it is friday, and it's time for "options action. i'm frank holland in for ms. melissa lee. the markets log their best weeks since june investor temped their fed fears. big test next week with tech earnings we're going to give you plays. netflix turned into a stellar performance this week, which means we should manage our trade from last week right now we'll explain what to do next. with me tonight, carter worth, mike khouw, and a special appearance by denis. let's get a quick assessment of the week's overall market

action carter, what's your take >> in many ways it was sort of more of the same if you think about it, yields were up 15 weeks in a row, or close to it, a near record gold down, although recovering a bit. and s&p of course putting on a good week. and yet here, too, we're basically the same level where we were in june, not much happened it's going to really get down to whether the earnings can deliver next week. >> denis >> yeah, nothing like a 2.5% broad market rally on a friday the make everybody feel like it's summer time even though it's not the options show -- the vicks still priced at 30 30% vix, implies 2.5% a day. that's what we're getting. fair will i priced. >> mike, you getting the summer time vibes, too? >> no, i don't think i am,

really i have to say -- look, first of all, we had so much bear set coming into this week, i think just anything that didn't have bad news in it was likely going to create some support for the market we saw a couple things come in this week, including, you mngsed netflix. obviously the results were quite good there schlumberger good there that is going to lend support. everybody's looking for green shoots, you could say. and of course everyone's also holding out some hope that the fed sort of take its foot off the break a little bit i'm not sure that they're really going to do that they're certainly not by the next meeting but i think even weak markets, and i think that's what we're in, will see solid weeks, and that's what we got. >> all right, hold on to your hats next week is the big one for tech earnings. carter going to start with you what are you looking at for apple, google, and microsoft

>> these three, apple continues to be the one that acts the best, despite being down there's a table just to put it into context year to date performance of apple versus microsoft versus google tells the tale. call it 30% for the other two. down, plus minus, where google is down -- apple is down half that excuse me. let's look at a chart that depicts that table you'll see here a comparative chart. the laggards, microsoft and google, are almost like frick and frack. you can't see any difference and there's apple, offer, standing out so if we look at the three companies, the three charts individually, this really gets to it. what do we know about where we are in relation to where we have been microsoft's june low is annotated there. that's the line. and we broke below that low and kicked back, thrown back to it but that's where you usually

fail look at google it's the exact same circle we breached the june low, rallied back to the level from which the stock broke down, by definition, level of override supply look at apple. apple never got anywhere near its june low and what we know from here is if in as the others fail, having rallied back to the break point, or apple were to join them, there's no way mathematically equities can go up, s&p, by virtue of the weight these stocks are in the index. >> there we go now to the trade for all three of these mike, let's kick things off with microsoft. >> yeah, so, you know, this is a tough one, of course, because when i think of tech companies that i like, we're not actually long any tech companies. we're long principally energy, for example, is one of the areas that we are long but when i look at microsoft, this is a company that does seem

to be at les in term of execution executing exceptionally well we're looking at year on year 10% revenue and eps growth they're in cloud, hybrid cloud, perhaps more importantly with their team's product they're able to adapt to a changing work environment. i think the struggle for them is that we are in a contracting multiple environment and concerns about declining earnings environment so i think where this creates some pressure for microsoft is at 25, 26 times earnings on a trailing basis where we are. that's still a pretty significant premium to the s&p right now, trading around 17 one of the things that is not depressed, though, are options preem ya going into earnings, two standard devs about their five and ten-ier norms with the stock trading around 238 i was looking at the december 2nd weekly 245, 250

call spread. you could sell that call spread for about $2.05, more than 40% of the distance between the strikes. and that call at the time i was looking at it was almost 3% out of the money the stock rallied into the end of the day, so when you come in on monday if you're looking to put in a trade like this you want to make sure you adjust your strikes accordingly when you put on an upside credit spread, collect 40% of the -- between the strikes when options premia are above their options like this, i think that's a good setup. >> dennis you're trading app and alphabet start us off with apple. >> right, the thing about apple is what they're really expanding on is in their services. it's moved away from the watch, moved away from the phone cycles and moved more into different services you can only see the great pumpkin this year on apple tv, so they have a lock on that. trades i like looking at in

apple is, to go on the pack of what carter said about the best behaving stock, is how well it can behave when you buy the 145 call and sell the 175 call against it, but you do it two times against it so it may seem odd you're selling two upside call against this however, if you look at the break efrps on this trade, it's close to $200 in the stock that gives apple over a $3 trillion market cap will you be selling apple at $3 trillion if it trades well in probably get taken out of the trade. that green pyramid on the chart shows you where the trade is profitable be cautious of selling two upside calls but they're so far out of the money, the demand for upside calls is so strong on the marketplace right now, it's really a structure trade, and it's the structure of that trade that -- where people are out reaching for calls on app toll participate that allow us to sell the upside call in what

arguably could be an overpriced option. >> mike, what your thoughts on dennis's trades? >> he sort of hit it right on the head selling naked call second down a strategy that can be dangerous in a lot of instances. we have seen stocks, especially the mooem mean stocks really rip. but if there's any stock where that's less likely to occur, apple has to be it we're talking about the largest company in the world right now outside of saudi oil, i guess. but this is a situation where getting up to those upper ranges is really quite unlikely, and that's one of the things that make a setup like this intriguing i would add one other thing. this is a popular trade. if you own apple, own from higher levels, were thinking of adding to it going into earnings you might consider putting this structure on instead of purchasing additional stock and then of course you won't have that naked exposure to the

upside if you're long to the stock and layer this one on top of it. >> dennis, can you give us your google trade >> the opposite of what i just said in apple with google trading around $100, if it doesn't behave well, if things really do fall apart, you can go out and you can sell one of the google $100 puts for about $4.50. and then you can buy three of the $90 puts yeah, you'll lose money if google goes from $100 down to $90. you're not going to lose $10 those are going kick up in value and you're going get better volatility if it really starts to fall apart in the broader market. it's like a tail risky trade you can see the rate of acceleration, the profitability. once you pass below the 90 strike, it's pretty dramatic this is a trade you can put on for $0 you're selling one put for $4.50, you get into the trade

for $0 if you're wrong and the market -- we all want to market to go higher if you're wrong, you're really not losing money on this trade if you hold it to expiration. >> mike, i see you eyeballing this trade a little bit. what do you think? >> one way to think about a trade like this is you're making a bet that there's three possible things that happen. one is that the stock stays here and goes higher. no harm, no foul but if it breaks lower, it's likely to break significantly lower. i like the trade for that. this is a company that has a great deal of cash on balance sheet and net on a net basis over $100 billion, and that does create some degree of insulation to the downside. but it's not a trade we've discussed i think maybe on the show ever, and it's one of the creative things that people should contemplate if they're thinking about making bearish bets because you get the a lot of convexity. >> carter, i know you're always

watching the charts how do the charts look on this one? >> again, the ones broken to their june lows versus apple, which has not. these stocks as it relates to the mark, we know the nasdaq 100 has had a total positive return for 13 years in a row until this year we're now down of course there's no other index that managed that in history. and we're going to have a down year and interestingly, at the midyear point, when you will look at polls, still half of respondents would say, you know what i think they'll recover. they're not recovering, and the big question is, what if they get meaningfully worse next week >> that is the question. coming up, it's not just the fed that's impacting the power of the u.s. dollar it's also japan's yen. we'll explain. for "options action" action, check out our website and newsletter much more "options action" after this break stay with us

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>> biggest single macro event of the past five days is what went on in the japanese yen let's get right to the charts and look at it the fascinating thing about this is you can see those parallel

lines. the yen weakening. you often get technical setups just before fundamentals come out. that's why a stock setting up a breakout juncture, the earnings caused the breakout. so there was intergenetics on the part of the -- and you see the yen faltered right at the time upper bid briefly went up and faltered there were buyer stepping in of the yen. the question is the dollar so we've done a couple dollar trades in the past and i wanted to look at that again. the next chart is the uup, an etf that tracks the u.s. dollar index. and so we know here, too, in this instance, up is up. up is strong, dollar strength. we went out through the top of the channel. it's a very well defined channel. mathematically parallel lines and now we've fallen back into it another way to draw the lines,

final chart, this is basically the uup again. but you see here the sequencing. after a strong advance you get a countertrend move, and then it reasserts itself, makes a new high then again a countertrend. we're in the process of a countertrend, and i don't think it's over. so we're playing for lower dollar. >> carter lookingt countertrend moves mike, looking for a way to play the u.s. dollar tick the us through your trade. >> there are etfs that track the yen, but i think uup options are probably an easier and better way to play it one of the reasons for that is that the bit ask spread in up is going to be tighter. another things that's going to affect the dollar is what our central bank is doing relative to what other central banks are doing right now we know there's a 75 basis point hike price in with near certainty for

november of course there's a lot of conversations going on about whether or not they're talking about moderating potentially the pace of these hike os or the si of these hikes 75 in december was a coin toss, 50/50. in any case, if they slow the rate hike or suspend them even briefly starting in december -- because i think november is a lock, potentially as other central bafrnks hold steady or tighten themselves that would cause weakness in the dollar on a relative basis in the same way we see in many places, if you look at prices outright you're going to think, they don't look very expensive that's because currencies don't move much, but they are actually above average. that's one of the reasons i'm looking to do a spread and looking at an in the money put spread looking out to the december

regular way expiration, the $31.29 put spread. when uup was trading $30.15 you could spend about 90 cents to get that the amount of day is a nickel. you'll notice there's a slightly asymmetric payout. the amount you get on the downside is the amount you're risking. really, the idea being uup is, like the currencies that understood pin it, not going to move a great deal, just going to move a lot on a relative basis to itself. that is to say, currencies don't move a lot, and we're using a put spread that's not needing them to to profit. >> we've seen action recently you guys at home can't see this. dennis furiously taking notes. what's your thoughts on mike's trade? >> my take is that it's a great trade, and one of the things -- i don't know if i was furiously

taking notes on it, but currencies don't move much -- i'm one of the few people that can come on the show and say this to mike -- that's what the younger guys think currencies move a great deal we've move into the a new era in currency trading you look at what happened in england with the guilts and pound recently as a month ago. i think we're moving to a new world order in currency trading. as certain countries move out o stimulus and into tightening, you're going to see drastic moves. that's why mike's trade is so good in my years of doing this, the biggest unwinds and biggest shocks to markets i've seen been in currency trades it could be something like the new zealand currency or australian dollar. when they go sideway, they go sideways really quickly. having options trades on in these things is the absolute

best way of doing it you limit your risk. as i said, it's one of those jumps we're seeing and trending over you can look at, like, the european vix is higher -- lower than the u.s. vix, and they have a war going on over there. the whole global decent ralization of it, options are the way to two i like mike's trade. i like the bet on it if he was wrong, an error of his youth, he stopped out on the trade. >> mike i think he's calling a young un he mention his years behind the wiz. behind the scenes, mike's like, bring it back to me. go ahead, mike. >> well, i'm not that young. i started in the business only a couple years behind dennis, actually i think we're both in our 50s. i'm in my early 50s, and he's in his mid to late 50s. if i got that wrong, dennis, i apologize. you're right, we did see the swiss unilaterally devalue is

fr fr franc. that's the interesting things about currencies you have policy makers who make these decisions that have sharp and immediate impact many banks moving in parallel, and some of that increased volatility that dennis is talking about in currency pairs is indeed price into the options, which is one of the reasons i'm using to spread. but i think he's right some of the biggest forcings that have ever been made in options markets and future markets were in currencies >> we'll let you work out who's older and younger after the break. wh tdo qstn.witterueio ato with last week's netflix trade. we're back in two minutes. stay with us 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.

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just last friday, carter and mike laid out a way to play the stock heading into the company's quarterly results after the bell tuesday. the stock popped after earnings and is now up 25% this week. so we're going to go to one of the young guys here, mike. how do you manage this one >> we targeted a move up to 280. closed today at 289. i think we take the money and run. >> dennis, last time you were on the show was friday, on this friday show, was september 23rd. you laid out an inexpensive tail risk trade that looked way out through the beginning of next year what's your position now >> my position is leave it on. if you look at the pnl it pays you a lot of money if the market wraps out. that big green blob on the left side will hopefully provide with you sleep at night. >> mike, the rebuttal? >> doesn't need a rebuttal i think it's a great trade, and would have it on myself if i were you. >> carter, anything else

real quick, got to get to break. >> if you're long netflix i would sell the december 330 calls which is to say i'd lock in gains by taking risk off. >> locngki in gains. up next, the final call. stay with us

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hold on wait a minute. i know you thought we were finished but time for a look back mike, what do we do with that? >> i'm still long schlumber and -- so i think you stick with it. >> time for the final call catas carter, you're up first. >> there are always rallies market is not in good shape. weary main -- >> dennis. >> i'm going with the young gun mike khouw i like his exposure to

microsoft. >> mike you're catching a lot of heat. >> uup short dollar. >> there it is that does it for us here on "options action. we'll be back next friday at 5:30 p.m. eastern. do not go anywhere "mad money with jim cramer" start right now. my mission is simple, to make you money i'm here to level the playing field for all investors. there's always a bull market somewhere and i promise to help you find it. "mad money" starts now hey, i'm cramer. welcome to "mad money. welcome to cramerica other people want to make friends, i'm just trying to make you some money my job is not just to entertain but educate and put days like today in context call me 1800-743-cnbc. tweet me @jimcramer. four