and you will be prosecuted, and you will go to jail. we will keep coming because the e rule of law requires that. we have to hold pepeople accountable. -- captionsns by vit -- it is friday, and that means it is time for "options action." i'm melissa lee. here is what is on tap. >> two roads diverge in a road tech selloff, and drop the book and split up and took both. first up carter worth tackles the neck any the technical damage done in google. and if it could continue and then find out why tony is selecting microsoft as a long-term winner that could endure plus, professor khouw with a teaching moment on how to catch up when sudden and swift changes

catch you off guard. it is time to list less to make more "options action" tarts right now. >> and let's get right to it tech taking another beating today. the nasdaq dropping more than 2.5% now down more than 7% for the week and as we gear up for big tech earnings next week, carter worth says one name could be in for even more pain carter, take it away >> certainly more than one could be in for pain but let's look at google a couple of charts, comparative absolute relative. we've got them all so the first one this is simply looking at a google versus the qqq, versus the s.p.y. basically the days leading up to covid, the plung and the ricochet and we know that spies and the market is up 34% and google is up 80. and okay, that is great. but google is starting to lose ground the next is an absolute chart. the next two charts are identical. the first is with the actual trend line, the second is with the automated. the first one google has broken

trend. the line is straight, not manipulated by me and we're below trend. now, look at the next chart. it's using the smoothing mechanism, the 150-day moving average, which is the trend line, not the 200-day moving average. we have just broken the 150 day. so, where might this be headed let's zero in and get tight and up close and personal. the next one is google and this is just over the past year so we have a topping formation that is clear. and we have a break in trend, that is clear. but where we are right now, this closed today at 2607 is right just below that october 4th close. so to highlight that, look at the the final chart. those levels, we are literally hovering ominously at well-defined intermediate lows with the prospects of breaking to new lows. the opposite of a breakout is a breakdown. and google has all of the

elements for a sharp drop and break. >> carter, thank you for that. mike, what is the trade then >> so this is an interesting one. alphabet, because i think this would probably be one of my favorite stocks under normal circumstances for the full year. i mean, this thing is trading at less than 23 times full year estimated earnings, cheaper than the market if you look at it x cash, it is probably about 21 times. and you compare it to other stocks that other people seem to like, although that are also performing very weakly, like amazon and which is a comparably valued company that is probably going to make about 80% less in terms of the earnings and over the course of the next five years or so, maybe 260 billion versus 500 billion or so in the aggregate over the next five years for alphabet over amazon so about 80% more than amazon. but obviously nothing seems to be performing all that well in this environment so if you own this stock, if you're concerned, one thing you could do is consider a hedge and the hedge i was looking at,

because implied volatility is for almost everything have gone up because of basically what we're seeing you could put on a put spread. i was looking at the march 2600, 2330 put spread when i was looking at that, that would cost you a little over $70, that's a $270 put spread. so we're getting very close to that 3 to 1 payout that we typically like when we're looking at debit spreads but there are viewers who don't own alphabet right now might be inclined to take carter's technically bearish view on the stock right now. but aren't interested in the taking the unlimited risk that shorting the stock would involve or perhaps buying a put spread as expensive as that one and for those i would say, one of the things you can do as an options trader is look at a much tighter prized spread, so also looking out to the march expiration, consider the 2500,

2450 put pspread that spread, in turn, would cost about $12.80, so about half of the price of a share of stock when you take a look at the hundred multiple for options involved and that is a way for you you don't want to hedge it that is another way to potentially participate. >> tony, what do you think >> yeah, so this is one where i really like the trade but i'm quite conflicted about it because i really like the business, just like mike especially if you look at the search and the youtube monetization pathway that they have, there is not a lot to hate about this particular stock. but the charts are clear as carter shows you remember this was a thousand dollar stock just two years ago. ever since it broke out about that $2,600 level in june, it's completing this topping formation and right now you're at risk of breaking that and i think downsize here is risk of about $2,000, so 25% down side risk so i think for investors who are currently in this particular

stock, looking at a hedge makes a lot of sense you're taking about 2.3% of the stock's value to protect yourself about 25% downside. that makes sense for speculators, if you're trying to bet on a directional bet here, the fact that mike is able to take a trade on google or alphabet that only costs you half a share, that's a type of trade that you want to use options for to leverage your capital so that you can talk a more speculative bet but especially as an investor, the stock trading at 21 times next year's earnings when you look at cash it is cheap relative to itself and sector so it is reasonable for shareholders to hold on to this stock and look for a hedge. >> mike, last word on the trade? >> yeah. i mean this is one of those difficult situations i mean there is wisdom in crowds there is wisdom in price when we take a look at the financials, it's hard for us to figure out what that is. because if you're simply taking a look at how this company is performing and how it looks to

perform, i think over the next few years, it looks like one of the better long side investments that you could make. but right now the market doesn't seem to like many things and it doesn't seem to like alphabet. >> let's take a technology microsoft is gearing up to deliver earnings on tuesday. tony is laying out a way to play the name for a bounce back so tony, take it away. >> yeah, so i want to take a look at microsoft. because along with the tech sell-off, i think microsoft similar to alphabet is a fairly bulletproof business and think there is any opportunity going into earnings next week. if we take a look at the chart of microsoft, this stock broke out almost a year ago from that $230 level and ever since it's been on a pretty strong up trend and since the peak, it's pulled back about 15% back to that trend and i think now is the opportunity to see a bounce, especially if you look at the earnings announcement next week as the catalyst. and if you look at relative chart of microsoft to its sector, it has underperformed since november but we started to see some strength over the past couple of

weeks and that is what i like to look for going into an earnings awe nounsment that shows me this stock may potentially outperform its sector or the market going into the earnings. so if we look at the business, two-thirds of the revenue is generated from a cloud based business and especially if you factor into the 17 to 18% revenue growth that we're stil expecting from this stock over the next two to three years, i think the fact that it is trading about 26 times next year's earn egg, this is a pretty cheap time, especially for microsoft at the moment. so when we look at the earnings announcement itself, this is where the markets are implying a large move 5.2% versus 2.6% so the markets think that this stock could move quite a bit so the trade structure that i want to use is going out to march, similar to the trade structure that mike is using for alphabet i'm using an out of the money call vertical, a bullish call vertical spending about $8.37 earlier

today, if you look at the close, this spread is now trading just around $7 or so, for a $30 wide debit spread so this is an out of the money debit spread that is risking less than 3% of the stock's value to play for a significant move here to the upside on microsoft earnings next week >> mike, what is your take on the trade? >> you know, i think dan nathan said earlier this week, you know, why would you want to be long any tech stock at this point going into earnings. and of course i kind of agree with that. given what we're seeing. but if you are inclined to do it, one of the things that we have access to of course are options and when you get into a debit spread like this, where the reward is a multiple of th risk that you're taking that is the time that it might actually make some sense. whenever we see market prices falling as we did today, there is always that temptation to try to catch the falling knife that's a very risky thing to do. but if you think earnings could be the catalyst that gets microsoft to bounce here, i

think a debit spread like the one that tony just laid out is the right way to do it. >> carter, what do you make of microsoft's chart and what do you make of that statement that dan had made that you don't want to be long technology going into earnings >> right well let's take the latter first. i think it's a very asymmetrical moment for the market first. because there's not much that the big ones can say here that will make them surge but, man, anything that's hinting at weakness, a little disappointment, a little light, a little something not right and you can get asymmetrical type of drops, not something netflix big, but something big as the pattern goes, look, microsoft is on its one year trend but it was broken trend from its covid low i think as the market goes, microsoft goes, as microsoft goes, the market goes. >> tony, your last words on this trade? >> so i do think that we have to look at the azure cloud business i think that is going to drive

some upside here going into an earnings event and because i want to protect myself, i'm using an out of the money call spread as i'm using in this trade structure. >> for everything options action, check out our website, and sign up for our newsletter here is what is coming up next. >> still to come, ships happen usually in the options chest game, we anticipate change but when surprise change turns you into a pawn, you could still use these tools to get yourself out of check professor khouw explains plus, calling all "options action" fans, reac into your pocket and grab your phone and tweet us your question at options action. if it is nice we'll answer it on air when "options action" returns. thinkorswim® by td ameritrade is more than a trading platform. it's an entire trading experience. with innovation that lets you customize interfaces, charts

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♪ ♪ ♪ welcome back to "options action." ushlgt usually when using options, we're looking ahead to an expected catalyst, but what happens when a catalyst takes you by surprise? we have another teaching moment for us professor. >> so i kind of want to begin this conversation where the last one ended, basically and carter was pointing out that if you take a look at some of the tech earnings, that there isn't much that these companies could say that would propel the stock higher, but an disappointment and you could suddenly see them go a lot lower. well there is another sector

that that happened to this past week and that is financials. if you look at the last five trading days, down 7.5% versus 5.5% for the s&p more broadly and the reason was what we heard from all of these big financials who were those that were reporting be we're talking about j.p. morgan, citi, wells, blackrock, and goldman sachs, all coming out and these are different areas of financial services as well so, this was supposed to be the time for financials, right we were supposed to be seeing rising rates, we're going to see better interest margins and yet here we are. so i think this is a situation where these -- the whole sector is essentially stuck but also we've gotten into a situation where a lot of the bad news has already come out. so i think this is an interesting set up potentially for something called an iron condor an iron condor is a strategy that we could use when we believe that we might be range bound for some time. now, the thing ask about getting

into a situation where you're betting it's not going to go materially higher or materially lower is to be mindful of catalysts. well, we've already seen many of those come and go. and that is not to say we don't have some important ones coming up, we have the fed next week. and that is important. one of the things that is when you use an iron condor, we're going to be essentially, getting into a short options trade, where it's a credit trade. this is a situation where, because you want to take advantage of the fact that options decay more rapidly, the more nearer dated they are, we're looking for shorter dated options. so in this case i was actually just looking out to february, and i was looking specifically at the xlf, 35, 37, 40, 42 iron condor and in this, i'm selling the 37, 35 put spread and i'm selling the 40, 42 call spread net-net i would be collecting about 64 cents of course, because xlf can only where it is now, lower or

higher, at expiration, you really only have risk on one side of that spread if it starts to move in either direction. so really the way to think about how much you're receiving relative to the risk you take, is the amount of premium you collect basically relative to the distance between the two strikes on the put spread and the call spread. the idea here, of course, is that it's going to stay within that boundary between now and february 18th. prevent it from going much higher, by what we're seeing in the market and prevented from going much lower because the bad news has already come out. >> carter, what do you make of the charts >> well, i've got two. but before we get to those i think the important thing is this this, perhaps with no exception was the most sort of embraced theme over the past three to four months. one, rates will go higher, and the financials, as value stocks, will outperform. it's been nothing but the opposite jp morgan, goldman sachs, brokers like jeffries, cowhan

and it is down, it is going the exact opposite way so financials have being rerated lower now probably just go flat. let's look at two charts the first chart is xlf and you see the well defined down trend and this is xlf relative to spy. we've hit this line four or five times, we failed i don't think anything but more of the same likely to continue to fail at this line the second is xlf, the last chart of the two itself. and talk about a well-defined channel. we've moved from the top to the bottom this is basically the channel over the past ten months and so at the bottom it probably sort of starts to meander and do nothing. i think xlf were loved, now they're not interesting if you will and so betting against volatility. >> so the technicals line up tony, what is your take and is this a trade you would be inclined to make >> it is because this is really a question of timing iron condor in order for it to profit, the asset needs to trade

sideways, and that's always tricky to identify because a lot of traders tend to put on iron condors once they've established a trading range, once they saw the trading range take hold. but our research shows almost the exact opposite that assets trade sideways after a huge move. and that is exactly what we've seen to far in xlf this week because the move we've seen this week has only happened nine times over the last four years so timing, i think, is very is great on this particular iron condor if you look at the trade structure again, the iron condor is a combination of a put credit spread and a call cred spread. he's selling the 37, 35 put credit spread and selling the 40, 42 call credit spread. he's collecting about one-third which is $2 wide on each side. i tend to be more tactical i think we're near the bottom end of the range i think you could move it up to

by $1 but that is the tactical on the bottom end of the range and that will bring in about another 13 cents, 14 cents in credit and that brings the r risk/reward ratio to one and a half to one that is a minor adjustment i would make to this particular iron condor >> mike, why did you choose your levels >> i choose mys base in a situation where you see all risk -- assets declining, people will often times sell because they have to not just because they want to necessarily. and so even things that might otherwise hold up just on a value basis, you might still see some continued pressure. put differently, if the s&p 500 is down 80 handles again next monday, do i expect to see financials up? no, i don't. i expect they'll probably trade lower. a lot lower? no, because a lot of the bad news has already come out.

i'm fading that down side put just slightly simply because i'm trying to reflect the market sentiment in which we find our ourselves. >> up next, we're taking a look back on a high energy trade from a few weeks back more "options action" right after this ♪ music ♪ there's software. and then there's industrial grade software. capable of optimizing your flight by turning data into your co-pilot. meet honeywell forge. analytical software that helps assembly lines build walls against cyber threats.

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welcome back to "options action." time for a high energy look back a few weeks back toby laid out a way to play the xle. >> my expectation is to look for some higher oil prices and especially as we've had some pent up demand and that is likely to going to be a nice boost for energy stocks going into the second half of next year so if we look at a chart of just crude prices, we have a full year of what we would consider higher highs and higher lows and this simply points to further upside here next year towards about 85 and potentially higher. so i'm going out to june and i'm buying the $55 call options on xle and against that i'm going to sell the february $59 call options against it for about 80 cents. >> since then energy is up nearly 13% so tony, what do you do now? >> well, you certainly move faster than i had expected if you had just bought the call options you're looking at about 100% return if you used the

diagonal structure, you're up about 40%. certainly not nothing to sneeze at however i am inclined to continue to hold onto these february call options. i think we could see some weakness where i look to buy back the calls and maintain my june options because i think there is further upside down the road. >> up next, your tweets and the final call it's a thirteen-hour flight, that's not a weekend trip. fifteen minutes until we board. oh yeah, 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. ♪♪ it's time for sleep number's january sale on the sleep number 360 smart bed. what if i sleep hot? ...or cold?

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♪♪ ♪♪ welcome back to "options action." time to take tweets. our first fan says, netflix straddles were so expensive and they were down almost 90% today. i had to close them today. any recovery trades? mike, what do you tell this person >> i'm not sure which straddles you're referring to because this stock was down more than 20% overnight basically on earning so even the may straddles didn't lose any value simply because the move was so big. but of course a lot of premium

was lost i think we've had a big rerate here in the price of this stock. and the thing that is interesting to me about the price of options is that the near dated ones are still trading even net of all of this at higher implied volatility than the longer ones i kind of like calendar spreads, actually, as the way to do it. i would probably be taking a look at something like a february/may, at the money line calls if you're long the stock and looking for recovery look to one by two call spreads over your long stock positions if you continue to hold it. >> carter, your take on netflix and the damage that had been done. >> in terms of a couple things the total value traded today at some $28 billion is more than the value of so many stocks in the s&p. but if there were ever a case of it is so bad, it's good. i think you're seeing that here. i would be contrarian and take a bite >> time for the final call

carter >> google, if we have it if you have some measures, be careful. it looks like it's rolling over and there is more to go. >> tony? >> microsoft it is a diamond in the rough buy a call spread going into earnings >> mike? >> use put spreads and google to speculate or to hedge. >> see you back here next friday "mad money" with jim cramer starts right now - [presenter] the following is a presentation sponsored by trusted luminess. - i have a lot of problem spots, redness, fine lines, dark spots. and now with the breeze, all that's changed. the breeze advanced foundation is amazing. it gives you skincare and makeup all in one. it's like a thin veil, but it has extraordinary coverage. at my age, all the other makeups made me look older. it was uneven, you'd have to layer them yourself. it never quite came out the way i wanted it to. the great thing about the breeze is it does your blending for you. i love the way the luminess smooths out