yes. yes you do. a kohler walk-in bath provides independence with peace of mind. call... and ask about saving $1000 on a walk-in bath, or visit kohlerwalkinbath.com for more info. . happy friday everybody live from the nasdaq market site i'm melissa lee. times for options here here is what we have on deck. >> straight hood. >> transportation. >> transportation. >> but the question is should you be too carter werth takes a look at the bumps in the road. then -- >> captain we will have to stop until we can make repairs to caterpillar unit. >> seems the same can be said of cater pill are stock dan nathan has a way to stay afloat when the alarms dow off plus. >> ha. >> if you want to keep suffering the pop in the market mike kmo

lays out plan to ride without drowning when the market breaks less. >> let's get to it, a rocky road for the trrps as the group closes out a worst week of the year sitting in correction territory. look at sonl of this week's worst performers delta, rider, nofrls southern and american airlines leeting the path lower. our chart master says this could be the beginning of a bigger breakdown ahead carter, take it away. >> just that imagine a recovery in the market and yet transports down 3% says a lot about about a lot of things let's look at a few charts a one decade chart doesn't tell you much most everything is up over the past decked decade but relatively performance to the s&p, we are basically -- undown the entire thing back to where we were in '09 that's the issue, the problem. it's just this persistent and chronic slide, even as the index

itself has advanced. look at one or two things. another way to look at it, more immediate rather than a ratio chart is a comparative chart the past five years you see the two colors, lines. s&p here and then transports. even as the s&p managed to make incremental new highs, not impressive as discussed by dan and others, what we know is that the transports from the peak have continued to do that. we have this divergeens that is the issue. okay take a look. now, here is the index you can draw the lines so many ways but basically at a minimum it shows what a waste of time it's been and yet adjusted for risk and beta it's been worse than a waste of time, right >> now, is this random of course it's not random. stops to the penny, stops to the penny. stops to the penny lines matter

levels matter. nothing good about that. here is the iyt, the etf, just vassel eighting around ultimately i think what happens is that we are going to reach the lows and a break here would yet further thing thing into bad to worse and bad to worse and on and on. >> so, mike, given the chart what's your trade. >> yeah, i'm going to refer back -- i have a question about the charts which we'll get to in a second looking at iyt, obviously some of what is happening in the price action we railroad know. some of the big constituents obviously haven't been doing well we've talked about federal express on the show before and obviously what saw what came out of earnings, looked like classic value trap trade that's a big constituents. other big constituents of the iyt including airlines one of which is reporting next week delta of course also gave guidance this woke so we already know that maybe it wasn't going to be all that fantastic. although i also might argue it's

not going to be that bad what's interesting to me and see despite all of the volatility we have seen in the market and despite considerable volatility in iyt, options prices really aren't that elevated to give it a bit of context, right now the december implied volume intimidate of iyt is about 20%. we are seeing an average move over the last 60 calendar days about 43 trading days of move about 1.2% that would correspond to implied volatility with 23.5 it looks cheap to me the other thing pinpoint out is that like many situations etfs and indices there is a there were here. i think the way to play it looking out to december, i was looking at the 175-165 put spread spread. pend $5.75 for the 175 put sell the 165s against it for 28.0 net debit of 2.40. that's less lyn than a quarter of the distance between the strikes. and the issue here is does to break through the reporter level? bringing to me question also that looks like a channel here

to me. one of the reasons i was looking at this rather than for example selling the upside credit call spread is because there december seem to be potential risk that it could catch a bounce off that that's a question for carter >> and a very real concern for someone making the case that something is wrong the one i just made. so this is why options of course are the way to play it the thing that bothers me, not to mention the names that we said is that, remember the due two biggest names by weight are railroads. three of the top five are railroads. the railroads have outperformed the market and outperformed industrials and transports for years and years. and they are all starting to roll >> dan what do you think of the trade. >> as far as the trade -- didn't i have some choice words for this -- the transport attention earlier. >> like the worst chart in the world. >> i think it was one of the worst looking charts in the market i said that a couple nights ago mike brings up a great point it's hard to press things sat om of the big support levels which

is why like the put spread $107 the wide paying a quarter of the spread and if you see some of names in there you see the rails, the airlines roll over i think that delta chart, wraeg that uptrend from the december low, i think that was a decisive break. i think there is a lot of bad charts in that index i think you're seeing lower lows does it bounce off the potter near term? maybe i don't know but does it looks like it's breaking it sometime soon? ia. >> for those liking to follow with it dow theory coast does that hold true. >> sure. >> i had to ask zbhoo. >> i'm not answer going quickly to imply that not -- meaning, it seems like too simple to be true but the concept is very real, right. if it's moving around in a truck on rail or boat or plane it speaks to the level of business activity and output in the country. and while that's maybe a passe pch there is something about not

confirming the conclusion. >> mike, last word >> no, i mean i'm kind of with that look, we look at what the results we were seeing out of fedex and others they speak to you know whether thinking about the new economy or old the new economy is embedded in transports even if some of the other areas of industrials are not. >> well from the transports to the industrials, take a look at caterpillar seeing a boost today. but still the second worst perform ner the dow this week. the industrial giant has been feeling the pressures economic slowdown fears weigh on investors and dan bets today's move high sr. nothing but a dead cat bounce. >> a little cat scratch feefrp i got here this rally was insty dated by the prospect of a china trade deal this is one of the worst acting stocks in the entire u.s. stock market one of the worst looking charts also this stock is down 5% on the year it's down 30% from the 2018 highs. it's just been in a series of just lower highs here. and if it can't rally on a day

like today i don't know when he it rallies i want to focus on two charts one since the start of january of 2018 from that high you can see that it gets rejected there all the time obviously has a little support at 112 it's a double bottom dating back to late last year let's go to the 6-year chart just to show what's going on and why the 112 level is such an important support level. that was the high back in 2014 the net stock saw almost 50% peak to trough decline when we had similar growth fear, i look at this name and say there are expectations i don't know 2% earnings growth 1% sales decline. if we got a trade deal and the global economy reskrermted would that change? of course. cheap stock trading 10 times earning. but i don't see it i think when they report on october 23rd, the options market implies about a 6.5% move between now and then

i think you see weak guide ins especially without a trade deal. and i don't think we have a substantive one. i would use a put calendar isolated that earnings event sell short dated premium downside put premium to help finance longer dated put premium capturing the earnings trade today when the stock trade the at 120.5 you can buy the october 18th, two fridays from now, october 25th, three fridays from now, 115 put calendar. you're selling one of the october 18th 115 puts at a dollar.15 and buying 1 of the october 25th, 1.15 puts for $2.35. costing $1.20. you want the stock to move towards 1.50 between 1:15 between now and thn the short dated expires worthless then you own the october 25th 1.15 put for the ekerns event 1% of the stock price pgs ohs trade trying to isolated that earnings event

here i like the risk reward i don't know about my entry point. i have no idea where the suffolk is in a week or two weeks or three weeks. but i like this trade looking into that earnings event and looking to prospect that we are not have a substantive trade deal any time soon. >> mike your thoughts on the structure of the trade >> yeah, first of all i really like the structure i think there is something we ought to look at, that is that this is a short calendar we talk about calendar trades all the time he is only looking at one-week calendar maybe the way to think about this is how much does caterpillar move typically before announcing earnings and how much after they nouns earnings the week leading into earnings the average move for caterpillar over last ten years is 3.5% that we can the coverage coming move coming out the 5.5% ewe using the shorter dated put to help finance the one that captured earnings makes sense. quickly addressing the fact that he talked about a cheap stock, that's tip clep the case for cyclical stocks. cyclical stocks will always look

cheapest when trading highs. and always most expensive trading at lows. why? because cyclical stocks obviously come off some of the best earnings before the cycle declines and coming off some of the worst as you reverse off that bottom and come up. so it's very easy to get cornered into what we call value traps looking at a stock maybe the waydy in federal express aforementioned when you see the 10 pe and you see something cheap. that's not necessarily the case. the market might be telling you something else i'm inclined to agree with dan that that's what's going on. >> right, i think we have -- you heard fundamentally why cheap is a very dangerous word. it's trading at 10.5s times. this is traded pat 6 times and four times earning . there is no safety net in that notion tech i it's busted, trading straight down on absolute end relative basis and highly cyclical tied to problems in the news what is the thesis for being long i don't know when you hope maybe it's hopeless as they say.

>> i love carter's retirele finishes >> i love it. >> everything "options action" check out the website. everything options being.cnbc. check out the news letter. what are you waiting for here is what's coming up next. stocks staging a big comeback to end the week with the dow surging triple digits and if you bet this rally has legs, mike khouw is laying out a way to play it for less." fans, and tweet us your question at "options action. if it's nice, 'll weanswer it onary when "options action" returns. ♪ "options action" is sponsored by think or swim by td ameritrade ♪♪ ♪♪

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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 pgss action. stocks staging a rebound today on top of a solid september jobs report and if you bet the rally has legs, mike khouw lays out how to play it with the call to action. mike >> yeah, so, for the call to action, we're just simply going to use calls in in particular case why would we do that given what we saw this week the first reason is the reason that we would ever look to just trade long options and that is to define our risk, define it to the premium we are spending the second thing is that despite the volume intimidate that we saw this week, options premiums to me remain relatively low. and the final reason would be this could be a head fake. while it might be tempting to

believe that the bounce that we saw off of yesterday's lows in the morning, which -- by which point i covered some of my hedges at that point because it did feel like we were catching a bounce i'm not sure how long that lasts. you can actually spend less than 1% of the current pinstripes of spy to buy a call option, specifically i was looking at the 2.95 calls 2.70 cents is what you spend on those. the upside break even is 1.4% high her than where spy closed today. consider this, they conspire in two weeks. some things could happen between now and thn. the market could rise, could fall doesn't need to rise much to see profits. and also doesn't need to fall very much that you would be glad to bought calls rather than additional stocks which would be an exceptionally risky thing to do the options market right now is giving us an opportunity whether you want to play on the longside

or the shortside to do so by buying options and using simple strush structures to do it and being quick on your feet. >> questions or comments for mike >> i'll just -- i'll let you talk about it. i'll talk about the trade. i think it's a simple way to do this i think with an etf that covers an index as broad as the s&p 500 when you implied volume intimidate tick up like this we can it's not that meaningful especially thinking about the fact that if mike buys them here after it's come in a bit meaning in volume terms but the index rallied, he doesn't really a lot to break enand have the opportunity to spread the long calls. to me i think this is a great way to do it especially because they're dollar chip and in volume terms i think they're cheap considering the downside volume if you get it rung. >> talking a ton about the market read you some statistics for those who want to go with history. q 4 to get it right mean and

median performance, 1928 to 2018, the mean performance is plus 2.5 the median, 4.4. now up 712% of the time. if you have the market up, that's all yours if the market is up at the end of q 3 the numbers go up even further. so statistically, it's a very robust period for equities that's not a judgment by me. that's not charting, not fundamentals that's just data but is what it is. >> can i make another point mike's trade is for a couple of weeks until the enof october if you look at the last two highs in april and july. they came on the 25th or 26th of the month here and what do those months have in common earnings months similar to october you may have an opportunity to ride this thing into earnings. but you know this is a trade that i think you want to exit and mike's timing makes sense. >> mike, final word. >> one of the things i point out is that with all of the trades, you know, we have the show once a we can we get to talk once every friday about these things

when you look at how much the market is moving around, bear in mind that a lot of these things could be quite profitable one minute literally and 15 minutes later you are looking at a different picture. my recommendation here is be prepared to roll you put this thing on this is a short-dated trade and may even require shorter dated adjustments. if you see a move through 300 you shouldn't sit on it waiting for it to go up another hundred handles in the s&p what you should do at that point is either taking the profits or rolling up an out. >> all right coming up, next week could give investors another case of kmip whiplash as u.s. china trade talks kick-off but we'll tell you why one trader talks chosepy plus friday tweet us the burning questions at "options action" and you might get an answer on air live from the nasdaq overlooking times square back with "options action" right after this what do you look for when you trade? i want free access to research. >> announcer: "options action" sponsored by think or swim by td

ameritrade 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 pgss action. time to look back at open trades dan last week said there can be a chip wreck on the horizon. >> obviously you can see the upfriend from the december lows coming a long way.

here we are, haven't made a new high but what's most important is that the guidance 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. you can look to november expiration about the 117, 106 put spread pay sg 3 for that. >> the well the semis finished the week higher and after the rebound but as trade talks loom, dan how are you managing this. >> this is going to be a very volatile group backup trading a as low as 115 this woke. closed at 120.25 the stock is up 1.4% week over week and the trade is down maybe 25 peppers in premium terms. so really what you ought to do when you manage a trade like this you you are risking what you are willing to lose. but be careful it doesn't get away from you and you want a premium stop you want to see fos all right i paid $3 for the $10 wide i'm willing to risk $1.5 for that

the closer to kpirpgs the proposition is low that's how you manage it this has been very volatile over the last year when it made new incremental highs it's had significant declines i think you want to trade it and stick with it but keep a premium stop. >> i mean it's the darling of sort of emotions you know, semis are going to break out but don't. here we go again okay maybe one day. but for now the burden of proof remains on the bull. the bear just points to the fact that this thing is not breaking out. >> all right well meantime, mike said it might be curtains for costco's big run higher >> how do you like this? 36 times trailing 12-month earnings that is a history of that valuation over the course of the last 10 years. so this is essentially right now a peak valuation over the course of the last daekt are decade i was looking at the october 4th weekly november 280 put spread.

>> costco swung around on the back of the earnings report thursday but ended up 2% higher on the week so as of the first leg of the trade conspires, mike what do you do >> yeah well it will be -- for those of you who got into the trade and some of you may have and some may have exited because as of this morning the trade which with he spent less than $4 for was $9 it was more than a clean double this morning but of course now knows shorter dated options have rolled off and the stock actually finished higher on the day. the other put now left essentially what we paid for the trade to begin with. not a bad spot if we failed to act this morning what you do next woke is roll into year calendar sell the regular 2.80 puts against these and finance premium. this is a trade that will in fact pay off if the stock drifts from 291.2 where it's trading now down to 2.80 level i would be surprised if we see the follow through in the market that we in finished this one

with i think we're in good position here if you are still in it. >> how do the charts look, carter >> costco has obviously been best in class. the issue is, is it full is it rich who is the incremental buyer if you own it here and think it's going high are. i think all of those it's full, rich, looks a bit stalled. why stay. >> >> up next, the tweets and the final call i don't know what's going on. >> announcer: "options action" sponsored by think or swim by td ameritrade i've even built my on 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. ♪

it's got all my favorite shows turn oright there.boom, i wish my trading platform worked like that.

well have you tried thinkorswim? this is totally customizable, so you focus only on what you want. okay, it's got screeners and watchlists. and you can even see how your predictions might affect the value of the stocks you're interested in. now this is what i'm talking about. yeah, it'll free up more time for your... uh, true crime shows? british baking competitions. hm. didn't peg you for a crumpet guy. focus on what matters to you with thinkorswim. ♪ welcome back to "options action." time to take tweets. the first ask was would you rather apple calls or puts next week's trade talks, dan. >> great question. you have to pair that with the view of the earnings cycle that the company is reporting in a few weeks. you go with it because the at the money call or put is only 1% next week expiration. >> time for the final call, mike khouw in san francisco. >> you know i think there could be a reward if the market goes higher but the risk is too great

by spdr calls instead. >> carter werth. >> transports dodgy, short iyt. >> dan. >> i cat i put calendars into the next couple weeks. >> ongss action see you next week at 5:30 p.m. eastern. in the meantime "mad money" starts right now in the meantime, "mad money" starts right now my mission is simple to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere. and i promise to help you find it "mad money" starts now >> hey, i'm cramer welcome to "mad money. welcome to cramerica other people want to make friends, i'm just trying to make you some money my job is not just to entertain, but to educate, entertain, and to context call me, 1-800-cnbc, tweet me @jimcramer. we really needed that good but not great nonfarm payroll