it's friday afternoon here at the market in times scare "option action" coming up. >> there is a children's book in which letters of the alphabet fall into a coconut tree and full down and get bruised.

why the same thing may happen to the alphabet known as google >> and why facebook may have been belted with enough coconuts that it's time to get bullish again. plus, two signs that make a market and television segment. debating apple time to risk less to make more "options action" starts now. >> a huge week with the five tech giants quarterly results do but carter is already seeing shakiness in one of them what are you seeing? >> the top five make up roughly 25% of the s&p voting next week. the winner has been google, but its recent action has been heavy or as the old time expression goes, the stock doesn't act well here is the first one,

well-defined google is hovering on the lower band it bounced well, but this quickly is a defect. second chart, the 150-day moving average is 7% below where we are now. does the stock have to get down there? no next chart this is the same chart again with only the 150-day. since google's ipo, this is the longest stretch on record without having a checkback to the 150-day moving average that's the bet, that that's under way now. this chart goes to 2007-2008 you can see how far it has gone without a proper checkback next chart the same chart we are at the top of the channel that has been in effect since the 2009 low

we are at the upper band and starting to churn and stall. this is a short-term panel google fails to make a new high and now a bad day today, bad week, but that line i have drawn is still above where it was in september. look at the bottom panel it's making new relative lows to the s&p. this is the beginning of a rollover by my work and i think we are going down to the 150-day moving average >> mike, what is the trade >> this is an interesting one. it's hard not to hit google especially since they have managed to preserve the tickers. fundamentally the company has a lot of very good things to acquit itself. we have phenomenal growth, businesses within the organization such as youtube which some are forecasting could

see revenues of $100 billion by year 2025. to put things in perspective, the forecast for all of disney's revenues for that same year is about $107 billion that gives perspective on how fast their key businesses are growing and great exposure to the cloud. but its valuation is well above what its average has been over the course of the last ten years. throughout those the street has had a good opportunity to digest similar rates of growth over those periods of time. if you are inclined to essentially bet against the stock as carter's charting suggests one might, it becomes difficult. shorting it is probably not a fea feasible action in many cases. so i think it is look to sell on

upside the options market is implying a move of about 4% when you are selling a call spread you are trying to balance the risk and reward. further out gives you a higher probability of success but the amount of premium is less. the stock did move down close to $90 by the end of the day. i was looking at the close at the call spread that expires in november you could collect a little over $6 for that. that sweet spot we are looking to sell, 30 delta-ish. you would be risking considerably less than if you sold the stock short you would have more of a probability of success if you bought puts. i think this is the way going

into earnings. >> tony? >> when you look at the charts, i am not overly concerned when i first look at the chart, but the most important chart with the performance to alphabet, going into an earnings announcement, that is not a good sign, but it is not underperforming the sector 10% quarter over quarter revenue growth over the past eight quarters, i think 30% profit margins sustains this type of valuation that it is currently trading at about 29 times earnings but this is hard to sustain because of a high price. when using a high call price like this, jumping higher or to the downside, two out of those three you will be profitable

by selling an out of the money call spread, he has not only a profit, but a 5% buffer. so even if the stock pops 3 or 4%, he can still be profitable only collecting about 30% of the width which means he's risking 70% of the widths. i think it is an interesting way to play after the disappointing earnings yesterday google may follow suit >> tony, you think this may be the opposite of google for facebook, why? >> we have seen bare sentiment the last couple months and on the back of snapchat earnings

yesterday, i think this is overdone i think facebook will still report a fairly strong quarter for earnings if we look at the chart for facebook first, this is a stock continuing to trend to the upside and recently pulled back to the 200-day moving average. the previous times this has happened we have seen a bounce off that level i think that's what we will see again going into this earnings announcement if you look at the business itself, facebook and snapchat could not be more different. they are about 16% quarter over quarter and commands a profit margin versus what snapchat has. that it's trading at 24 times earnings i think this is relatively cheap versus snapchat which was trading at 36 or 37% times sales. the options market is implying a

6.1% move going into earnings versus the historical average of 2% over the last eight quarters. the options market volatility are quite elevated i want to take advantage going to the november expiration, i am getting a little more aggressive here selling at the at the money put and buying a $300 put against it to limit my risk net-net earlier was able to collect about $8.60 which is about 38% of the width we want to collect as much of a larger percent of the width to reduce the risk on the overall trade. >> carter, did the charts look that drastically different to you? >> we know that facebook is down

to trend whether you use the 200 day or 150-day in principal it looks like an uptrend that sells off at 17%, but the relatively performance is decidedly poor. this is the third heavy line of drop in gap. news related or not, snap related or not, in the past 12 weeks. it's heavy i am not sure i would make a bullish bet here >> mike, your thoughts >> i mean it's interesting, of course because tony is right about one thing. if you were only looking at the numbers and saw the revenue growth, margins, eps growth and compared the valuation of facebook to the rest of the market you would have to say it is decidedly cheap at 24 times earnings there is a reason why it is and the reason is it's tainted at this point there is a lot of overhang people are concerned about

whether there could be some government intervention or something else that interferes with their business model and that is the reason why i think the stock is trading at the valuation it is currently. as far as earnings, i wouldn't expect them to be all that disappointing. what is weighing on the stock isn't earnings it's future potential headwind they face if their business model becomes impaired i think on a risk reward basis, it is not likely to have a bad outcome coming out of earnings because many of the things i mentioned are already known. here is what is coming up next -- still to come, great line from a movie you might remember. how do you like them apples? tonight carter and tony are reading from two different strips of a drama that is apple.

plus calling all options fans reach into your pocket, grab your phone and tweet us uryo question at options action if it is nice, we will answer on air. trading isn't just a hobby. it's your future. so you don't lose sight of the big picture, even when you're focused on what's happening right now. and thinkorswim trading™ is right there with you. to help you become a smarter investor. with an innovative trading platform full of customizable tools. dedicated trade desk pros and a passionate trader community sharing strategies right on the platform. because we take trading as seriously as you do. thinkorswim trading™ from td ameritrade.

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♪ ♪ ♪ ♪ welcome back to "options action." it is time to bite into another big tech name reporting next week apple is gearing up to deliver results next tuesday two of our traders have opposing views. that's what makes a market

>> cater, what's your view >> amazon was down two charts the first is a two panel looking at apple on the top and on the bottom is relative performance of qqq apple has been an underperformer for the better part of a year. you can see we have been grinding sideways to down. but the uptrend line is the arrows and it has bounced to the penny every time it has hit that line we think that's what is going to happen again second is a simple chart of apple. there is the trend line and stock. is this exceedingly bullish?

no a very strong week to suggest that something untoward is coming next week >> tony is at the other corner of this boxing ring. why is that? >> it is hard to bet against an apple earnings but when i look at this chart -- i am looking a smaller time -- but the $150 is concerning, but more importantly we have been able to get back to those july highs around 150, but relative to the market since the performance of the apple stock, it has underperformed the market, its sector and industry over the short run i think that is telling for what we are going to see going into the earnings announcement. then you couple that with the fact that since july we have seen lower and declining volumes on this particular stock that leads me to believe we are

more likely to revisit the 140 trading low than breaking out on earnings if you look at the supply constraints i think the risks are skewed to the downside we have already seen about 10 million units of production cuts in 2021. my exp peck tags is that the company will extend that we are seeing competition from alphabet as well as declining from the game store in revenue while i think apple is trading at a price not too rich, but i think there is downside. >> mike, where do you stand on this debate? >> i am going to lean on 5g a little bit we are going to have a massive

migration. for a long time when we have talked about apple, the only thing we talked about was iphone and iphone sales they have managed to bolster in other weighs in meaningful ways. i would argue there is bigger impact because as people become more tied to ecosystem, when they get these things, they get the next everyone who does not have 5g will be replacing it that is a massive and prolonged cycle we will be seeing for apple. i do agree on the store issue. there have been issues with those precluding who sell on the app store. it is hard for me to see a whole lot of downside. the 140 level isn't a huge decline from where we are

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visit tdameritrade.com/learn ♪ welcome back to "options action." last week mike laid out a way to play tesla ahead of earnings >> i was looking out to january and looking at the call spread risk reversal. what was i looking to do in sell the puts,s in round numbers around $21 buy the 850 calls which were at the moneys and sell the 900 calls against them it gives you participation to the upside between 850 and 900 so the maximum profit would be $50 per share, just under 6% of

the stock price. you know the way this went tesla climbed higher 11% mike, what do you do >> the puts can be bought back about half that price and i think that makes sense and when you have an out of the money call spread and the strike goes through, that behaves like a short call spread. i would look to the january 900, 950. we are taking some money and risk off the table, but we have continued participation. >> carter? >> stay long, be long. >> couldn't be clearer than that also a way to stream into netflix ahead of its report. >> the stock is outperforming its sector by a huge margin on this particular breakout that type of relative performance is what i like to

look for going into an earnings announcement i was looking to go to november and use a call butterfly looking at the 650, 710 butterfly. that stock has also seen gains, up nearly 5% what are you doing now >> for viewers who traded a single contract, it's time to take profit. for traders who risked more than one contract, i am still comfortable with the strikes on this butterfly i think we will get a drift to the 680 or higher. if you have more than one i would keep at least one contract carter, how does this chart look >> this is another strong stock and has also broken out. a bit more stretched than i

would say tesla, so a bit more exposure, so a small long. time for our tweets -- mike, what do you tell henry >> i like the gaming space i like penn for the reasons you cited. the short version is yeah. maybe buying longer dated calls at the money might be the way to make the bet >> carter, how does that chart look >> i would say maybe let's pass on this one. a great winner during the pandemic, but an equal and opposite loser for a great period of time a pair much twos >> tony, would you agree >> i agree with carter i think you could have a constructive bottom in penn, but until it breaks out above the

$85 level, this is not a stock i am interested in >> pretty clear on that one, henry. you have your answer time for the final call. carter, what do you say? >> i would be selling google >> i think the bearish sentiment in facebook is overdone. i think facebook earnings will turn that around sell a put vertical for facebook i think apple will see a bit of decline on earnings. >> if you are looking at names like google and think they may be running into upside resistance, you may consider selling upside call spreads which can elevate call spreads >> that does it for us here on "options action. see you next friday at 5:30 eastern time do not go anywhere a special bonus edition of "fast

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♪♪ cramelr is off tonight we have a bonus hour of "fast money. coming up this hour, social anxiety, snap plunging more than 26% today. is it putting facebook and twitter on notice as those two companies gear up to report next week we'll break down the trade china tech turning a big corner this week high pressure how he's playing it. pain at the pump gas prices on the rise nationwide oil surgin