>> they're selling a toxin that could potentially hurt people, kill people, paralyze people. they set all that aside. "we're going to sell this. we're going to make money. that's all we care about." it was pure selfish greed. -- captions by vitac --

♪ ♪ ♪ ♪ ♪ welcome back to "options action." amc having another big day the stock rallies 15%. you probably heard a lot of discussion around amc and naked

short. we wanted to take a moment to explain this concept what it is and what it is not. >> we should probably start by talking about what shorting stocks is to begin with. when you sell a stock short, what's going on is you are borrowing shares you do not own them. there are a couple of reasons why people might sell stock they don't own. one is to speculate the price might call and they can buy it back at a profit another reason is to hedge sometimes you will see people shorting stock against other positions that they own. that's not an outright bearish bet. finally, one of the most significant reasons, is just for bon market making activity they create liquidity when people are looking to sell shares, they are selling them to marketmakers when they buy shares, they buy them from them they maintain inventory. sometimes they are long.

sometimes they are short naked short refer to circumstances where people who are selling the stock short did not first validate that they could actually get a borrow on those shares there areexemptions. market making activity does have an exemption the other thing is, the whole issue is whether if you sell stocks short you are actually able to deliver the shares at settlement, which right now is two days after the current trade date there are stiff regulatory requirements around this we can actually track how much of this active ity is going on y looking at the fail to deliver this is a report that is issued by the sec it tells us each day the

cumulative number of shares that those who are supposed to deliver fail to do so. not every failure to deliver, by the way, is the result of a short sale i have heard people talk about the possibility that many times the existing float of shares is actually out there naked short and that we can look at these failure to deliver reports and we can see that actually the magnitude is significantly smaller than that. we did see big fails to deliver early in the year in both amc and gme. sometimes reaching as much as 40% of a day's trading volume. since the beginning of the year, the average failure to deliver has been on average less than 2% 70 plus percent of the time it's less than 1% of the average daily trading volume in either of these two stocks. the important thing for people to remember is, you hear these things, it sounds like there might be a loophole. there's stiff regulatory penalties for not adhering to

this what people should focus on is when you see elevated short interest, increasing borrowing costs, that combined with just ever rising prices, that creates a short squeeze. that's why we see this highly volatile price action in conjunction with all the momentum created by things like the wall street bets >> here is a big question, that is with so much trading in terms of total volume every day, off public exchanges, carter, do you think we have a good sense of what is going on in these off exchange platforms, wholesalers or in the dark well, there's no way to answer the question, because it is just as you say, sort of off the grid, dark, all the things that are referred to. what we do know is that hyperactivity is not new again, it happens all the time

essentially, things like amc -- amc was $1.97. gme was down at $2 while most pinch k sheets -- mot low price stocks don't go up 200,000% the circumstance of this is not new. it happens to be a new era with internet and tweets and -- this has been going on since time in memorial >> right t tony, your take. >> so i don't think the bait here is whether or not naked shorts exist what mike is trying to show you the fact of the magnitude of which if it does happen, we are seeing it. this is not particularly my area of expertise the one thing i want to help investors better understand is that when you are thinking about shorting a stock, the reason that we are here to talk about options is to protect your downside when you are shorting a stock, whether you are doing it selling

short or even if you are doing it naked, you have unlimited risk to the up side. that's why we advocate for a put spread if you are bearish, or if you are more mildly bearish, protect by selling a call credit spread that's going to protect if you are caught in a short squeeze from that unlimited loss in a stock that you are bearish on. >> let's go back to amc. we saw a run in today's session. volatile week. no surprise. what do you see in the charts for amc. >> sure. we might have one here it's all sort of sequential, if you will before looking at the chart, one judgment has to be made. the high of june 2nd, $72.62, will that be exceeded? i would say no now it's a question, can we trade it this day, that day, make or lose

the hunch is that, queyes. if you get in the 40s, low 30s, you take a shot. if it's 68 or 70, fade it. it's important to make the statement that game stop's high at 483, that's permanent we are nowhere near that we are half that 72.62 high is going to end up being the high an auto related trade coming up on a milestone. we will be back in two we gotta take off. you downloaded the td ameritrade mobile app so you can quickly check the markets? yeah, actually i'm taking one last look at my dashboard before we board. excellent. and you have thinkorswim mobile- -so i can finish analyzing the risk on this position. you two are all set. have a great flight. thanks. we'll see ya. ah, they're getting so smart. choose the app that fits your investing style.

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when traders tell us how to make thinkorswim even better, we listen. like jack. he wanted a streamlined version he could access anywhere, no download necessary. and kim. she wanted to execute a pre-set trade strategy in seconds. so we gave 'em thinkorswim web. because platforms this innovative, aren't just made for traders—they're made by them. thinkorswim trading. from td ameritrade. wondering what actually goes into your multivitamin? at new chapter, thinkorswim trading. its' innovation, organic ingredients, and fermentation. fermentation? yes. formulated to help you body really

truly absorb the natural goodness. new chapter. wellness, well done. welcome back last week, tony laid out a road map for a trade around advanced auto parts. >> if we take a long-term chart of advanced auto parts, you see this is a stock that made no outperformance over the past five years or so it' significantly. recently, it started to break out not only absolute but relative basis there's a potential up side here for a name like this i'm going out to july.

i'm selling the 190/180 put spread paying about $3 for the 180 puts net net here i'm collecting $3.70 on a $10 wide credit spread >> since then, this trade zoomed to a key level tony, what next? >> so whenever you are able to collect more than 50% of the max gained in a short amount of time, in this particular case, five days it makes sense to take profits. buy this back earlier today for $1.50 as opposed to holding it for the next 35 days hoping to make that other $1.50 on this particular trade take your profits and move on to the next one >> mike? you would do the same? >> yeah. this is a typical situation when you sell premium, sometimes you have to wait until expiration arrives basically for all that premium to decay sometimes you get the move you needed that premium essentially drops very quickly

in those cases, you begin to increase the amount that you are risking relative to the reward you get for collecting that marginal amount. it makes sense to try to cover those bets when you can. >> up next, tweets and the final call stay tuned i'm searching for info on options trading, and look, it feels like i'm just wasting time. that's why td ameritrade designed a first-of-its-kind, personalized education center. oh. their award-winning content is tailored to fit your investing goals and interests. and it learns with you, so as you become smarter, so do its recommendations. so it's like my streaming service. well except now you're binge learning. see how you can become a smarter investor with a personalized education from td ameritrade. visit tdameritrade.com/learn ♪

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♪♪ welcome back time for tweets. can we get an update on the gdx trade? what's your take, carter >> the key here is gold went up. the gdx went up. gold went up and gdx went up three times the commodity. at this point, you do take profits. ultimately, higher there's nothing wrong with reducing exposure and moving on,

staying in with what is left. >> mike, your two cents? >> the quick thing is, when we have option structures like this, you can adjust the trade so you can take a portion of your profits and just use that small quantity of that to press your bullish bet going out you can take money off the table but still play for further upside down the road >> as someone with a smaller account, i like vertical spread due to the smaller amount of preem yu premium needed what are some methods of finding stocks good for this tony, your advice? >> i would use a technical screener look for oversold stocks try to filter out stocks that are above $50. >> good advice there it's time for the final call on this friday. carter, kick us off. >> adobe up and out. >> tony? >> opta, buy a put spread.

>> mike? >> adobe diagonal, buy low, sell high. >> makes sense that does it for us. we will be back next friday. don't go anywhere. "mad money" starts right now (dramatic music) ♪ (stu) i really can see the difference. i can see this hair coming in. i have hair on my head. i can brush my hair now. within two months, i've gotten my hair back. it's just like a second chance on life. ♪ no hormones, no surgery. ♪