happy friday everybody it's time for "options action. here is what we have on deck for the show >> announcer: coming up on the big show, carter worth. >> so, if i did google him what would i find >> you'd find he thinks the search giant could be breaking out. >> all birds into final bounce mode. >> if you think the twitter bird lost enough altitude mike khouw has a safer way to take wing in the near term plus. >> my friends all call me x. >> but you can call it u.s. steel and can you call him dan nathan he tells you how to mark the spot on x for the win.

time to risk less and make more. "options action" starts now. >> and let's get right to it gearing up for the busiest week of earnings season with tech heavyweights like facebook and apple on deck to report results. now up more than 33% and hitting a fresh all-time high. the chart master says there is a name in the space set to surge when it reports next week. carter worth at the plasma break it down. carter. >> it's been a mixed bag netflix was poor after the results. amazon poor. apple is good. this is one of the big supercap names left i would say this is one of the good ones rather than the poor ones one-year chart, several things i point out to get us going. you call this kind of thing up a handle people like that setup meaning you approach the high can't do it you back away but back away and make a shallower low and reproach it.

there is a lot of tension in that setup for ultimately exceeding the high but if i remove all that and go back for the regular chart what we also know exact same chart is we have now -- of course and you can see this we were in the well defined and we are now out it has -- here is the zoom we have broken out above that top. okay now hold that thought and let's bring it back in the really long-term chart and look at the all-time high where we might be headed but first the opportunity is the fact that google has underperformed the nasdaq 100 for four years think about that it's one of the biggest constituents in the nasdaq 100 and it's making relative lower lows like this for three years i think this is at an end google is likely to catch up, to break out. here are the last few charts to make the point here is the setup. here are the lines and this all-time high, right,

which was in april, is 1296, 1297 we close at 1264 a 2.5% move would get you there. and that's probably what an earnings beat or a good outcome would do, which would get you a breakout above the tops in effect for basically the past two years. >> okay. so mike, what's the trade here. >> i like google you know, i feel fairly constructive on the market here. but i will say it has had quite a run right here and even though it's reasonably priced at 20 times next year's total estimated earnings, it's trading at a valuation at about 27 times trailing, which is a little bit higher than some of the basically trough earnings we have seen even relatively recently to put in perspective look at where it traded at the end of last year at 20 times. so when you think about what the downside could provide, you think to yourself, okay, i'm constructive i'm bullish. but it's a $1,265 stock and buying 100 of that is $125,000

or thereabouts and there might be a bullish bet that would cost less and risk less money looking at the january 13, 4 call spread. call the 1,300 call spread for 3,800. sell the 14 hundreds for 9.10. basically spending $29 a share not inexpensive by options trading standards because you have each contract representing 100 shares $2,900 but consider the alternative 126,000 worth of stock or 2,900 worth of options less than 3% of the current stock price to make a bullish bet you know going into earnings. you know, that seems like it makes sense. what are the chances stock lingers right here i don't think that's going to happen so if it rallies obviously it works out to be a good trade but even if falls you'll be better off doing that. >> do you think carter has the

direction of the trade right. >> undoubtedly carter has it right. this company last year -- last quarter put up a huge number and the stock gapped up 9% didn't keep that that was a broad market dynamic if they were to put up the fundamental quality that they did last quarter, the stock breaks out what i like most about mike's trade, he allows time to happen. let's just say the stock doesn't break out right here but the numbers are good enough sells off with the broad market for any sort of reason that's the level it's going back to the next time the market rallies or next time there is good news. and you are set up there to play for the breakout i like the technical setup i suspect the fundamentals will be good and i like the way mike plays it with the 100 wide put spread to the upside. >> the fascinating thing about setups they are optically clear. you can see the well defined sizes and shapes jp margen or nike did it they others, they trap you you think you get the breakout

and sometimes it's earnings beat and guided up and it's not good enough and the stock backs away. but it's a major inflection point. the way it acted last quarter suggests something big this quarter should be up. >> last quarter is interesting also simply because when you get a bad earnings result and the stock gaps down then but then the market forgets about it over the next 90 days and into earnings that's a dangerous setup that's the exact opposite what we have here. i think that's what dan is talking about. we were getting good results from the company we believe we are getting good results from the company even if we don't this is an options trade that's going to risk relatively little >> does your outlook for the nasdaq 100 change at all with the good reaction of amazon and intel. >> here is the interesting thing. in a pairs world i would be long google and short apple

if you do comparitive charts -- we do a lot of that -- this is an ideal moment to fade one and double back and catch the other. >> dan would like that i think. >> i do like that. and i also -- let's talk maga for a quick second microsoft had good results has not broken out, stuck in the mud. google might be stuck a bit. apple gotten ahead of itself amazon not making a new high any time soon. maga is a complex and i think apple is the most important next week. >> it's the heavyweight. of course it carries outsized impact you know, the point i would make is apple has traditionally had massive cash flow and a chief valuation as a primary reason why you want to buy it one of those remains true. only one of them valuation is not so remarkably cheap anymore. trading at 20 times. that's fairly priced probably. but anything disappointing hurting this stock and hurt the market. >> all right well from big tech

to heavy metal u.s. steel forging ahead to the earnings report next thursday but looking to a way to stop the bleeding from the trade war. this was a $45 stock back in march of last year before the trump tariff fallout and cap shares but that feels like ions ago now it's barrel in the double digits. appears it gears up to test metal next week dan says the stock may have found a bottom. >> interesting you mentioned march of 2018. that's when trump put the 25% tariffs on steel imports 10% on aluminum. that was the multi-year high in letter x, the u.s. steel that day. the stock sold off 75% since then we have a -- chart since the start of 2018. if you look at this down trend it's been -- take a ruler and draw a line there. it's been bouncing off of ten a couple of times or handful of times in the last couple months. short interest at 33%. wall street analysts two buys eight holds and six sells. i look at this and say to myself they don't even have to say anything good. they just don't have say anything bad and this stock probably rallies

the other thing that got me thinking about this is mel you just mentioned cat tractor had a nice rally over the last week and a half triple m some of the industrials, fedex, not a lot of good stuff going on in those places but investors starting to discount the worst is behind them i look at letter x reports next move the implied move in the options market is 8% doesn't seem like a lot when you consider the stock is down 35% on the year. moved on average about 8% the last four quarters so to me i think it sets up as an interesting contrarian trade. looking at options market you want to give it a little time to play out if they say anything good the stock is going higher. i don't think you want to play with spreads just buy outright call looking at november expiration you got about three weeks right now, the 12 calls when the stock was 11.70 offered about 58 cents breaking breaking even at 12.58. about 7.5% from the trading level.

inside the implied move. if you get it right this thing is going much higher i think the breakdown level from earlier in the year is $15 that would be my target i don't think you want to play in weeklies. that's binary. you get the direction wrong you get the trade wrong. at least if the market breaks out decent enough news it looks like investors are looking for beta and you may find it in a name like this. >> you are looking at a name close to trough valuations here. i want to point out this is a company with relatively speaking a lot of debt on the balance sheet. it has 2.7 billion worth of debt and total about a billion. how does it translate into moves off earnings and why does it make sense to play options here? simply, the more levered the balance sheet, the more volatility the equity is when you buy options you buy options on the equity. the equity is basically levered by more than two to one here what you're really doing is basically getting a lot of convexity. that's why you want to buy call options. it may seem like a 7.5% is a lot to expect.

for a stock like this it isn't. >> what an amazing thing talking about the stock that this was the largest company in the world at one point and here it is barely a mid-cap. $2 billion general motors was the largest nothing lasts forever. u.s. steel a piker not relevant but you can still make money very speculative. it feels as though a minor base. it's asymmetrical. if you get some kind of thing you expect really give you 10% move, 12% move it doesn't at this point look as though you get that move to the downside. >> one last point. we have a five-year chart looking at the 2016 lows trading as low at $6 this is one of the reasons why you would want to define the risk to make a contrarian bet if you get this wrong and it's a all-out disaster the stock is a

hat size that's not something making sense when you are trying to take a flayer on something because there is no way to put your finger on say that's it this is it. >> and there is also like ak steel in the new core, glencore in the uk. they're -- the rate of change -- they're not making new lows. but they haven't come to life. and that might be the opportunity. >> okay. for everything "options action" check out the website. options action.cnbc.com. while there check out the newsletter in the meantime here is what's coming up. >> the bears chasing the bird this this week as shares of twitter tanks on the earnings report but if you think the social stock it flop back. there is a safe way to play it. calling all "options action" 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" sponsored by think or swim by td ameritrade

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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. ♪ welcome back to options action the bears are out for the blue bird but twitter shares taking it on the chin this week falling almost 23% after a earnings whiff if you bet it could turn and take flight mike khouw lays out a way to play it with the call to action. >> this was a disastrous week for twitter. one of the most common questions that people who give advice on options gets, is i own the stock and now it's basically punched

me in the nose, how can i make the money back obviously we can't unwind trades that have lost money but there are things you can do to recover a little bit without risking a whole lot more money if you are in twitter and you think to yourself, okay, what can i do now i'm thinking about buy more stock, the first thing i would say is don't buy more stock. likely to encounter resistance first thing is do not try to catch the falling knife. we give away to make more money. this stock is likely to encounter some upside resistance if it recovers one of the reasons carter will be happy to elaborate on is you have ready and willing sellers if you get anywhere back close to where it was before they obviously had the big gap down the whole idea here is to try to boost the gains that you're getting if it has a modest recovery, maybe even some form of dead cat bounce let's look at what happened here one of the things you might do, if you look at a one-year chart. you say, take a look, you know

back in 2008 this was obviously a weak period for the stock and market generally maybe i'm not taking the risk by buying the stock only dealing with a couple percent. but i'd encourage you to take a longer look. looking at five-year chart and we can see that other than the end of 2018 if we go back to these levels that's significant downside that's not a risk you're inclined to take what's the trade here? i was looking at december, the 32-35 one by two call spreads. buy against the calls one for 32 sell two 35s against it. you put the trade. if the stock bounces it doesn't have to get close to where it fell if it bounces you double the performance on the long stock position by $3 in this region right here you end up selling it out at 35 but the whole idea here is that if it gets back to this level -- and i don't think it will any

time soon but if it did that's where you see the big levels of resistance the idea is if you get a bounce you have an opportunity to recover some of the losses you just took without committing more capital to buying the stock which i think would be a dangerous exercise. >> dan, what do you think. >> well i'll let him speak to the 35, the level he sells the two calls makes sense. the breakdown level. the idea is that you spend 20 cents to possibly make another 2.80 if the stock is back at 35 that's how you get back in the money to the levels prior to earnings i like the trade structure i think it makes total sense i like the duration. december seems a reasonable amount of time but it would take a piece of fundamental news to change the story. i don't think that happens but you're not paying a lot to have the upside leverage if it happens. >> talk about getting punched in the face we've had this recently. as you characterize sometimes it goes the wrong way first loss, best loss one of the

great adages in markets. just take the medicine two, don't catch the falling knife. adages that are around for a reason and stock itself i just walk away take the loss and lick the wounds and move on in terms of upside, after you have a gap like that on 100 million shares, you have left so many people stranded above, that even if it were to have some upside there -- what's the definition of interest in sellers? this makes it a burden stock and there is no reason -- let's end with this now below the ipo price. i mean, this is a mess. >> yeah, talk about burden stocks, one of the things the strategy looks a little bit like if you sell a covered call against stock. this is similar in some respects to that when you do the trades like that when you think there is limited upside appear collect

premium. here the premium you look to collect a dead cat bounce but there is a situation with elevated volatility because of what happened. and there is strong resistance above the current stock price. selling some upside makes sense which is why we look at one buy two. >> had it on buy list recently. >> technical or fundamental. >> i've had -- i don't do fundamentals i've had -- this selloff was down to a level of support where you would get a pop-like reaction on a earnings in fact the exact opposite, right. punched in the face. just start. >> last word, dan. >> i think it's going lower to be frank i think they blame the disappointing earnings on some bugs the way -- i hate the excuses. i think the platform has spent it's just -- you know, i won't be trying to buy the falling knife. >> all right up next, one of the traders bets on a bond breakout gearing up for next week's big fed decision we tell how he plays a rate rout time to tweet us your burning questions at "options action" and you might get your answer on air.

live from the nasdaq don't go anywhere, much more "options action" coming up next. ♪ ♪♪ ♪♪ ♪♪

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action" time to look back at open trades. our bank bear said jp morgan might jump higher. >> we have a two-year chart of jp morgan. this thing has been routinely rejected between 119 and 120 dating back to, you know, 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. you could buy the december 120 calls for $3 when the stock traded at 117. >> well jp morgan up 11% since the call with time left on the trade. what do you do now dan. >> you roll this thing it's had a nice run over the last month traded as low as 111 earlier in the month now at 126 or so, the december 120 call is $6 in the money closed at 7.95 you know, you probably took some profits already. you could have spread this thing because it was outright call

purchase what i would do is take the gain and if you are bullish on the name you might want to think about rolling up and out and for instance the january 130 call now is offered at 2.50 that would break even on january expiration at 132 half that's how i would trade this if i remain bullish on the story. >> meanwhile back in september, khouw and carter called for a big bond bounce. >> here is the tlt, here is the trend line on the tlt. while we are not quite there, to be fair, we are getting awfully close. so the thinking is that on any incremental thing the bet something that did tlt is good for a bounce. >> what i was looking at was the november 136-144 call spread that thing was slightly in the money. >> well we are just a few days away from an important fed decision on rates. with a few weeks left in the trade, what do you do now, mike? >> well first of all if you were in this thing you did see some profits. it's actually profitable now because i think we were around 137 and change at the time

but i'm going to defer to carter's take on it right here. >> right there was a nice bounce, right and then some of that's been walked back. and this is the biggest subject in all markets, right. and it's happening globally, the bump up in rates is the beginning of a structural thing or is it just that another bump up in the ongoing slide to lower and lower rates? that's my long-term premise. i think that's the case. could we get back to that september 13th high of 19 that's where we were. okay maybe but i don't think much more. >> people had the trade on there's a good chance that some monetized already that's my guess. this piece is talking to me. but there is not a lot of decay in this trade so little harm in holding it here either. >> okay. up next, the final call. i see best-in-class platforms and education. i see award-winning service, and a trade desk full of experts,

available to answer your toughest questions. and i see it with zero commissions on online trades. i like what you're seeing. it's beautiful, isn't it? yeah. td ameritrade now offers zero commissions on online trades. ♪

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 final call carter. >> google at a key level

2.5% move get you all-time high. implied move is 4.5 on earnings. >> tough to chase markets at all-time highs just buy call spreads. january 1,300, 1,400 move. >> u.s. steel call next week >> have a great weekend. "mad money" is up next - [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,