Maybe because mike khouw has a way to buy baba for less than 2 bucks ahead of earnings. Well break it down for you. Its time to risk less and make more the action begins right now. Lets get right to it, because we are officially more than halfway through earnings season, and check out some of the names reporting next week. Mastercard, pfizer, under armour, apple, starbucks and tesla. So, which should you buy lets get in the money and dan is looking at a sleeper pick. Yeah, you know, if you think about this earnings season, it started off with bank stocks and they acted decently for all intents and purposes, no big news one way or the other, then industrials last week, we saw big moves. Now mega cap tech, alltime highs, massive, eyepopping moves. So now when i think about the cadence of this earnings season, we think about consumer names. We know Consumer Staples acted really badly, one of the worst sectors today was retail, but i want to look at starbucks. They report next week, Options Market is implying a 4 move either direction, the average over the last four years this is interesting to me because it massively underperforms the broad market its down about 1 its down 15 from making 52week and alltime highs back in june. And since reporting in late july, its fiscal q3, the stock has been trading for the better part of the last three months between 53 and 55 bucks. So when i think about the earnings event next week, i think about expectations that arent particularly high the stop gapped down late in july after the earnings print because they guided this quarters samestore sales down below expectations after beating them the way i think about it this way, as i look at the earnings event next week, if they were to beat the fiscal q4 samestore sales and were able to leave fiscal 18 estimates intact, consensus is looking for 15 eps growth, 10 sales growth next year, i think this stock bounces. I think it could fill in that gap over the next few weeks back towards 60, and i want to do it with defined risk. All that said, why i want to do it with defined risk is if they guide down, the stocks going straight to 51, thats it i want to look at december expiration, give this thing time to play out, if the stock were not to immediately pop on this but today when the stock was trading at 55, you could buy the december 55 60 call for 1. 30, buying one of the december 55 called for 1. 47, breaking even at 56. 30. You have gains up to 3. 70 between 55 and 60. I like the cap risk reward of the trade. It gives you participation playing an event we know its hard to do that if you get the direction wrong, it will be hard to make money, but i like the riskreward and the sentiment setup. Mike . I like the trade. Weve said this many times, you think its realistic to assume that the stock could move 1. 50 between now and christmas or thereabouts, and i think the answer to that is clearly yes. I mean, they still have some areas for real potential growth. They never really took off in europe, but they have done pretty well in asia. Thats still an area of growth, probably 20 potentially there, although its a relatively small percentage of their business, and samestore sales will be the operative thing because i dont think there will be a lot of growth outside of that in the u. S. I think dan started out, and often is the case with managing the risk, because theres a lot of risk to this. And you know that, right so, when a stock drops and gaaps on its earnings, its very rare that its isolated timically when you gaap up, you 13 weeks later you gaap again. They miss it again, it gaaps again. The fact that it did drop in gaap on earnings and relative strength since then has been poor, i would say the risk of a gaap down, just as youre siting the 51 level, that seems like the higher odds bet. Let me tell you what i got looking at this stock for. Nike had a gaap and footlockers really bad earnings in august, the stock gaapd 10 or Something Like that and spent the last month and a half in this consolidation period near the lows and this week they had an analyst meeting, the stock rallied into it and its up 10 in a week or so. To me, i think investors are looking for stories where maybe the news that got them down a couple months ago is not going to keep them down. And remember what happened with ibm, talk being a gaap pop dude, look at intel, gm, all of these stocks that rallied 30 in like a month and a half. Gaap up in a strong stock, move thats different, right . But a stock that has a proceeding gaap, the burden of proof is on the bull, because most often this next gaap is also if you had your druthers, carter, which way would you say you say lower. I think the odds are higher that its lower. Also they have new management in there, still sort of playing out to see whether the company the last time Howard Schultz left the company, they had a problem. He came back, they obviously recovered. Now were going to figure out whether the new Management Team is really able to deliver. You know, this is a really good discussion about playing things into event. At the end of the day, i wouldnt buy starbucks playing for the ga gap fill been becausi dont know the success, but i like the call spread with six weeks for this to play out if nothing happens, im still in the game it it sells back out to the lows, ive only risked a little bit and it could be down 3, 4. I like the riskreward and this is a stock people will come back for. Now to alphabet, surging to an alltime high after reporting betterthanexpected earnings. Last night, one of the key and perhaps most overlooked drivers of the quarter was a stunning performance of youtube josh liptons in San Francisco with more on that angle of the story. Hi, josh. Reporter melissa, alphabet does not break out youtubes numbers, but ceo pundit pa chi released new numbers and says the platform has over 1. 5 billion users who on average spend 60 minutes a day on mobile but here was the big number that caught peoples attention consumers are now watching 100 million hours of youtube from their living rooms every day now, and that is up 70 in the past year alone. So, why is that important . Well, the company has said in the past that the majority of viewing takes place on mobile devices. We are seeing a shift that could directly compete with traditional tv youtube has been laying out this strategy for some time now traditional pay tv distributors are losing subs. In q2, it was the worst quarterly loss ever with an estimated 941,000 subscriber losses youtube, of course, trying to capitalize on the cordcutting trend weve been seeing in this industry theyre also investing in new, original content, launching a slate of adsupported original programming and partnering with the likes of Ellen Degeneres and kevin hart for them to push into products like youtube red or youtube tv it seems to be working its Pay Tv Service launched earlier this year, but again, you have competitors like amazon, hulu, sling tv, directv all in this space trying to tap into the Live Streaming market pachai says its available in 15 metro areas. Melissa, back to you. Thanks, josh lipton in San Francisco. Well, those youtube numbers are putting pressure on the traditional media stocks vai cam, disney, cbs, discovery all lower, viacom falling more than 2 . The chart master sees more carnage in this space. Break it down, carter. This has been a very bad space, almost chronically so for the last six, nine months, almost a year. I think the real insidious thing is that they were such outperformers. So, take a look at this. Look at this relationship. This is the s p 500. And this is the s p 500 media index. Its about 16 stocks, worth about 800 billion and you can see that of the last sort of three to five months, theyve diverged and you can say, maybe we could play for convergence, meaning get long media, but watch the next chart watch the orange line. Its media on top. Media was such an outperformer during this bull market that this recent weakness is really quite nascent, quite new and so, go back to this. I think this is just the beginning of what will be much more trouble for media so, thats the group itself. Heres viacom. Here are your lines. Youve broken trend. I mean, thats quite clear, yes . The idea is that a break in trend typically will follow through to the down side and now lets talk about look at this. Look at this i mean, youre talking about a stock that peaked in 2014. Equities its almost impossible not to be up. Viacom straight down from the group of which its a part how far could it go . I mean, anywhere your imagination wants it to go, but the only thing i could say you could see is this. Thats a pretty welldefined formation. Thats the 09 low down over here i mean, lower, south sell wow. Options are the only way to press a short in a stock that is trading about onethird the valuation on a historical basis that the s p is. This things trading about 6 1 2 times next years earnings both the equity and actually the Options Market, too, are saying that theres some real problems here i was looking to january, the 22. 5020 put spread. The strikes are about 2. 50 apart. Thats the first out of the money strike we could get on this thing you know, this is a company that has some really troubled assets. We were talking about it right before the show. I mean, mvt, vh1, these are the things that we watched when we were kids. My kids, they dont touch this stuff. Probably dont know what it is. They dont they dont i mean, i was thinking, whens the last time we even realized these channels exist is when i was on the airplane and i accidentally hit the channel button too far, where it was the upper reaches, that and the Country Music channel. This is the kind of stuff, they dont have viewers we can see where theyre going and theyre not going here so they have a real problem to resolve. Paramount studios also had silgt underperformance. Youre risking a certain amount to get back to a certain level that its not traded in seven, eight years, Something Like that. The only thing i worry about at such cheap valuations, you look at the sum of the parts, look at whats really causing this you just said, its google, facebook, its obviously netflix, but its going to be apple, amazon, that sort of thing. I wonder if at some point jeff bezos does what he did with whole foods, just takes in the studio. What other sectors have valuations that are basically as cheap as this . Retail names like macys. And theyre facing the same types of competition. Secular thing. Thats right. And every single time you try to draw the line in the sand, you say it cant get any cheaper, what happens people realize the business is really deteriorating severely, and thats when they go lower. Its 24, 25 bucks, alltime lows question for you, carter, why wouldnt you play disney back to like 90 rather than pressing its probably a better one, but its dish, disney, cbs, its omc, the whole thing is under so much pressure. It would take a lot to fix it. Yeah, but when you take a look at their closest comps, this is the one thats the worst of the group. But its also down from 90 to 25 im saying disney, theres an obvious level the price level doesnt matter if the underlying business is deteriorating. But the idea of pressing a stock thats gone from 90 to 25 were risking 70 cents. Obviously doesnt like the trade. Thats all right, though. For everything options action, check out optionsaction. Cnbc. Com, and while youre there, sign up for our scary good newsletter. What are you waiting for heres whats coming up next look, up in the sky its a bird its a plane no, its just shares of alibaba. But if you miss the move, well tell you how to get long for just 2 ahead of earnings. Plus, calling all options action fans reach into your pocket, grab your phone, and tweet us your question optionsaction. If its nice, well answer it on air. When options action returns. Logical i think its terrific. Announcer options action is sponsored by think or swim by td ameritrade. 5 years, hmm. You ever call your broker for help . Once, when volatility spiked. And . By the time they got me an answer, it was too late. Td ameritrades elite service team can handle your toughest questions right away with volatility, its all about your risk distribution. Good to know. Thanks, mike. We got your back kate. Does he do that all the time . Oh yeah, sometimes he pops out of the couch. Help from real traders. Only with td ameritrade. Hi, im the internet you knoarmless bowling. Lt . You got this, jimmy you know whats easy . Building your website with godaddy. Pick a domain name. Choose a design. You can build a website in under an hour. Now thats a strike get your domain today and get a free trial of gocentral. Build a better website in under an hour. I love you. Witness katy perry. Witness katy perry become a legal witness. Witness katy perry and left shark. Or a card shark. Grandma . Witness katy perry work. Witness katy perry firework. Witness katy perry swish. Witness katy perry. Aaaaaaw look at that dog katy perry with music videos and behind the scenes footage, xfinity lets you witness all things me. Well, itsonce again. Eason yeah. Lot of Tech Companies are reporting today. And, hows it looking . I dont know. Theres so many opinions out there, its hard to make sense of it all. Well, victor, do you have something for him . Check this out. Td ameritrade aggregates thousands of earnings estimates into a single data point. That way you can keep your eyes on the big picture. Huh. Feel better . Much better. Yeah, me too. Wow, you really did a number on this thing. Sorry about that. Thats alright. I got a box of em. Thousands of opinions. One estimate. The earnings tool from td ameritrade. Welcome back to options action. The nasdaq soaring to new highs today after blowout earnings from alphabet, amazon, intel and microsoft, added roughly 150 billion in market cap today alone. 94 of tech stocks have Beat Estimates so far, and its not over yet four more tech giants are set to report next week, facebook and tesla on wednesday, the Options Markets implying 5 and 6 moves respectively for those stocks and apple and alibaba are reporting on thursday, apple implying a 4 move either direction and baba a 5 move together, these four names could represent an 84 billion shift in market cap. And mike khouws got a way to buy one of these high fliers for less than 2 bucks. Hey, mike. Were going to talk about a call spread risk reversal. Were looking at baba, targeting a catalyst in this case its earnings, which theyre going to report midweek importantly, elevated options premiums are what were seeing, implying about a 5. 7 move, which is larger than the last couple that weve seen also, this is a stock thats up a lot. So one of the things were looking to do here is risk less than if we were just going out and purchasing the stock here. So, taking a quick look, were going to be you can see the kind of move that weve seen and basically, what im trying to take a look at here is i dont want to take if its going to move 6 to the down side, thats the risk im trying to avoid, and if it moves 6 to the up side, thats what im looking to capture with a call spread risk reversal looking at weekly options, i could buy the 1. 75 calls that expire next friday, sell the 162. 50 puts at 1. 25. This entire trade, its 1. 70 for slightly better than that. Around 10 00 this morning. I was actually trying to put this trade on. I lost my market data. By the time it came up, the stock had rallied sharply. So, this is a trade ill be looking to put on on monday. I didnt manage to get into it today. Dan, what do you think of the trade . I like the trade. I think the most important thing is recognize the fact that worstcase scenario, you get the direction wrong, the stock goes down a bunch, youre basically putting the stock, at the premium that youre spending, plus the short put strike 162. 50. If thats a level youd be willing to buy the stock if theres bad news on the earnings, then you should feel pretty good about it, and just about the choice of separation, i like a call spread risk reversal targeted event shortdated. Youre just doing one week youre not giving it a ton of time here. Its trading the event and if youre wrong, youre going to move on. I mean, when you use trades like this and the expirations you choose are relatively longdated, sometimes they dont behave exactly the way you think they will. This is one of those situations where youre going to know the answers next friday. And if it goes through 175, its actually above there right now, runs up, this will be a n winner if it falls, essentially youre getting long the stock at 162. 50. The Options Market is implying a move of about that size or less, so that would represent i mean, the stock closed above 177, so thats a 15 decline, essentially, if you get down to that 162. 50 level that would be more than the Options Markets expecting so the downside risk, you know, its obviously a lot less. It has the same setup as every one of these names today weakness of late. Just what amazon has had, and google right. And if youre betting that it will do the same thing, its going to be big. Now, theres one that has faltered its baidu, right . In this area but its a standalone and at this point, the better bet is that its up. It is you know, one thing and maybe this is just my perception of it. But taking a look at this entire earnings season, it seems like with the exception of maybe a baidu, theres a handful of isolated incidents but in general, it seems like the market is favoring tech here, regardless of how their earnings come out. The news is viewed more positively than it has been the buys are to the up side. Yes, which isnt true across every sector this earnings season. All right. Up next, the yield on the u. S. Tenyear surging to its highest level since march this week despite the move, theres one ratesensitive sector thats holding up very well plus, got a question for our traders . Send us a tweet and if its a good one, well answer it in the show i think its terrific. Announcer options action is sponsored by think or swim by td ameritrade. 5 years, hmm. You ever call your broker for help . Once, when volatility spiked. And . By the time they got me an answer, it was too late. Td ameritrades elite service team can handle your toughest questions right away with volatility, its all about your risk distribution. Good to know. Thanks, mike. We got your back kate. Does he do that all the time . Oh yeah, sometimes he pops out of the couch. Help from real traders. Only with td ameritrade. Well, itsonce again. Eason yeah. Lot of Tech Companies are reporting today. And, hows it looking . I dont know. Theres so many opinions out there, its hard to make sense of it all. Well, victor, do you have something for him . Check this out. Td ameritrade aggregates thousands of earnings estimates into a single data point. That way you can keep your eyes on the big picture. Huh. Feel better . Much better. Yeah, me too. Wow, you really did a number on this thing. Sorry about that. Thats alright. I got a box of em. Thousands of opinions. One estimate. The earnings tool from td ameritrade. Welcome back to options action. Time to look back at some of our open trades. Back in september, dan played for an apple bounce. I want to look at a call butterfly. I want to look out to november expiration its going to catch all three of those events next week, the launch of the device, and thin their next earnings event where theyre going to give guidance so today when the stock was trading at 159, you could buy the november 160, 170, 180 call butterfly, paying 2 for that. Well, it has been a wild ride for the tech giant the stock initially took a dive but has since rallied back we have earnings next thursday, so what are you doing, dan so in light of amazon becoming one of the biggest stocks in the world today, up 13 , the move that google had, i dont think you want to be in a butterfly into this event anymore for the reasons that the stock has moved up here. This trade has appreciated dollar id take the profits and roll it into a straight call spread. If these guys beat their estimates that they raised last quarter when they gave guidance and then beat again, especially given all the sentiment about supply for these iphones and maybe demand for the iphone 8, if they raise, this stocks going higher it just is so you know, at the end of the day, i dont think you want to be in a structure like a butterfly. I think youd want to be in a call spread. So id take the profits and roll it out into a call spread where youre buying one call spread and selling a higher strike. One month ago, khouw and carter said utilities were headed higher. Two ways i would draw the line one, weve kind of come back to support. Two, that were on this trend line but either way, i think youve got a pretty good chance of after this 5 6 selloff in the xlu for a bounce here. I want to be long at this point. I was just looking out to january to the 53 call. You could spend about 1. 45 for those. Those are the atthemoney calls. Since the time of the trade, the utilities have rallied slightly and theyve actually held up pretty well in the face of rising rates. So carter . Thats the bizarre thing. In the past 30 days, rates have gone from 2. 27 to 2. 47 and utilities are up 3. 7 more than the s p in the same period i think that resilience is impressive, not so much for us, but what it says about this area of the Market Holding up in a move like that in the tenyear i think we want to stay with it. We bought this call for 1. 45. It was worth over 2. 50 today. And interestingly, you could buy the 55 strike calls for a little over 1. 10. What you should do is actually sell this one, buy the 55s, so youve basically taken all the original risk off the table, and youre now long the 55 calls. So were basically playing with house money. What would you do with this if this chart didnt say xlu, it says something techrelated or something that was kind of growthy, youd be buying it for the breakout its a great looking chart, and i think you have identified the potential headwinds of the trade is this rate cycle, right, and that sort of thing so to me, i think mikes rolling the trade makes sense and using the houses money. All right, up next, tweets and the final call from the options pits i think its terrific. Your kids go to college and you start trading. Yeah, 5 years already. 5 years, hmm. You ever call your broker for help . Once, when volatility spiked. And . By the time they got me an answer, it was too late. Td ameritrades elite service team can handle your toughest questions right away with volatility, its all about your risk distribution. Good to know. Thanks, mike. We got your back kate. Does he do that all the time . Oh yeah, sometimes he pops out of the couch. Help from real traders. Only with td ameritrade. Well, itsonce again. Eason yeah. Lot of Tech Companies are reporting today. And, hows it looking . I dont know. Theres so many opinions out there, its hard to make sense of it all. Well, victor, do you have something for him . Check this out. Td ameritrade aggregates thousands of earnings estimates into a single data point. That way you can keep your eyes on the big picture. Huh. Feel better . Much better. Yeah, me too. Wow, you really did a number on this thing. Sorry about that. Thats alright. I got a box of em. Thousands of opinions. One estimate. The earnings tool from td ameritrade. Welcome back to options action. Time for some tweets our first fan asks, i bought facebook november 3rd, 190 calls for 45 cents what do you think . Dan . I think theres a low probability. Only a 13 probability those are in the money, so it really depends on your conviction on this one. All right our next fan, angelo, asks with the pullback to the trend line in xbi, how do you feel about the january 90 calls thank love options action. Thanks, angelo mike tough week with all the news thats coming out, but i think youre looking at this the right way. Buying calls in Something Like that, at this point if youre going to make a bullish bet, i think thats the way to play it. Just as angelo said, perfect trend line, bounced beautifully, and in the market, biotech is up and all of those big names today, google, theyre all down. Play the bets. Time for the final call on the options pits carter viacom, i know, what do you do just get away from it, however you can. Mike . Going into baba, options are expensive, so use a call spret risk reversal where youre selling more options. Startups, im using defined risk, playing it in a contrarian way. All right, our time has expired. Im melissa lee. Thanks so much for watching. For more options action, check out optionsaction. Cnbc. 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