happy friday, everybody. it's time for "options action. here is what we have on the show tonight. >> announcer: on the big show tonight. >> banking. >> banking, yes. >> that entire sector kicks off earning season next week backup but dan nathan says there is onlien one name you need to concentrate on plus -- >> have you tried staples. >> staples >> hmm, maybe you shouldn't. carter werth explains why you might want to be wary of consumer aets basic necessities. finally. mike khouw's plan to netflix and

chill. no, literally. he lays out a way to keep your cool going into earnings binge next we can. time to risk less and make more. "options action" starts now. >> let's get right to it a slough of big bank earnings on deck goldman sachs, wells fargo, report on tuesday followed by results from bank and america and morgan stanley later in the week financials up more than 17% this year underperforming the broader market one trader betting on a bounce for one name in a report let's get into the money right now and dan what are you looking at. >> regular viewers of the network probably know i'm not constructive on bank stocks here i do not like the way the investment banks act i don't like the way some of the money centers act but i like the way jp morgan acted if you have to buy a bank buy jp morgan on dips but here is the two-year chart on jp manageren. this is routinely remoted between 119 and 10 dating back to early 2018.

and it's having obviously some trouble there. that being said it's the only major bank on the planet making a new high since the financial crisis and it's obviously best of breed. when you think about what's going on this week we had a chance where maybe we see the yield curve steepen a little bit. maybe we see some of the economic data changing a little bit. or maybe at least sentiment as it relates to trade deal maybe the brexit situation got better if all that stuff interests you and you think about jp morgan and the giepd are guidance they give when they report october 15th before the opening appear say maybe they have the opportunity to give better guidance than maybe what downbeat investors are thinking this is a name you may want to set up to own with defined risk over the next couple months process this is implied volatility price of ogss reasonable, well below or in linish with the one-year average as far as option prices are concerned. and i think that, yeah, focus on earnings, you know, the implied move about $3.60 you know, that's about a little more than the stock has moved

the last four quarters not an earnings trade. i would look out to december expiration if you want long exposure you want to define your risk, you look at that 120 level that is the level, the big he can it technical willful i'll let carter speak to to i don't know if he agrees process. but if all that happens and rally at the end of the year you want to own long exposure in jp morgan buy the december 120 calls for $3 when it was trading at 117 about 2% of the stock price for break even, up about 4.5, 5% from currently levels. to me i like the risk reward but you have to be set or have the mindset that this is going to lead financials higher it's going with the market if we get a breakout and you're going to have a meaningful move from the 120 level. so, you know, defining risk for 2.5% of the stock rice. >> do you like the trade. >> i do a couple of reasons. first i would say look back a year where jp morgan started at the beginning of december 2018 and what followed. okay we saw about a 20 point decline

from 112, 113 to the low 90s you look at near 20% decline in the course of less than a month. here we have a situation where the stock is essentially he at the same place as last december 2018 obviously some good news today this is not hugely expensive stock on a tangible book basis one could argue it is. but relative to itself it isn't you are risking less than 3% of the current stock price to make a bullish bet. here is what we observed the last couple weeks. that is that options prices have been very fair if you are making directional bets, whether upside or downside, pgs ohs have not been massively overpriced i've been more active in my day to day trading lately using long options than i have been in the a long time. we like to do credit spreads and things where you collect premium when we can. but this is a situation where the options are cheap enough if urine cliend for a directional bet keep it simple. >> it's an important technical level as dan cited and yet it's been rejected

there. this is now a repeated thing also it also broke out slightly two months ago appear made all-time high and then reverse pif ofted and collapsed. so it's not quite the technical that for instance we looked at apple. that's a different circumstance. at least by my work. the issue is this. if rates really go higher that's not a rate sensitive bank. yes it goes higher if that happens. but there are other banks more sensitive to a spike in rates. either way it's a christ of picking best in class which is what you are doing or double back and pick worst in class like wells fargo and say i want that for a catch up either technique is reasonable. >> i would say this is that obviously rates finding near-term bottom 1.5 a treasure yes yield 10 yeerp and here we are 20 bps higher that caused this group to catch a bid. obviously with he know that banks are the life blood of the economy. all this is coming together i'm not saying it's coming together but you want to own this and define risk.

trading between 105 and 120 that's a big range but that's why you define the risk. >> from the big banks to the surging staples, the xlp etf track the thing the space up more 20% as defendant he was stocks play offense. heading into the end of the year there are signs the consumer trade is starting to crumble carter head over to the plasma hand show us. >> well, there are -- a lot going on we know this is the ultimate safe to trade with utilities and utilities plishtd something only three times murdered this week staples also equally extended. the bet here is that these two are about to give way. so the sector overall, not that big in the s&p at 8% 33 stocks just to go through the sort of particulars at 2.2 trillion the top five really dominate i mean, names households names you see them all he here 16% for proctor that's the big one. but 11, 10, 9, 5 adds up to 36%.

a third is just in a handful of names. let's look at actual etf this is the xlp, kfrpts the entire secretary are and here is on the bottom relative performance to the s&p 500. and what jumps out to me is the following, that we have been in a perfect uptrend. and yet if i draw lines here when we made the new high here we did not make a relative high. a so you have something of a tubl tp. that's a negative circumstance i think you get the divergence to suggest this is finally breaking trend and ultimately give back a lot of ground. here it is in its entirety and very precise, which is so often the case but notice we're compressing, not quite getting the bounce that often gives way to that it has a bit of a stall. let's look at a few other

iterations and go from there this is going back to 2014 and this is that circumstance over the past 12 months. again, steep uncorrected a few other ways to look at it so, think about how orderly this has been this is the exact same chart look at the advance decline, advance decline dp a up leg 33 giving back 14 gichg back 7 give back 14 up 30, well, it's like paint by color, yeah. if you color the schematic directional move is i said i want to fade xlp making the bet its run at an end. >> carter come back over mike give men what carter said what's the trade. >> we were talking about it before options are relatively fairly priced here. some of the constituents of xlp as an etf it's leading proctor and gambleable are not fairly priced stock trading 30 times earning with no revenue growth what so far. there are better places to be

long equities in the market than stocks like that the thing i point out is because staples are typically not volatile, move in orderly fashion, rather than just buying at the money puts we can use a put spread here cut back on cost a little bit ifts pvc spisk he cannily oak at january the 61 streit. you can buy the 56s against it for 5 a cents. net-net you spent $1.25 fore at $5 spread. and look at the level we look at here on that short put, the 56 strike the last time xlp was close to that level was the tail end much may. so we look at a period going back half a year this expires in three month time really what with we're talk bag is not just the direction but and also mitigating cost but also how much magnitude do wenk we think we can get in the amount of time we have now and the expiration of trade? that would represent a near 10%

decline. 7 to 10 i think is as much as we could expect in the amount of time we give for this. >> i think you put this together nicely carter chart shows you every month for you noontimes you get the pull back in the space every time we are a little higher like we are now from the prior high before the other pull back the group gets more expensive because we are not seeing earnings growth but we see the price appreciate the fact that mike that is a $5 put spread gichg him three months that a little bit in the money and costs more than a 1. that's a great risk reward i don't see any much the names like proctor that make a good bit of in etf just having some idiosyncratic move to the upside and dragging the group up. i like the technical setup and the put spread. >> when you go through the chart and xlp it reminded me of the cha earlier on the utilities same pattern. >> same behavioral element money clustering into a very defensive thing. because of a high fear of

headlines like good or bad that might be coming. but i would also point out proctor is the big weight which you saw at 16% color ox abchurch and dwight, colgate, all starting to roll. if proctor rolls the secretary are rolls. >> the to big story of the day president trump says the u.s. struck a very substantial phase one trade deal with china. here is what we know a tariff increase will not go into effect on tuesday huawei will be dealt with separately and the deal is not written agreed upon in principle we goat new information out of the white house at the hour. our eamon javers asked about the trade agreement of president trump moments ago. >> the farmers -- it's going to be $50 billion worth of purchase the most they've ever done was 16 so the farmers the in iowa, nebraska and all the other great states that i love and that obviously like me a lot too -- they're going to have to buy more land fast and big are

tractors >> what's interesting is eamon also asked what was the most important things out of the agreement appear phase one and trump highlighteding a purchases again which was never a centerpiece. >> to be frank he put the tariffs in place and took in the tens of billions of dollars and then they took them in at the farmer's behest and basically had to turn around and give the money back to the farmers in aid. i think they've given out 128 28 billion in aid is it good but they are buying the stuff before the tariffs at the end of the day, it's not bad news okay but this was all kind of self-inflicted and we really need to get that ip stuff to make it all worthwhile that's the most important things. >> we have much morp ahead on "options action. here is what's coming up next. >> announcer: streaming wars kicking into high gear as netflix prepares to report earnings next week and mike khouw is laying out a way to make money if the stock goes up or down. we have seen stranger things before plus, calling all "options

action" fans, reach into your pocket, grab your phone, and tweet us your question at "options action. r. it's nice, we'll answer it on aiwhen "options action" returns. ♪ >> announcer: "options action" is sponsored by think or swim by td ameritrade. ♪ ♪ ♪

the most important meal of the i day i'm teeing up my take on the

golf stocks. golf stocks. "mad money" is next.ve any of t. 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. now offering zero co online trades. we charge you less so you have more to invest. ♪ welcome back to pgss action. doept look now netflix up 5% since monday but the streaming giant is far from out of the woods. last quarter a disaster for netflix as investors started to sweat over whether they keep up with competition but if you think netflix could flip the script next week mike khouw has a way to play it on the cheap. state your name left at the plays with the call to action. >> now we talk about why we

would buy a calendar put spread. one of the things i would do is maybe omit the put part. because when you buy a calendar spread what you are essentially betting and see the move is not going to be that big right now, the pgs ohs market is implying a move of 10% or more by the end of the week after they report earnings, considerably higher than the 5.6% or so they averaged in the seven quarters up to the last. all because of the last one where they fell out of bed by 10% on disappointing results a lot of the things true about netflix then are true now. they have more competition although it seems like they can co-exist with the disneys of the world, apple tvs of the world. they continue to see significant cash burn. still i'm thinking that this is a situation where maybe a miss results we're not getting the disappointment we did before we can see the distress the stock had since the peak this area right here represents

basically an opportunity i think. maybe this could basically be the washout. oef here is what we are looking at, this is the last earnings result i don't think we are seeing something quite that big this time how do you put the trade on. >> very simply i was looking october january 280 put spread like i said this doesn't have to be puts. if you traded the 290 call spread it would work out the same way the idea is the sell the nearer dated option in this case the 280 puts expiring in october for $12.5. buying january 21 mt. 50 $900 a share a contract if the stock does one of these things, the idea is put this put expiresth worthless i still own that not declined by as much and limiting risk to the premium i'm spending even though this looks like an outright bearish trade, what it really is is is a trade betting the move is less than 10%. when you see the very high

implied moves and you think that some of the bad news might be baked into the cake, this is the way you want to make that trade. >> yeah, certainly seems like something that might be baked into the cake already given the performance. >> ant stock found a bottom recently i think a lot of the chtd headwinds have been become well-known and a lot of the competitors had good nounsment prior to that it was all netflix. at the end of the day i think the likelihood of them seeing the north american decline that caused 10% drop and then subsequent decline two months is not likely i think mike's trade isolating a less than expected move makes sense here that being said, if they guide down and miss north american subs gwen that stock is going back to december lows. that simple. >> carter what do you think? >> of all the sort of marquis supercap names that are so prominent, this is the worst performing one in the summer i mean you are talking about dropping from 35% from its july peak, 380 to 250

this little bounce in a way i think it removes some of the potential for further bounce so i'm inclined to bet against it and bet that because you had the earnings gap and drop last time you get a second one. >> yeah, this is one of the marquis names with a big drawdown because unlike some of the others have a efrom a valuation perspective it was certainly basically ahead of the race highest on price to earnings it's the one where a lot of other marquis names didn't have negative cash flow this one does. it seems to continue to pile up. and there are questions also about the business model we are talking about here the content costs are high and whether or not you slap the same kinds of valueses on that type of business that you do on the other portions of the which is still remains in considerable question but it has had the discount there is bad news base baked in we limit the richk and the options market is baking in the 10% move if we get the 10% move it's a scratch. >> nike sprinting to new

all-time highs but the sports wear giant might be about to trip up. our traders tell you why "options action" right after this ♪ >> announcer: "options action" sponsored by think or swim by td ameritrade ♪♪ ♪♪

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♪ welcome back to "options action." time to look back at open trade. back in september mike said nike might be running towards a spell on the bench we thought we would roll the instant replay and take a look back. >> on "options action" it's how we just do tp risk less so you can make more. and that's what mike did with the bearish trade on nike. mike thought nike shares would get tripped up heading into earnings. >> the stock is basically right there just under the all-time highs. we're going into earnings three things can happen. can either break out to new highs sit essentially here and struggle to make it anywhere or could potentially go lower. >> hmm mike thought.

let's do it. i'll put on a short dated put calendar spread. here is how it works >> all right >> let's play a little ball here. >> mike sold the september 27 weekly 87.5 put for $2.10. then mike bought the october weekly 87.5 put for $2.5 a that gave mike a 45 cent debit now the main idea was that if earnings turned out a non-event, mike would own the longer dated put options at a very low price. >> hey oh. >> but nike earnings were indeed an event the company beating expectations and the stock jumping more than 5% in after hours trading on the news topping its previous all-time high of $90. with the first leg of the trade expires expiring in the green, what's mike's next play. >> this trade actually was a double on wednesday after

earnings and so some of you may have taken it off the put we still own is actually worth slightly more than we put the spread on for initially. i kind of feel like it's peaked out here i'm inclined to put on a vertical put spread out a little further. >> so did mike end up bouncing out of nike? let's find out now. >> let's find out mike what are you doing with nike. >> it was interesting when we were taking the initial look back on friday the following monday you could actually have sold just that outright put at profit we sent out a tweet at that time if you don't follow us on twitter you oobt absolutely should to take the profits then because it definitely looked like nike -- that was it it was off to the races and i didn't want to initiate a new bearish bet there. >> this is the same setup that is apple and provocative jp morgan debit stock at well defined tops at common level. the more you coil it highs the more tension there is to ultimately exceed the highs. nic obroke out and the way is higher >> what do you think, dan.

>> i think his analogy to yp morgan and apple are perfect and the play with jp morgan is simple breaks out, holds the breakout establishes that new range the fact that nike has not broken 90 to the downside since the breakout tells us us that that's the stop to you are long that thing from here on out and you should be comfortable with the level but not below it. >> yeah. >> that's especially true given how the market behaved since the earnings it was not all rosy like today for sfwlur up ne, naxtfil call from the options bids. >> "options action" sponsored by think or swim by td ameritrade ♪ ♪

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what do you look for when i want free access to research. yep, td ameritrade's got that. free access to every platform. mhm, yeah, that too. i don't want any trade minimums. yeah, i totally agree, they don't have any of those. i want to know what i'm paying upfront. yes, absolutely. do you just say yes to everything? hm. well i say no to kale. mm. yeah, they say if you blanch it it's better, but that seems like a lot of work. now offering zero commissions on online trades. we charge you less so you have more to invest. ♪ time for the final call carter braxton werth. >> s&p fiefd consumer staple sectors come a long way. use xlp to hedge or go short >> mike khouw. >> the xlk, the the stocks and etf tow pensive i'm using put spreads there.

>> dan nagten. >> just on the jp morgan did not close well you may have a better opportunity to buy calls on that but if you want to be constructive on banks stick with jp morgan define the risk. >> that does it for "options action." in the meantime, don't go anywhere "mad money" with jim cramer starts right now. my mission is simple, to make 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 call me or tweet me at jim cramer what's the fine print.