the stock is going to basically run into headwinds, maybe trade off a little bit

or are you expecting a big gap lower? i mean, we can think about two big names that announced earnings recently not necessarily related to costco but federal express here is a name everybody thought was getting cheap. i was among those. clearly it wasn't. and you know the thing had one of its worst earnings basically since the credit crisis. you can look at nike people said look that's trading pat peak valuations then a good number and actually traded up but we did this same trade on nike and that trade actually did okay despite the fact it went higher or didn't languish and go lower. this is one of the situations where there is two things that can happen and both of them are going to work okay but if to your point, dan, you suddenly see a move and everyone reprices to 27 times earnings or 30 times earnings you see some real punishment in the stock i don't think that's going to happen. >> think about the two instances mike referred to nike's gap up, feeble. fedex's drop in gap, micron's drop in gap. huge a lot of asymmetry in the market and that's the risk.

>> all right coming up it's friday. so you know what that means. you can tweet us your burning questions at "options action." you might get answers on air plus we will reveal the name of this free falling fang stock and why the recent move might be good news for one of our traders. live from the nasdaq in times square don't go anywhere. "options action," back right "options action," back right after this what do you look for when you trade? "options action," back right after this 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 t.de 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. ♪

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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. ♪ welcome back to "options action." time to a look at open trades. it's a jungle out there. last week dan said amazon might get caught in the weeds. >> amazon has a fundamental driver that could take it lower. the fact that stock broke down below the uptrend that has been in place since december and stayed down the last month and a half or so tells me it's weak relative to its mega cap peers it's hugging the 200 day moving average. which is the only technical support. you could look to november expiration catching the earnings event and buy the november 7, 165,000 put spread paying $50 for that breaking even at 17.10. >> amazon down 5% since the trade.

what do you do now dan. >> interestingly the long put strike it's in the money the stock is down about $70. the put spread that cost $50 is worth 75 i think you have an opportunity to next week it did break the near-term support. there is nothing below it for a bit. i think you have the opportunity to maybe take some profits when you see this thing at some point in the 1,600 range in the not distant future. >> that was a good one broke where it should and now the june lows are in play. heavy and crowded downside. >> maybe roll it take the profits off on and roll down. >> cut through the june lows enough to get things moving. another 3, 4%. >> explain that real quickly say in a week the stock is down another $50 and you have a double on it let's say you bought one contract. >> great point you own the long put sometimes look at something in the delta

your machines allow that you have a 60, 65 delta long put strike roll that down by the 40s against the other shorts take the profits on but keep the -- keep that convexity press the shorts. >> meantime mike said nike move might have to stop and catch breath after the run up into earnings. >> we're just under the all-time highs. we're going into earnings three things can happen. it can break out to new highs, sit essentially here and struggle to make it anywhere or could possibly go lower. i was taking a look at putting on a short dated calendar spread so today when i was looking at this, the september 27th weekly. on monday these will be the ones that expire next friday. you could sell the 87.5 puts for 2.10 and by the october 87.5 puts for 2.55. >> well nike jumped higher in earnings and the first leg spired in the green today what can you do. >> some of you followed this trade i know you do because i watch the tape and i saw these goes off maybe it was this one this trade was a double on wednesday.

after earnings and so some of you may have already taken it off the put that we still own is actually worth slightly more than we put the spread on for initially. you know my inclination is to do what i was talking about i kind of feel like it's peaked out here i'm inclined to put on a vertical put spread a bit further. >> the breakout is sort of unconvincing yes it broke out but it didn't have the vigor you'd expect with the result like that so downside risk. >> all right up next, the tweets on the final call see that's funny, i thought you traded options. i'm not really a wall street guy. 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?

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♪♪ ♪♪ ♪♪ time for the final call, carter werth. >> whirlpool on the long side. i think the bottom is in. >> mike khouw. >> do a lot of shopping at costco but i'm not a buyer of the stock in earnings. i like calendar put spreads. >> dan >> you like costco because things are cheap you said that. let me tell you what's not cheap. options in the smh sell rally in

smh and buy november put spreads. >> that's does it for "options action." see us back here next friday at 5:30 meantime don't go anywhere "mad money" starts right now have a great weekend following is a paidarratore advertisement for the teeter fitspine. - hi, i'm roger teeter, and believe me, i truly understand your back pain. in my 40's i wrecked my back. on worst days i could hardly get out of bed. i had to crawl hands and knees into the shower to get hot water on my back, just to be able to stand up. nothing really worked until i was introduced to inversion. the relief i got from inversion lasted longer than anything else i tried. and by inverting on a regular basis, i've been virtually pain free for almost 40 years.