>> mike khouw has jolting observations on a way to insulate yourself. it's time to risk less and make more "options action" starts now. >> well lets get right to it markets gearing up for the busiest week of earnings of of the season, including some of the big tech names, apple, microsoft, facebook and amazon stet to report the four stocks the largest holding in the nasdaq 100 etf now on track for the best month since june but carter worth says there is trouble in the charts fom some of the high flies names. he is at the plasma to break it down what are you seeing carter. >> sometimes something so good that perhaps there is trouble meaning no trouble in the charts but that maybe is the trouble. they are priced for perfection looking at the top five stocks as the basket and zero in on dwchlt qs four of the top five report next week move forward and look at lines. top five stocks, what are they they are 18% now of the s&p, more than the bottom 300 if you look at a chart of the weighing -- and this is whats in, the peak -- the ton five ever reach was 1999 at 20% we're not there now. we're at 18.5. crowded is the word that comes to mind. so lets look at the qs here is a channel of the qqq the etf you can trade that's dominated by the top five names and has been in a virtual perfect 45 degree angle on the log scale. and a channel here my thinking is it's a little hot. look lets look arithmetically process the 100 day moving average opinion. on the shorter average checkback for the 150-day. this checkback to the 150 day. a checkback to the line. 8, 10, 12% depends how quickly you come down. we're due for that if i remove all of this, a little too far above the purple line take action. >> the names have been stretched very par far thank you carter come back to the desk with us mike, what's your trade on this what are you thinking. >> it's interesting. karen was alluding to this at the end of fast talking about the fact that although we did see a bump in the vix, the measure of implied volatility, the price of options didn't mean it's a complete buy here if you look at the implied volatility the price of options and realized volatility which is how much the markets move around, that gap remains exceptionally wide so while the temptation here might be to just run out and buy at the money puts, in fact they're not cheap enough to do that plus as darter pointed out he is looking for a checkback maybe 8 to 10% something in this range, not an absolute collapse. looking into the earnings season, trying to make sure i capture most of it, bearing in mind that options while cheap are maybe not cheap enough to buy outright i was looking out to march, the 220, 200 put spread on the triple qs you can buy the 220s for 2.25 pell the 200 for 1.20 net, net buying 3.35 to buy the put spread i think that's the way to do it. the out of the money puts mitigate the decay you experience but obviously if there is any form of a catalyst that's likely to move the markets right now, we'll exclude all of the virus concerns and things. but if there is fundamental factor driving the markets at this point earnings would be a potential catalyst and the top names obviously have outsized impact on the index right now. >> unbelievable impact in fact what do you make of the strategy, carter. >> this is what one has to do, because just staying and believing and hoping gets a bit dangerous. i would point out if you look at just the concept of how far above or below trend anything can get, we know commodities in particular, can become explosive or an individual stock a tesla but the point is that when you have an aggression, the qqq, this 15 above the 150-day moving average. the last time that happened only one other time in last eight years. and january '18 we sold off oh 12%. >> tony what do you think of in. do you like the nasdaq 100 going after individual components. >> i like this trade for two reasons, because of the fact that you use the qs. the five names you mentioned there is a concentration of 40% in the five names in the qs. you are using the qs as a persecutiony for a bearish trade on the earnings event which is a cheaper way to take it but the jeans genius part from my perspective is that if the stocks miss on earnings and qs move lower the implied volatility on the qs options elevate unlike a put on the individual names where you have theville tilt crush working against you i like this trade. >> what about just the components, tony, i know you like this trade in particular. but is there any other action you would take on the individual tech names that are reporting next year. >> out of the five names i'm skewing on the bearish side. i think a mixed bag. apple i like but amazon, google i'm not sure. i'm skewing poords the bearish side and i like the qs as a proxy. >> we often on the show talk about trying to take advantage of elevated options premiums on individual stocks going into things like earnings and that's a very tough thing to do if you went out and bought bought puts on google or apple and all the big namgs in the earnings every time you would end up paying a big price for that over time so you definitely want to do this tactically where you have the opportunity to do in the index like that that's the way to play it. >> good education. speaking of earnings ge also gearing up for the report next week this stock has been lighting up the past few months. and trading at the highest level since october of 2018 and tony says this electric rally is far from over. so tony how true trading ge into next week's earning. this is interesting. a lot of people talking about ge. >> this has been on the radar since january. i like this because it broke out in january above the 11.5 resistance level and come back to re-test as support. i think this is a good entry for potential long from a risk reward prevc looking at ge from a relatively perspective it's starting to outperform the sector. not only do i like that type of relative strength into earnings, the industrial sector itself having spent most of 2009 going sideways broke out in november i think this is -- there is more upside especially into an election year here so general electric looking at the earnings here it's implying about a 7.8% move next week going into earnings which falls in line with the roughly the 7% that we have seen over the last four quarters. so the way i'm looking to play this, because general electric implied volatility is actually at the lower end of the range is a simple strategy of just buying a call spread. i'm going out to march and looking at the 11 x 13 call vertical i'm buying the march 11 calls for about $1.0 a earlier today and selling the 13 calls for 20 cents. net-net here paying about 85 cents for the call spread. bringing the break even to just 11.85. only about 15 cents higher than it disclosed today i have the 12% upside by the march expiration. >> mike what do you make of this strategy seems goods. >> i like the strategy a couple of things i quickly point out general electric although the options fairly priced relative to the moves we have seen the last few quarters. you can see options if you went out and bought them again into earnings that's expense etch way to play it using the spread makes more sense and trading in the money options which is something people should look at reducing extrinsic premium reduce the decay on the trade it's a way to make the directional bet and mitigating the extrinsic premium. i like that aspect. >> carter. >> tony is watching this carefully has all the hallmarks of a berrish to bullish potential. something with a pro tracted decline and has been basing and bottoming gopd up on the quarterly results. often you get gaps in two or threes another beat, tip top. >> this is a name that really has fallen far but potentially has some nice upside there thank you, gentlemen for everything options out check out the website options dk.cnbc and while there 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[ applause and band playing ] only pay for what you need. ♪ liberty. liberty. liberty. liberty. ♪ it's got all my favorite shows turn oright there.boom, i wish my trading platform worked like that. well have you tried thinkorswim? this is totally customizable, so you focus only on what you want. okay, it's got screeners and watchlists. and you can even see how your predictions might affect the value of the stocks you're interested in. now this is what i'm talking about. yeah, it'll free up more time for your... uh, true crime shows? british baking competitions. hm. didn't peg you for a crumpet guy. focus on what matters to you with thinkorswim. ♪ welcome back to "options action." tesla going upon a wild ride this year. shares of the electric auto maker up more than 33% this month and trading at all-time highs. but our mike khouw is betting the stock's hot rally could hit a speed bump on earnings next week over at the plasma call to action mike take it away. >> tesla has been a difficult stock to bet against if you have been short this stock over the course of the last six months, you understand now painful that can be and of course a lot of shorts have been taken out as a result. if all you've been doing is buying puts you have felt a great deal of pain becauses in a stock where you see expensive options and of course the stock only gone in one direction we are looking for ways to bet against the stock without spending quite as much money over time or taking the risks you would by naked shorting the stock. lets look at it right now. the options market implying a move of 12%. that's quite considerable when you consider how expensive the stock got. we are talking about a 100 billion-dollar market cap, a $12 billion swing one way or the other. there is some downside if you see cracks in the story for this we had a note out from jp morgan suggesting the stock could potentially be cut in half however, the short interest is still high that's important when we think about what the stock could do near-term when they report earnings so lets take a quick look at what's going on. since the beginning of the year obviously we have seen a sharp increase in the price of the stock. we have also seen a sharp increase in the price of options on the stock and these are not the options that capture earnings. we are talking about 90 day options here usually what you see when stocks rice rise is the implied volatility volatility remains static or in some cases fall as the stock rises so has uncertainty. we look how the stock historically behaved around earnings we have seen some large moves. actually where we see the significant concentration of the moves is right here. and that is representing a move of down 10% to 15% from friday to friday, capturing the week where they report earnings we are targeting that price right there. and the trade that we are looking at here is a diagonal calendar i was looking at buy the june 475 puts about 35.50 when i looked earlier today and then selling the weekly 50 oh strike puts for 11.40 notice where the 500 strike is at the time i looked it was about 5.60 sometimes they are around the 10% level maybe more this is a trade that will make some money if the stock stays here it could even rise a bit we're still okay it's going to be peak profits if the stock declines to 500 by a week from today. now, if the stock does linger here, if the 500 puts that we're short are expiring worthless and we can sell more against it to continue the finance the ownership of the longer dated put. >> and tesla shares closed just under 565. thank you. carter what do you make of tesla and the strategy. >> sure. i mean, this is extraordinary. not so much that stocks can't do this but typically it's almost something binary it's a biotech where something can change and that's not the case here we know that they are changing the car industry but a lot is priced in it's a question whether one wants to take profits or reduce -- but being outright short that's not something i would do not to imply that that's what we're doing. this has animal spirits. and it's on its own for now. >> it's a cult-like stock it seems. >> yes. >> in it's way binary. you got lovers and haters. >> i'm not a tesla hater. >> okay. >> i don't hate the cars and i don't hate the company and actually there is actually a case you could make for the current price. believe it or not. if you look forward to 2030, you know conservative estimates figure we see annual electric vehicle sales at that time north of 3 million a year. and what is interesting here is that the theory has always been for tesla that they own the electric vehicle market right now. but as the oems, the legacy auto makers got into the space that they would displays tesla when audioey came out with the e-tron that didn't happen jaguar came out with i pace didn't happen. chev with the bolt, didn't happen teslas a the electric vehicle market increased their share remained constant. looking that way you could say all right if they get into the light duty truck market, class a truck market into all the markets and maintain market share they're going to be one of the big auto makers ten years from now. i think that's what the bulls would argue. there are other things that tesla is up to as well so there is a bull case. it's a lot of that is priced in already. 100 billion-dollar market kpapization gets you close to toyota, the enterprise of bmw that sells more 2 million cars a year. >> the clarity is unbelievable what do you think tony. >> i'm not bearish on tesla but not bullish anymore. i think the way to play this works out really well. you use options to really high implied volatility on the january weekly options you sold. i think they're 110 implied volatility you're able to sell that if you sell these weekly options for just a few weeks you recoup the cost of buying the long-term put. if you get a drop in tesla you are able to take advantage of that the other way i play in is selling a call credit spread to the upside and defending a level to the upside. >> what is remarkable day to day, today with in red tape, tesla barely budged, right a big week, that's a tell that for now it's on its own. >> mike i'm giving you the final word to wrap this up for us. >> you know, it's interesting, selling credit spreads that's a strategy i typically like. it's actually a strategy i talked about in tesla. it's a strategy i've done myself and been punished for because i did that when the stock was 300. i did that at 350. and lo and behold here we are. all i can say is elon musk, bravo you built a good car and have a great stock now the balance sheet is self-correcting because that converts take out the debt now because those are well in the money. >> i think the cybertruck is silly. >> i ordered one. >> you ordered one. >> so i don't think it's that silly. >> you don't think it's silly. >> it's silly looking but i think it's -- you know it's completely different than anything else on the market. and that actually is where elon musk really has turned tesla into this success is that he is willing to do things that nobody else is willing to do. if you are going to be unconventional, you know, that's the way to do it he is unconventional and that is why he is breaking into this industry. >> and those windows are still breaking i hope that that gets fixed too. anyway coming up shares of intel surging to a fresh high today. and that's great news for traders. we'll tell you why plus a burning options question? of course you do tweet it at our handle "options action." and you might get your answer on air. live from the nasdaq market site in times square. much more "options action" after this ♪ sfwls "options action" sponsored by think or swim by td ameritrade ♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪ welcome back to options action it's time to look back at some of our open trades last week tony said chip maker intel was going to break out into earnings. >> this stock has underperformed the market and the semiconductor group. however that has stabilized a bit over the last couple months. and the recent relative strength is typically what i like going into earnings release. the breaking even price on this particular strategy is 58.35 as long as the stock stays above that i'm profitable. if the stock gets a little pop on earnings i get to take profit on this by this time next week. >> and breakout it did intel surging nearly 14% since the trade and hitting a fresh 52 opinion week high. tony what do you think of the stock here. >> well i love the stock i didn't think it would move this far this fast but for the trade we have sold it for $1.15 trading at 9 cents i would close it hout take profit on this trade and move to the next one. >> carter what do you make of the move. >> that's right. it's such a big move you have to take the money and run fully exploit it and there is this. the semis have been particularly good ner steep as dwrgt and semis had a big outside reversal day closed in the red at some point you consume all the fuel we heard from a lot of names it might be you rang a small bell intel puts up a great number and then that's it. >> also mike khouw said netflix was streaming higher on earnings results. >> the stock moved sharply offer recent lows. seeing an increase in price of 30 plus% and moves less than 3% or so or uncommon in the stock. specifically the trade i look at was going out and buying the weekly 3.40 calms. this is not a strategy we look to because that's expensive in most cases in this case they are not cheap. $11.75. >> in fact netflix up 3% since that trade how are you managing it from here. >> there isn't much to manage when you trade the weekly options because a week later they expire. but the stock moved in the desired direction. actually if you had -- if you had this on earlier today, they got to almost $20 actually this morning. the stock obviously gave back a bit of the gains later on. but if you own them up until expiration you saw profit of $2.3 maybe not as much as we hope but $11 investment not bad. >> what do you think tony. >> take the profits and run. you've made 30% gains. it's a weakly option like you said if you keep holding you have fadeded cay tom in take profits. >> up next, the tweets and the final call >> "options action" sponsored by think or swim by td ameritrade and a trade desk full of experts, available to answer your toughest questions. and i see it with zero commissions on online trades. i like what you're seeing. it's beautiful, isn't it? yeah. td ameritrade now offers zero commissions on online trades. ♪ virus outbreak investor impact. monday, the sectors to watch as the coronavirus spreads. concerns rise and the dow falls. squawk on the street, 9:00 a.m. eastern. cnbc watch or listen live on the cnbc app. see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade welcome back to "options action." it is time now to take tweets. the first viewer asks would you old hold a tlt 1.39 call with january 31st expiration into next week. >> tlt is more of a rate bet if you own tlt you bet rates trop are drop. you made a good bet. i would hang on to those. >> another fan asks are you still holding the xle 60.21 call carter >> i think we have enough time stick with it a little longer. >> what do you guys make of that. >> the exercise, the reason we bought the call is because we recognize trfs downside risk but i think we have time we should hang on. >> okay time now for the final call all righty carter what you got. >> qqq, vulnerable to profit taking do it before someone does it for you. >> okay mike. >> netflix i think we can use diagonals here i like the company but the price is too high. >> too high for netflix. okay tony. >> ge looking for a pop on earnings using a call spread to do that. >> see what happens. going to be a busy week next week that does it here on "options action." back next friday at 5:30 p.m. eastern. don't go anywhere, "mad money" starts 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 save you some money. my job isn't just to entertain but to educate and teach you so call me at 1-800-743-cnbc. or tweet me @jimcramer. i've been warning you that investors have been way too cavalier about this coronavirus and that it would weigh on us like an anvil until chin

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