♪ thank you sofi. sofi thank you, we love you. ♪ happy friday, everybody. it's time for "options action. here's who we have tonight on the show coming up on the big show tonight. controversy after a report about a big bet from the world's biggest hedge fund dan nathan outlines how to play it from home. then -- >> the energy. >> carter worth is looking at one stock from that sector that could be coming back from the dead plus -- >> ahhhhh! >> if you thought that was a crushing scene, you should have seen what happened at the tesla cyber truck debut.

mike khouw has a strategy to capitalize on the sinking feeling. risk less and make more. "options action" starts now. we kick things off tonight with a headline that rocked wall street the journal reporting the largest hedge fund fed more of a billion dollars. ray dalio founder of bridgewater associates says that's not the case dalio fired back saying to convey us as having a bearish view of the stock would be misleading the whole back and forth is thinking if you're betting on the pull back, what's the best way to play it right now. dan has some ideas let's get in the money, dan. >> it depends on time horizon. whether it's true or not, bridgewater is engaged in trading all the time around a lot of their positions hedging, directional, who knows what the heck it is. when you think about a headline like that that a lot of traders and investors were talking about, it gets me thinking about let's look at the pricing of options a little bit

with the stock market teetering at all-time highs, it's up 19% we have a little more than 1 month left in the year there's a chart of implied volatility that tracks the s&p 500 and you see that it's trading near one year lows that's the price of options right there. if you look at the spikes over the last year, i think that viewers of this show will also kind of understand that those spikes correspond with declines in the s&p and the value of the index and so, you know, i don't know what's going to happen between now and the end of the year things seem pretty constructive. it seems like the trade war is off the headlines for now but who knows. i mean, the market is not reacting too negatively to that thing. we know there's a november 15th tariff deadline. who knows what's going to happen we've made a series of higher lows if you see that i think i used the line there of that up trend that carter may like i used the 150 day moving

average. isn't that your number >> yes. >> if you look at that, that's your up trend. the way i'm thinking about this, if you enjoyed nice gains in the stock market this year but you also have the memory of the q4 decline last year and you're saying to yourself, how can i protect my portfolio, how can i profit from an unexpected decline in the s&p 500 between now and year end, you can look out to december 31st expiration options here they call them the quarterlies here with the ftf trading at 310, you can buy the 310, 295 put spread, $3 for the put spread. your max cost is 3 bucks that's the underlying price for the next five weeks. break even down at 3.07 and you can make between 3.07 and 2.95

it corresponds with the up trend and the way i think about it, that's pretty cheap protection it's about 1% of the etf price for the next five weeks. if that headline today got you thinking about how do i protect the portfolio or things are too complacent, that's the way you do it. >> there's two things i would say about the trade. first of all, i think it obviously is a fairly attractive level to get in. we obviously are very close to the all-time highs right here. if you're coming in monday, thinking when do i want to hedge, from a tactical point of view, hedging should be tactical you're paying an insurance premium. much like you pay the insurance premium on your car, you're hoping it never pays off here you're kind of hoping it will not pay off how much will it pay you you're spending 1% if the market declines it can be as much as 5%. if you think about it this way, let's say we have a 7% decline by the end of december

what has happened is you have saved yourself 4% of that 7% decline. so most of it. obviously, if you have a really big washout like we saw in q4 of last year, this isn't really what you're looking for. you'd look for a wider spread, something out of the money with a bigger sort of payoff. premiums are low the market has been pretty unabashedly bullish. it's not a bad time, i would think. i by the way am long put spreads in december. i am long put spreads in january as well on both the s&p and the nasdaq. >> how does the chart look given seasonality which should be positive going to the end of the year >> if you look at it, 1928 to present, 4.5% is the average gain we're already at 5, right? we have a month to go. does that mean that we should rest maybe we're up 7 independent of that what we do know is the condition is fairly steep and uncorrected. s&p up 7 weeks in a row and this week it was down apple was up eight weeks in a row and it's down.

this week it's down three weeks in a row it's from a hugely over bought circumstance that you either rest or you sell off meaning you resolve too far too fast condition by time or price so you either get it back in fill, time, or you give back but either of those seem likely which is a third scenario keep on ticking higher. 10 weeks in a row, 15 weeks in a row, it doesn't work like that. >> mike makes a good point a, you don't want to be tactical you don't want to pay 1% every few weeks to insure your portfolio. if you think you'll have the garden variety selloff which have been 6 or 7%, then you want to use a spread. if you thought we were going much lower, you would not sell the down side put. buying the 3.10 put, that's 1.5% that's not that big of a deal. for me selling the down side put at a level where there's good technical support, you're basically going to offset some decay you would have.

moving on, energy may be getting a bump still a rough year for the space. energy is the worst performing sector in 2019 it is only up around 5%. it is the only sector in putter tori carter has been drilling down. why don't you head over to the plasma and tell us what it is. >> you bet all of those things melissa said, this is an unmitigated disaster everybody knows it energy is down to the right day after day, hour after hour, month after month, yet there's a bit of developmental interaction and one of them is con know could -- conoco i think the following lines which are by me sell the case. now when you have a down trend like this, and you fail at the line, fail at the line, fail at the line, then if you're able to actually push above but fail again but hold and then start to pivot back above the line, that

sequence suggests that we're in the process of putting in an important bottom let's look at another chart. is it a head and shoulders bottom it has all the look and feel of this kind of thing with the prospects of something very important if we press a little higher let's put them both together there's your head and shoulders. it all suggests this kind of action good week this week as well. one or two more. now you can draw the lines that way meaning we're working into the point where something's going to give. i think that something is going to be up not down and then finally this here's the same conoco chart that we looked at over and over and over and here's the relative performance to the energy sector what you see is this is we have this prior high and we've yet to exceed it. we're still a little bit below that look at the relative high. we just made a new relative high this week that's very, very important. that is -- well, i like it a

lot. conoco. >> mike, what's the trade? >> this is an interesting situation. obviously we're talking about the market being very close to its all-time highs energy in a very different place for sure of course, lurking around the corner if you're thinking about investing in the space is the biggest issuance that has ever taken place which is the aramco deal although that looks like it's going to be more local. to me that's one of the reasons why you might not see the top get blown off of this necessarily. but this does seem to have found a little bit of a base here. so the trade i was looking at is not one we talk about a lot, but it has some characteristics i like specifically i was looking at the january 60 december 62 diagonal call spread by the january call at 2.65 earlier today and sell the december 62s against it for $1 net-net you're spending $1.65. at the time i looked at it the stock was trading $60.40

it was slightly in the money if we come in where we printed on the last today, which was just under 60. this thing will cost you a little bit less. here's how this thing works. the decay on the option is funding the purchase of the longer dated one unlike doing a straight calendar spread, however, we are spending less than the distance between the strikes, this is a trade that will be profitable no matter how high the stock goes up it will also be profitable if the stock just simply stays right here because that near dated option is going to decay completely and you'll still own the longer dated one the only risk is if the bottom fell out of the stock, then you could lose all of the premium that you spent the nice thing about that is another way to get similar characteristics is do a buy right. buy and sell more. you're taking more risk. >> i never argue with carter's charts obviously that looks like a nice botany process the stock is still down on the

year what i think the marrying your technical setup and your trade makes a lot of sense because you could see energy outperform in the new year it might muddle along a little bit. make up a little bit more progress mike being long january in the money near the money call but selling out of the money premium to help finance maybe a late year rally or into the new year i think makes a lot of sense energy is the left for dead sort of thing you may see the dogs in the dow sort of situation. >> crude is held up essentially, right? it's not gone up it's hanging in there. long term we now know that the sector is 4.2% of the s&p. at the absolute low in 99 when cisco is worth more than any other in the world and energy is at 4.5, we are below the level you're not talking about a sector, two stocks, exxon and chevron at 40% of the sector weight and the sector is only 4.2% of the s&p. it wouldn't take a lot to move it because people have abandoned

it. >> only three things can happen to conoco and the expiration it can go higher, which it is profitable in which case it's profit annual it can stay here, which it is profitable it can go down and you lose a little. >> for everything "options action" check out our website, "options action" doptionsactio m optionsaction.cnbc.com tesla's new truck. if you are betting on a rockier road ahead, mike khouw is laying out a bullet proof way to play the stock. plus, calling all "options action"s fans. reach into your pocket, pull out your phone and tweet us your question at "options action. if it's nice, wel sw'laner it on air when "options action" returns. ♪

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focus on what matters to you with thinkorswim. ♪ oh, my [ bleep ] god well, maybe that was a little too hard. >> welcome back to "options action." what you just saw pretty much sums up how tesla's cyber reveal went it didn't shatter the expectations but it put a couple of cracks into the hype. it won't be ready until late 2021 according to ceo elon musk. they're voicing their opinions on the angular auto. it's a big rally to a screeching halt if you're looking for a way to play the stock now that the big reveal is out of the way, lucky you, mike is over there with his call to action >> taking a look at selling a call spread on tesla why would we be looking at a

chart like this. tesla as it currently is priced is fairly fully valued net up today is declined we should be drawing instead of putting a circle $70 billion enterprise the second thing is i don't need to tell everybody who saw the big reveal but it was a little bit of a mixed bag, shall we say. the styling isn't for everybody and obviously the windows might need to be replaced under warranty finally, if you are going to lean against tesla shares, it's a dangerous stock to short anyone who has tried to knows that exceptionally well. the reason the pickup reveal is important is because it is an immensely short market they're very high margin vehicles and that's important for tesla because they need something where they can actually start to make some money and sell a lot of them it is an important segment for them because electric drive

trains which have disadvantages related to battery weight but are disadvantaged in every other respect are well suited to that segment. let's take a quick peek over here we can see obviously the stock came very, very close to approaching those highs that we saw back here. the take private at 420 week that we got. we have a near-term top in here. i will point out, by the way, that this is a trade that we're going to be talking about here i was looking at december. you could sell the 350 call, collect $14.40 for those and then hedge your up side in case in some way you got another tweet that got the stock going markedly higher for $11.10 net-net you're collecting $3.30 for a spread that could be worth as much as 10. 30% between the distance the stock is well below that to lose money it would need to rise if it stays here, even if it goes up marginally or goes

lower, this is a trade that will be profitable. i actually was short the -- and am still the 365 call and i'm long some higher points because i came in short call spreads going into last night's announcement this is a situation where if tesla did everything right, they could make money you could make $20,000 a truck you could sell 300 trucks per year that's 10% of the trucks per year that would justify it. you're talking about 12.5 times ebitda if you got there. we're not going to see that happen probably based on what we saw last night. >> what do you think of dan's trade? >> at one point it was down 50% on the year and now it's rallied 80 some percent. came in a little bit today what does that mean? all that volatility means pumped up options prices. what's mike trying to do trying to wait for it to go sideways or a little lower i think it makes a lot of sense. i like the risk/reward and

taking in 1/3 of the width of the spread a lot of this we will digest the news over the next couple of months. >> the word moon shot comes to mind tesla's low was june 3rd you talk about going from 175 to 380, more than a double. stocks that go too far too fast give back whether it's the news of a broken window or not, at some point, the point is now, it's time to do something. that's the point of this trade. >> i will say there were a lot of innovative characteristics of this -- >> you like this -- you like this truck. >> i ordered one i ordered one. i think we know some other people, maybe your household ordered one, too this is -- look, i love what elon musk is doing i love their products. that doesn't mean i have to love the stock. i actually want to see this company succeed. i want to see them sell some trucks this is an important thing for everybody to see happen. but that doesn't mean the stock has to go to 400. up next, target soaring after the retail giant hit the

bull's eye plus, it is friday you know what that means tweet us your burning questions @"options action" and you might get your queioonstn the air. much more "options action" up next ♪ ♪ ♪ ♪

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♪ ♪ ♪ welcome back to "options action." time to take a look back at a couple of our open trades. just last week dave bet on target >> look at that five-year base that it broke out of i suspect that that level in the mid '80s is going to be significant technical support for a while but my trade thinking about next week's earnings in particular is listen they are not going to be able to guide up the way they did in august they set investor's expectations you can buy the december 110 put paying $2.50 for that. >> target is up 12% after smashing expectations and

raising guidance how do you manage the trade? >> it's flat out wrong on direction. flat out wrong on fundamentals this is a company that's executing well if you think of two consecutive quarters like they had where the stock was up 20% the next day and to be able to do it again a quarter later, it's pretty astounding i think what's really important to remember is that this trade idea was targeting a $10 move lower. it costs $2.50 that's why when you're trying to be contrarian, especially be directional on the short side it makes a whole heck of a lot of sense to define one's risk that is the only silver lining i can say about a bad call like this. >> yeah, you said it just like that sometimes you just get it wrong. we have thuds all of us. professionally, personally the thing is it would happen in a week where consumer discretion was so bad it was down big hits in home depot. walmart had a great number and couldn't advance and here comes target >> speaking of consumer

discretionary, two weeks back carter and mike khouw said it might take a dip. >> we have consistently come to life off this line now and we have broken below that relative line i think what's going to happen is we break on an absolute basis as well. >> i was looking at the january, the 121-113 put spread you can buy the higher strike put for $3, sell the lower for 1. >> the xly is closing in on the break-even level what do you do >> this goes to what dan was talking about with his put spread why do you sell it it can mitigate it that's exactly what has happened here right now as of the close the higher strike puts 250 the lower strike one is 60 cents. what does that tell you? this thing hasn't really decayed. we've had option aality.

the real question is do we stay in that protective posture >> i think we do the fact that it was able to go down even with a big name like carter's supports the premise that something is not right. up next, we've got your tweets and the final call. this piece is talking to me. yeah? so what do you see? i see an unbelievable opportunity. 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 welcome back to "options action." time to take some of your tweets our first one asks thoughts on halliburton. carl, what do you think? >> much like conoco, the recent development is developmental it's peaked at 75 bucks. it hit $16 here in early august, this past summer and starting to curl up. i would take a shot on the long side. >> do you agree, mike? >> i would i own the stock. unfortunately from much higher levels i'm kind of reminded of 2001 space sodyssey. >> time for final call. >> the best thing if you want to

be contrarian is to do a little bit of energy, halliburton and conoco. >> sell call spreads in tesla. >> sam >> i'm with -- >> paper over to read it "d prd.e spot the sea >>mamoney" 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 a west coast cramerica takeover over people want to make friends, i'm just trying to make you some money my job is not just to entertain you, but to educate and teach you, call me at