(jay) yeah, and you look very lovely, by the way! you looked quite fetching when you came in, i said, "i'm strangely attracted," and i realized it's the outfit. (jamie) yeah, and the hair. this is pretty out here. where the ... am i? welcome to friday and "options action" i'm melissa lee. live from the nasdaq market in times square markets tumble after better than expected jobs pictures left the fed worrying the rate the pedal to the metal. and in the labor market may see it in earnings next week and banks helping you get set up there. the fed impact and large caps are one thing consequences of amplified in small caps. ways to dampen's noise joining us tonight, and first before trades quick thoughts on this week from all of you since it's been a roller coaster week.

carter worth what did you make of it. >> i think there's that expression when you're hoping it's hopeless. if there's hope somehow we're going to not break below the june lows, and i don't see that at all i think we're going to break we are breaking. we break substantially. >> mike? >> yeah. i think we still have more concern ahead. if you were looking how we did week over week, oh, up a little over 1.5% since last friday, but none of the situations we talked about then have gone away. if anything more evidence now, i think that central bankers should continue to persist to fix the inflation problem and one of the things people focus a lot of time and attention on, sort of the headline inflation number at any given moment what's the cpi today rather than look at aggregate prices and where those stand relative to incomes versus, say, two and a

half years ago housing up 65% most agricultural commodities up anywhere from 20% to 100%. look at it in that sense, metals and everything else it doesn't look good. you have to get these things back in line, unfortunately. rates in a historical context are not high here. something else to remember. >> all right it's amazing to think over the course of the week with all the volatility seen and changes and thinking, hopes dashed, actually ended the week high solidly higher i wonder how that sets us up into earnings season amd warning overshadowing us, terrible action there today and fedex as well? >> i think -- a few things shorts squeezed, and why you see exasperating moves as we saw earlier in the week, and then going into earnings. the reason we see knee jerk

moves, there's still an underlying feeling the fed has a credibility problem. take me. last time i got chastised for calling back someone onset, learned my lesson. don't do it get. fed chastised enough theyget i now and being extremely transparent what they are going to do. they continue to be data driven, their approach well signaled yet you still seize these bucks to the trend in the market. i think this earnings season you might actually start to see a little bit of the read-through, or the trickle-down effect what the fed has been doing now the posture is starting to change i think, yes, perhaps up a percent, a purse and a half. weak volatility where the focus should be not the absolute number from mondayants it's that time again and could be more important than ever. earnings season you mentioned

kicking off next week with big banks. the group struggled alongside broader market xlf down more than 20% where could the sector head next and how it could set the tone for the season here. carter >> right 15 stocks in s&p and half are financials right to the charts. first is a weekly chart of the xlf. etf that tracks the sector the sector not just banks. property and casualty inshirs, asset dealers, asset managers, what we know, brokers, sectors back to its pre-covid high the line drawn is support. the thing about support, down to support and sink further into support. i think presumptively that's what happens look at the next, a two panel. that top is exactly what we saw on its own, but bottom panel is relative performance that relative performance to the s&p. the financial sector beat right after the election in 2016,

under performing ever since. not so good. xlf itself here and now up close and personal charts. there's one. no lines or drawings or arrows look at it with annotations. epic inverted cup and handle doesn't matter what you call it, projects lower other iteration, same chart. a descending triangle. it's a wedge it all points to lower the question is, does the xlf find support because it's at the covid highs? it's at support. i think we'll sink further into support. >> sink further into support mike what is the trade based on that >> yeah. i mean, the volatility we saw this week and that we have been seeing unsurprisingly is also impacting options premiums so they are all considerably elevated also you would expect options premiums will rise assess we start seeing events like earnings coming up impacting the

price of options on the individual stocks as well as it is on indices of which they are constituencies and those that trade them like xlf. one of the things to do to take advantage of elevated options premium and anticipating that it's unlikely that next week and the week following are going to provide the needed boost to get xlf actually to bounce off the support level here looking at november 32, 33 call spread selling that looking at that earlier today you could collect about 38 cents in premium for $1 wide spread. nearly 40% distance between strikes which is attractive, and the other thing i point out is that in the event it does somehow miraculously bounce of whatever he aware next week from all companies reporting, you will not lose the full dollar even if it runs through that longer 33 strike that you have

to the up side it's not exactly that you're risking 60 cents to make 40 cents provided you cover this if you get a strong bounce. that's not what i'm anticipating here obviously. >> and what's your financials take here? >> challenging framework going into earnings. i like the trade i think ned shorting volatility, which i like, going into a bounce in vol like we've seen today. the fact of the matter markets can remain irrational longer than we can remain solvent up side call covered on a strike limits risk in terms of a short squeeze there. >> mike, tricky with banks the bulk report on the same day then stragglers afterwards how do you anticipate managing the trade, because most of the time they move in a group on the back of the first ones out of the gate >> yeah. i mean, that's exactly right i mean, you've got basically the premiere name, which is

jpmorgan investment banking, trading in terms of commercial banking. basically number one black rock and morgan stanley on the asset management side. it's hard to imagine that the numbers could be all that great when you have declining asset prices after all, their revenues are tied directly to aum and declining as a function of declining market prices although most recent declines won't show up in the reporting quarter but presumably people will look at that and factor that in. i'm not anticipating any of the stragglers in terms of reporting to release any information that's going to be new i think we're going to find out what we need to know by end of next week. >> yeah. all right. large caps are one thing small caps could feel the impact of economics faster and more intensely than any part in the market looking at the other direction what are you doing >> look at iwm ability of weakness due to

weakness abroad. i think the focus will shift from fed policy and monetary policy to economic health, to actual earnings health what i want is the a more levered play to do that. dructi constructer in s&p, dow, a large bellwether game, more tail rick in form of iwm looking at iwm, 160, 150, 1 by 2 put spread and put it on even money depending where you are middle of the day. this is a risk shocks to volatility like seen today it's not often that the, at the money it's how you think those tails are going to flex. yes. in the crazy case where we're down net, net 50%. this trade is challenging. but between down 10% and down almost 20%, this trade is profitable no cash outlay to put this on

and this really gives you that crash protection i think if you're going to see you'll likely see it in this more sensitive pocket of the market. >> do you see a crash in the cards for iwm, carter? >> well, remember, the conventional wisdom is, right, lower quality assets in a route do worst than others. no small cap utilities the point is, if playing beta, you play it through certain vehicles iwm is a higher beta same time, no currency put spread, right? bonawyn mentioned, macro it's domestic and gets down to earth. also i point out that bank exposure in the russell 2000 is much higher than it is in the s&p 500. so it's got a lot of characteristics that have to be contended with and also, finally this, important to say, that since may small cap stocks have been consistently outperforming large cap.

not a function of the russell 2000 going up. it's just going down less than the big heavies, because apple and others are starting to come apart. >> still to come, your semi setup. how to play the chip space as the already inbound sector hets south. for everything "options action" check out the newsletter there's more "options action" right after this. thinkorswim® by td ameritrade >> announcer: "options action" is sponsored by -- it's an entire trading experience. with innovation that lets you customize interfaces, charts and orders to your style of trading. personalized education to expand your perspective. and a dedicated trade desk of expert-level support. that will push you to be even better. and just might change how you trade—forever.

because once you experience thinkorswim® by td ameritrade ♪♪♪ there's no going back. thanks to avalara we can calculate sales tax on almost anything, anywhere, automatically. avalarahhhhh. what if tax rates change? ahhhhhh. filing sales tax returns? ahhhhhh. managing exemption certificates? ahhhhhh. business license guidance? ahhhhhh. does it connect with accounting? ahhhhhh. item classification? ahhhhhh. cross-border sales? ahhhhhh. what about? ahhhhhh. ahhhhhh. do you have those budget markups? thank you. mmhm. [bubbles] pst. girl. you can do better. at least with your big-name wireless carrier. mmhm. with xfinity mobile you can get unlimited for $30 per month on the nation's most reliable 5g network. they can even save you hundreds a year on your wireless bill over t-mobile, at&t, and verizon. wow. i can do better! yes you can! i can do better, too! see how easy it is to save hundreds a year on your wireless bill

over t-mobile, verizon, and at&t. talk to our switch squad at your local xfinity store today. good luck. td ameritrade, this is anna. hi anna, this position is all over the place, help! hey professor, subscriptions are down but that's only an estimated 15% of their valuation. do you think the market is overreacting? how'd you know that? the company profile tool, in thinkorswim®. yes, i love you!!

please ignore that. td ameritrade. award-winning customer service that has your back. amd plunging to a new low delivering disappointing results saying it expects revenues to fall short of its prior forecast investors don't think this will be isolated either semiconductor stocks and bbm also fell in today's session, but they're not. chipmakers' pain could be your gain show you how to turn a choppy outlook from semispace smooth sailing captain, take it away. >> captain like that. have to share that with other people an interesting situation right? the semis as a group down about 40% since their highs earlier this year. significantly more even than the

s&p declined if you think that it's so bad it's good, you might then take a look how all of these companies are looking relative to their trailing and their originally forecast earnings, and if we look back about 20 years on a multiple basis, the semiconductors as a group are trading pretty close to their cheapest valuations, but one of the things i point out i think it's important for people to remember cyclical businesses often do look cheapest right before things turn south. that is because people are still working with their operating assumptions for how these business was going to do, and those are what's changing. that's essentially the news we got out of amd and wa we're seeing priced into some of these other stocks that said, it's exceptionally challenging to press shorts when you look at a group of stocks already down 40% how do you do that in this case i was looking out to december and looking at a 185-55 put spread. looking at that, that's a

$30-wide put spread cost about $7.63. that's about 4% of the current price of smh as way to make a bearish bet. we're in a situation where certainly could see further dips not resuming bull market anytime soon personally. if we do get a sharp bear market rally, a significant possibility in every bear market and already seen it several times in this one, you want to limit your risk i think risking just 4% of the current etf share price that's a way to do this. >> how about for you, carter >> heavy and i think going to get worse. look at three charts all the same time frame. the first just simply depicts where the smh is relation to its pre-covid high the s&p would need to drobp 6% t get there and smh 19%. draw lines on this the first way to do it would be

like that. which is, con sverging trim lins broken to the down side out of that formation and projects to pre-covid high substantial down from here final way to draw the lines, all the same chart, is just to annotate, depict the importance of the reversal. doesn't matter whether you call it head or shoulders it's a massive uptrend in reverse and the question, is that reversal finished i don't think so i think more down side. >> bonawyn, same camp? >> i am. it's a little expensexpensive. i want to focus on the width of the strikes here if you're leaning into this might as we make sure you're getting your buck's worth here, exactly what mike has done if there's more downside it's really going to roll over heavy as carter said, and i think the width of strikes allows you to capture the bulk of that move. >> yeah. mike -- last word here i'm wondering how you manage a

trade especially when it looks like, when stocks are swept up we go to the down side decisively such volatility in the markets these days so how do you manage this one in terms of the wild swings when we have two big up days semiconductors had huge rips to the upside. >> right i think that's why we're sort of defining our risk at the outset to 4% of share price certainly going to short smh, very reasonable to say the risk you're taking move to upside significantly larger actually speaking to bonawyn's point, a reason i chose strikes this wide, because i wanted to have a trade that would be able to manage, if we do start to see things roll over, because we know there could be bear market rallies. say it drops down to 175, 170. take that 185 strike you're long and roll that down, keep the short side on and essentially reduce your exposure if we do get a bear market rip. those happen they have happened and will continue to. >> yeah. up next, we are getting rapid

fire takes on a number of big movers from this week. "o.a." is back in two. >> announcer: "options action" is sponsored by -- welcome bs

act action". a wild week on wall street takaling nameses in "rapid fire" session. first up twitter go to that one right? shares jumping up. tess he ceo elon musk saying buy it for original bid. a lot of back and forth since the news broke mike, your observations here >> yeah. interesting. right after that news came out what we saw was a lot of arms coming in doing traditional risk on trade which isa buy rate. buying the stock, selling pulls near the strike price close to where the deal was supposed to take place as the week rolled on, bearish activity buying january 50-40 put spread. the attitude elon tried to walk away from the deal when things looked better than now then wanted out basically of the court case ongoing got that objective and right now i think options market implying about a 15% chance that this deal breaks. i think that is still a significant possibility.

i'd be a punter and take the gains and walk away. >> yeah. i really like that short vol setup. ultimately anytime a cast out, make sure not caught can long volatility collapsing to zero. that's the volatility of cash and realized volatility despite what we've seen on the dixie down side, spend small modicum premium to bet the deal crashes, risk/rewards set up but likely a loser. >> carter? >> completion of the deal, you see here, might have it. as drawn, a normal flag. get that heavy line of thrust, news-related, deal's on and pullback ultimately head towards 54-55. next up, up nearly 18% alone. carter has this one.

how's it look? >> sometimes use uptrend, steady she goes maybe even god-like up and to the right quarterly. a nice ascent. >> god-like? did you just use that word "god-like" i feel only used that word a couple -- maybe you've -- >> a couple times. >> what else maybe god-like >> for the market, but it's close to god-like as one might see in the charts. >> wow okay let's get to chewy doing well bonawyn? >> interesting not particularly constructive on the name relative basis versus consumers' discretionary, a little bit more sticky if i'm going to play the long side, definitely option but likely spread it ultimately i don't want the massive cash lay being outright vol in this environment after today is likely going to cost me. >> all right get to draftkings up nearly 9%

on the week. mike >> yeah. this is an interesting case. obviously had positive news talking about collaboration there with espn. of course, i don't like long duration equity. what this is it's not making a lot of money yet. if i was going to play it for the upside i, like bonawyn, only do so using something like call spreads or maybe even call spread risk, because i think the news creates some floor. >> yeah. carter what do you think about draftkings it's not god-like? venture out on a limb and say it's not. >> other bearish or bulls looked at top of the hour drops 80%. price action is very developmental. >> get to nike good one up 5% this week. carter >> talk about down and to the right? opposite of s, and i don't see any reason to own the stock. >> bonawyn what do you think >> short term challenging. one i mentioned is on my watch list a name i've been wanting to get

long for a while i think it's going to be challenging in short term but there are specific names i think will hold up and have stood the test of time nike fits that bill. >> yeah. mike, a lot of activity and what did that activity to you indicate >> actually owned this stock i put thaw in the past tense i'm done with it don't do it is what i would say. yeah this is not one you want to own here i think what we saw this, a little bit of relief after a really poor performance. the reason we got this bounce. i don't think it's going to last. >> up next, "final call. >> announcer: "options action" is sponsored by -- is more than a trading platform. it's an entire trading experience. with innovation that lets you customize interfaces, charts and orders to your style of trading. personalized education to expand your perspective. and a dedicated trade desk of expert-level support. that will push you to be even better. and just might change how you trade—forever.

because once you experience thinkorswim® by td ameritrade ♪♪♪ there's no going back. thanks to avalara we can calculate sales tax on almost anything, anywhere, automatically. avalarahhhhh. what if tax rates change? ahhhhhh. filing sales tax returns? ahhhhhh. managing exemption certificates? ahhhhhh. business license guidance? ahhhhhh. does it connect with accounting? ahhhhhh. item classification? ahhhhhh. cross-border sales? ahhhhhh. what about? ahhhhhh. ahhhhhh. do you have those budget markups? thank you. mmhm. [bubbles]

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join your neighbors. join united way. good luck. td ameritrade, this is anna. hi anna, this position is all over the place, help! hey professor, subscriptions are down but that's only an estimated 15% of their valuation. do you think the market is overreacting? how'd you know that? the company profile tool, in thinkorswim®. yes, i love you!! please ignore that. td ameritrade. award-winning customer service that has your back. "final trade," carter worth? >> market's in a precarious position short, spy. >> bonawyn >> lever down side. >> mike khouw? >> take advantage selling vertical spreads with limited

risk. that does it for us here on "options action. have a great weekend back here next friday, 5:30 p.m. eastern time meanwhile do not go anywhere "mad money" with jim cramer starts -- right now. (dramatic music) - welcome to today's program. i'm milton lawrence and with me is dr. wendy walsh. our topic on today's program is the potential health risk individuals and families who have served, worked, or lived on marine base camp lejeune, or marine corps air station new river in north carolina. scientific and medical evidence indicate