welcome to a special edition of options action. i am brian sullivan in for melissa tonight. dislocation in the marketplace, whether it's old hat or new to options. if you're new with us here you're looking for smart and substantive insight. we'll do our best to provide that with us is mike and tony our collective mission tonight, gentlemen, if you are ready to strip atwai sound and the fury,

the names and of course the blame we're going to explain the way it happened and how to proceed tremendous here. i know each of you have very specific thoughts, so mike, i'm just going to throw it up there. a big old fat softball team my friend, what do you make of this week because options were a -- single week options were a big part of this story >> yeah, they certainly were this week was certainly extraordinary on a couple of fronts one of the things we definitely saw was extraordinary options volumes. some of these most volatile stocks that we haven't mentioned yet but are on the tip of everybody's tupgs, names like game stop, macy's, fossil, nokia, blackberry. all these stocks that had some short interest, suddenly we saw a big uptick in interest what we saw was a lot of people buying the stocks and a lot of

people buying the options. they traded well over a million contracts a day. for those who are new, each options contract typically represents 100 shares. so that would be 100 million worth of shares trading a day. whenever you have a lot of buyers, retail, institutional, someone staying at home and click trading from their basement, it could be a hedge fund but when they buy call options they're buying them from a market maker the market maker has to buy stock to hedge you're going to see volume build on itself in this way. the higher itgoes, the more they have to buy to hedge their positions. so -- >> that's a huge part of the story, is it not >> tony, i mean -- >> yes, it is, absolutely. >> yeah, you look out and i know our friend larry mcdonald posted this out and said there was, i

think some of these game stop options were so out of the money that they're looking for basically an $800 price on the equity to get to where these calls were bought. people are placing just some incredible bets on gme >> yeah, brian as you sewed, we have to admit that these traders exploited a mechanism of the market, which is that the fact that market makers continue to buy that. this is caused a leveraged feedback loop and caused this crazy amount of volatility we're seeing in the markets, some of which we can debate for hours whether this is good for the market i think we need to take a step back if you spend any time here on wall street bets, there's a lot of anger behind this a lot of it stems from the rising inequality we see that

continues to grow since the financial crisis and the pandemic hasn't made it any worse. i think it's important that we look at not only treating the symptoms but the cause as well at least from our perspective, we want to make sure that we have a stable capital market here there are a few things i think we need to discuss regarding our capital markets. should we be enhancing our clearer and market services so they're not choosing between going under and potentially restricting trading for their clients, which is not something that we want to see. also, just this feedback move that we're talking about that comes with the gamma risk. perhaps option volatility models need to be updated like we did in 1987 after the crash. i'm proud to be a part of this shao that has been advocating to take advantage of opportunities here in the market and being able to do so with limited risk, that's a big part of what we do here on the show, but we also

have to take a step back and look at what are we doing to ensure a safe market for all participants and take a look at how we can reverse a quarter here >> i'm not going to ask you to make any assumptions but a brokerage in a clearing house, when you've got one of those, limiting purchases to one share for a number of hotly traded or even big-name stocks like amd, does that tell you something bigger about what's going on, the situation as it is now? >> sure. it says a lot about trying to manage the risk of this kind of hyper activity just before we look at two charts -- and i think they're worth while -- it's important to say there's be this thought there's smart money on wall street and that's for a few select individuals or funds that's a good thing

if we knee 90% have underperformed the ib decks in the last 15 years, that last year for the fifth year in a row more closures than launches. the retail investor is smart his own way. it's not randomly picked consumer names, amc, game stop, bed bath & beyond. let's look at two charts that are important. this is the goldman sachs most shorted index. you can see the range it was trading in before it plunged before the papdic. to put that plunge in perspective, it dropped to 51% where the s&p only dropped 35. the ricochet back is such an incredible instance of ecovery the market from it's s&p is up 70%. this is up 3306789 most shorting is done at the institutional

level. not a retail phenomenon. it's not just this recent period shorts have been getting murdered, which is to say retail has been performing, in many ways, better the second chart, and this is remarkable, this is that same index, the goldman sachs most shorted index juxtaposed against spider, retail etf, xrt. they're a direct overplay. it means you can't even capture this kind of thing by trading xrt. >> like comey, that's a heck of a chart. lot of correlation there but what might it tell you and tell us >> yeah. so, you know, ice kind of interesting. i have think carter actually touched on this. i think a lot of this has been positioned ed as big money aga small money. if you look at the holdings of some of these stocks, there were

a lot of big firms that were on the long side. there were a lot of big market making firms that held shares, so obviously as the chance to borrow rose, they were beneficiaries of this. it isn't really retail against hedge funds. it's much more longs versus shorts and shorting stocks is a difficult stock for two primary reasons. one, over the course of time generally speaking stocks will rise the other reason, and we definitely witnessed that over the course of the last two weeks, that if you buy a stock, your risks are known if you buy a stock for a hundred dollars, you can lose it at a hundred dollars. when we saw that game stop go to $500 if you had shorted at 100, you lost more. you lost four times that amount. so i think one of the things that this demonstrates and one

of the things we definitely have seen that retail participants, that you're seeing a situation it's almost up conceivable to me in the 1990s that retail market participants might have been considering looking at potential stock for a short squeeze, and the reason is, number one, you would need to identify stocks that had that possibility, and number two, of course, the rest of the market needs to sort of come around to your point of view, with the ability to communicate, with the ability to essentially, we'll call it collaboration, if you will, but for small investors to group together and become an institution, that's what i think is a little unique here. but the dynamics we saw. so short squeeze rz not new. trading restrictions are not new. restrictions on access to margin are not new. limiting trading to closing only all of us who have been in the business for more than 20 years have seen this, this happens all the time

what's new, i think, is the retail participants in all of this i think that's a good thing. obviously, i think hopefully their education iskeeping up with their activity in the market >> well, we did have a little bit in the late 90s. not quite the same thing but the yahoo message boards and trading commissions were coming down but your point, nobody can blame these guys, nobody will go after a wounded helping fund more than other hedge funds. they're doing what wall street has done to itself for a hundred years. a little blood in the water. bears having some problems oh, lehman brothers over here? bill akman, let's go get them. check out our website. while you're there, sign up forecaster newsletter. in the meantime, here's what's coming up next >> speculation aside, there is still investment work to be done we're still in the thick of earnings season, with big tech

names on deck. we'll get you prepared plus, calling all options action fans reach into your pocket, grab your phone and tweet us your question@optionsaction ♪ ♪ ♪ ♪

♪ ♪ ♪ ♪ ♪ all right. welcome back while we spent the first part of the show dissecting some of the speculative action, there's still some investment work to be done probably why you're here still in the middle of earnings season with big names about to

report numbers next week, a little delivery company called amazon among them. what should we be watching for with amazon. >> it is really the same setup as we saw for apple and microsoft, meaning great winners off the march low but then stalled in september, underperformed that have largely come back to life and are holding up better than the market the first chart is a simple one-year-plus chart with a 150-day moving average what we know is that amazon's performance off the march low, up to its september peak that's double the bargain. when you get ahead of yourself like that, you need to rest. a little too much -- too far taos expenditure of energy the past months has been the textbook instance of resting from the september 2nd peak,

same day apple peaked before it pushed higher this week, apple's down almost 10%. 1300 base points of underperformance in a marquee name look at the exact same chart i've drawn the lines, so to speak. this is what my eye sees we're working into the apex. whether you call it a wedge or a triangle, it doesn't matter. it typically maps. buyers and sellers are matched off before something occurs. many would say yeah, it's going to break out that's not my bet. i think it's going to break out to the up side this is a two pam chart. amazon on the top. now you're looking at on the bottom relative performance to the xrt. in many ways, the most shorted basket, as you say, lays over with the goldman sachs basket identically. since, let's say, the stall period, right, when amazon has

rested, down nine, 10% since november 2ened the xrt is up 72 the relative performance line which has gone straight down is right on trend and we think it bounces right here amazon long into earnings. >> amazon long into earnings mike ko, would you agree with that is there an options trade here what do you make of his analysis >> there's a couple of things. number one, do we think there's still potential up side in a company as large as amazon that's the first question. secondly, is there an options trade. one might hope so, given how much each share of stock might cost we've got earnings coming up typically over the last eight quarters this stock has moved higher or lower over the couple of days. right now the options market is implying a move of about 6.6%, higher or lower by the end of

next week when they report that's a larger than average move maybe we can take the price of elevated stock price let's take a look. their growth merchandise value, let's talk about it and think about how much in there actions they're going to do. right now, the forecast is that they're going to do about 900 billion by the end of 2024, 2025 so doubling that number. what else? we've got aws, their cloud services business. that's probably around that same time going to be doing a hundred billion in revenue a fairly astonishing number, about 13.5% of global merchandise value in teshls of sale in just four years. so that's quite remarkable i think it is safe to say that amazon sog going to continue to grow they're pushing into pharmacy. the thing is if you're going to buy a single share of stock

would cost you right now one round lot, a hundred shares, would be 320,000 so one thing we could do is look to buy a call option on a like amount of shares instead, and then look to sell some of the elevated options premium in the more near dated options. i was looking at specifically the june 3300 call you could -- ply that by a hundred and sell the february 2550 calls against it for $37.50 obviously, much less than the 3200 or so where the stock currently closed the idea is that you're going to capitalize if the stock trades sideways, you're going to capitalize on that by seeing the decay of that of course, if the stock rallies, you have some potential up side. you have some cap, of course

so the down side, your limit of risk is going to be how much you spent on the total trade i would point out, again, this is an expensive stock. so the options are expensive you need to have sufficient capital in your account to do this trade, if this is something you're interested in it's not for somebody with $2,000 in their account, obviously. >> pretty sophisticated stuff there. thank you very much. from amazon to another technology name reporting next week and that is snap, the parent of snapchat due out with results this thursday. tony is all over that one and a possible way to make money off it tony >> yeah, so i think this is a stock that analysts still continue to misunderstands i covered this last quarter and the stock jumped significantly on earnings. i think there's further up side for earnings here for snapchat if we look at the chart itself, it broke out that $30 resistance

louisville it's finding an above $48 base but if you look at it, it's continuing to outperform the technology sector, that's the type of relative strength that i like to see going into an earnings event predominantly my thesis last quarter was based on the

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♪♪ welcome, everybody, and hello, i am brian sullivan jim and "mad money" have the night off. we have a big and important hour special coverage for you right now. the reddit rebellion taking a bite out of the overall market as well as stocks selling off in a big way. the markets ending their worst week since october with the dow falling 620 points, the first 2% drop on a friday since back in june the tumble taking place amid wild swing