But now the chart master sees Something Different and hes ready to make an even bolder call the action begins right now. Lets get right to it. The tax sector just posted its best week since December Nvidia surging another 12 this week facebook up nearly 6 and hitting an alltime high today microsoft also hit a new high today, up 5 this week apple and alphabet have been on a tear so should you buy any of these names as we head into earnings season lets get in the money right now. What do you say . I think it makes sense to be careful at this point. Microsofts up 5 on the week, up 7 over the last couple weeks here, right at a new alltime high today so as we think about what are they anticipating . Theyre anticipating a good quarter and theyre anticipating good guidance. I think it makes sense to think about the bank stocks reaction today where there was some news about what their quarters looked like from a trading standpoint each one of them had some news that i think surprised investors a little bit they were down 2 on the opening but closed decently. I think it makes sense to play for continued consolidation. The moves to the upside might be muted when theres expected good news after the runs and then you could see dramatic moves to the downside if you were to see disappointment so to me, it makes sense to be cautiously optimistic. The fact that the financials seem to trade decently well into the close speaks well of market strength the other thing, the vix closed at 9. 51 today. Excluding a weird holiday week in 1993, thats an alltime low. Alltime low theres one thing we do know that generally speaking when the markets moves are relatively muted when the Options Market is expecting muted moves, the market tends to outperform. 30day returns in a volatility environment like this one, tend to be above average. So i would just make that one observation. Its kinda scary that its this low, but its just the fact. Something will happen but big tech, the interesting thing is the sector itself, being the most important sector in terms of weight at 23 of the market and where it is in relation to where it was in its alltime high we know the alltime peak was a monday, march 27th 2000. And a month ago we got to that level within a fraction and it backed off aggressively, 5 or 6 now weve gone back and were approaching that high on a different level. So within tech, it depends on which stock you pick because most stocks, unlike microsoft, which has, most stocks have not made the new high facebook has, microsoft has, but others are still well below that backoff high from a month ago so you are looking at microsoft . Yeah, i am. Its one of the stocks thats made a new high. I think its kinda interesting i think if youre like, i have to buy microsoft in front of this q4 report next week, id say, theres probably other ways you can think about positioning yourself mike just mentioned the vix is closed even in a low vol environment, theres opportunities to sell, options to help finance purchases of other options thats what i want to do in a situation like microsoft i think you get a move up or down a couplebucks over the next week. I dont think well get a fierce breakout. I think there is the potential for a sharp decline. Heres the trade in microsoft, trading around 73. I think you want to look to a call calendar if you want to position the longer dated call sell the july 21st next week expiration strike call at 65 cents and buy one of the september 75 strike calls for 1. 30. That would cost you about 60, 65 cents. But the idea is, you want the stock to go up to that 75 strike over the next week or so you want it to close below there. The julys that you sold will expire worthless and then you own this september 75 strike call for 65 cents. And the idea here, youre playing for a slight move upward, a consolidation, and then you own this cheap premium it looks entirely consistent with what i was just saying. When the vix, which is a measure of the volatility of the broad market, its moderately bullish for the market in microsofts case, theyre above average. Hes selling that slightly above average premium shorter dated option i like that youre catching september. Many people think of october, its a period of volatility. But there is a lot of history of volatility spikes after labor day. And youre going to own that so i think thats a good setup. And importantly, microsoft is a very defensive, offensive stock. Lets say the whole thing is in trouble. Microsoft is better, its has characteristics that almost guarantee that if you can say that word at any point in this business but also, its important that it made a new high. Theres a lot of oldlying tech names with bad patterns and outcomes this is a good pattern and i think the outcome is going to be good were not fans of buying long dated options and holding on to them and hoping the stock goes in that direction. This strategy looks to take advantage of the dynamics that mike talked about, its not playing for a massive breakout, but playing for shortterm gains to the tune of 1. 5, maybe 2, that sort of thing and youre financing the ownership of the longer dated one. I like those trades in names that have acted well i think you have a better chance of con selldation, especially on the bullish side Energy Stocks down 13 , just as the chart master predicted several times on this program and on fast money. Energys relative performance to the seap has been straight down its the trap that keeps on trapping and people are doing it again, getting long because it went up a few days weve got energy down here at 58 . Compared to the s p at 210, and its down again this year. I think it is the trap that keeps on trapping and i just dont want to be involved the long side. I want to be short energy. But now, apparently after all that carnage, a bold call to buy. Carter, you Say Something in the charts has changed, its not a trap anymore well, maybe im the last guy to get in the trap [ laughter ] but its come a long way and at some point, im going to make that bet. Lets figure it out together ive got a bunch of charts and ill tell you what im thinking. Okay, roll through the first bunch quickly. Comparative charts what you have on top is the s p and the bottom is the s p 500 energy the first one is year to date. Thats no joke okay, moving on. Next comparative chart is a oneyear chart again, quite shocking. And we see where the divergence took place it really started to get going about 12 months ago. Next one pulling it back a bit further, same general circumstance. Its all about this current, very sharp decline keep going okay, longterm, look at this. At some point, and thats kind of again, the last guy to get into the trap and its going to get worse. Or maybe with a little luck, this is going to be where you can get a bit of a tenyear chart. Its quite clear we have this, where they start to diverge and ive tried to resist the temptation to think it was cheap and make the buy. Either im falling into the temptation or this is going to be right i want to make the bet with energy zero in on the here and now. So this is the s p 500 Energy Sector and its a well defined series of lower highs, lower lows theres no other way to characterize it. If you draw trends, its right up against the trend line. My thinking here now, well talk about why, is that for the first time now, in exactly seven months, well poke up above the top, and its based on the following. Now heres the same chart, and whats important here is this. This again is the period we just looked at, the straightdown, very orderly sevenmonth decline. And this is the relative performance to the s p meaning its been going down absolute and more than the market but watch this, if i draw lines here, this is key. We made new lows on the actual price, bup we didnt make new lows in relative even as its going lower absolute, its starting to outperform the market thats important i think its the beginning of something. Heres the xle, the vehicle you would use. One other thing and then ill quit this is the period were talking about, a fiveyear chart look at this prove from hemove her and back to here its exactly 50 i think youve got a good bet here on the language side of xle. Should we invite carter back . Im just joking, come on back, carter thats my chair maybe not always. [ laughter ] mike, whats your trade this is one of those situations where we dont like to go out and buy premium. But in this case, i think it does make sense to get into a long premium trade first of all, if were wrong, youre catching the falling knife. So were not interested in taking a great deal of risk. If youre right, were probably going to get a fairly sharp upward bounce, right maybe 10 or Something Like that thats the thinking were looking at a 60 to 90day time horizon. You could buy the september 66 calls. Sell the 70s for 30 cents. Look, every now and again, you do need to sort of decide that theres asymmetric riskreward in this case, the options trade by itself, youre risking 1. 20, if it drifts lower, its not going to give up all of its value immediately. What do you think, dan . I like the trade idea wishing wishing 120. One of the things interesting to me, look at how the xle has tracked the dollar index it closed badly today. That looks like it has a little more room to the downside. This trade make a little time if you believe the correlation to the dollar, that sort of thing so i think thats a reasonable way to play it its not been moving a heck of a lot. Which is a reason why options premiums are cheap but it almost feels like its got a capitulation coming. Whats also interesting, that was the s p 500 Energy Sector. The s p mid cap 400 is down 42, and the s p 600 Small Cap Energy is down 46 weve really had a decimation. The final thing is anecdotal people who were quite bullish have finally given up and you need that. I think the big names in the space, the exxons, the chevrons, those are not cheap companies and theyre not really making the investment in their own business some of the others probably have come a little too far too fast which is the reason i prefer to play with a more broad sector in the atf energy space than to reach for the Companies People thought would somehow be safe because they paid a big dividend that they probably cant sustain in the longterm i look at this and it seems like a pretty good setup you can check out our website, while youre there, sign up for our super cool newsletter, makes for a great weekend read, especially when its rainy out what are you waiting for heres whats coming up next the question every options action fan wants to know. How much would would a wood chuck chuck if i wood chuck could chuck wood no. How do i figure out how to move on stock on earnings plus, calling all options action fans, reach into your pocket and tweet us your question options action if its nice, well answer it on air, when options action returns. Logical knowledge. Thats a great idea, but why dont you just go to thinkorswims chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders . I know. Your brain told my brain before you told my face. Mmm, blueberry . Tap into the knowledge of other traders on thinkorswim. Only at Td Ameritrade. What if we could bring you by having better values . At blue apron, we work directly with more than a hundred family farms. So instead of spending on costly middlemen and supermarkets, we can invest in the things that matter most making farmland healthier. Cutting down on food waste. And bringing you higher quality, fresher ingredients for less than you pay at the store. Because food is better when you start from scratch. Get 30 off at blueapron. Com cook the future isnt silver suits anits right now. S, think about it. We can push buttons and make cars appear out of thin air. Find love anywhere. Hes cute. And buy things from, well, everywhere. How . Because our phones have evolved. So isnt it time our networks did too . Introducing americas largest, most reliable 4g lte combined with the most wifi hotspots. Its a new kind of network. Xfinity mobile. Hthis bad boy is a mobile trading desk so that i can take my Trading Platform wherever i go. You know that thinkorswim seamlessly syncs across all your devices, right . Oh, so my custom studies will go with me . Anywhere you want to go the markets hot sync your platform on any device with thinkorswim. Only at Td Ameritrade welcome back to options action. Wells fargo trading lower today, but the real action comes next week when more reports start to trickle out. Bob has what you can expect. Bob . Reporter melissa, earnings season really begins to pick up steam next week. Now, we have netflix on monday, but tuesday and wednesday, well see more reports from the rest of the big banks also on tuesday, united heajt and Johnson Johnson. A handful of names like ibm, qualcomm, visa, ebayand you already mentioned microsoft. There could be an upstick in volatility when all these names report netflix is a notoriously big earnings mover the options are implying an 8 move in either direction tr that stock. Ebay is another big one. Traders are expecting that to move higher or lower by about 6 meanwhile, Johnson Johnson and United Health are both applying a more than 2 move. We dont know which direction this could shake out, but its going to be a wild week. Melissa, back to you some of the most frequent questions we get from fans, one, why doesnt carter have a twitter account . Always asked and two, how do you calculate implied moves. The second one is quite simple, so lets send it to call to action we need the square root of 2 over pi. All right, thats the hard way to do it skip all that. Its actually not that tough to do a back of the napkin calculation for the future price moves. You want to look at the weekly straddle that means the call option and the put option that are close to the current stock price that expire the following week. You take the price of those two options. Add them together and divide by the stock price. I want to look at netflix here so we do that math, we take next weeks call, next weeks put, add them together, its about 14. Divide it by the stock price and were getting a move of a little over 8 . One of the things about net flick, you s flicks, you see ul the big gaps, all of that came from earnings this stock is about three times as volatile around earnings as it is all the rest of the time thing is, this time maybe not quite so much. Last earnings, we saw relatively muted moves. Dan set up a trade like this one here im looking at the july september, 160 call spread. You can pay 9. 15 for the september calls, sell the julys for 6. 45, spending less than three bucks, 2. 70 if the stock sits here, the 2. 70 that you spent is the most you can lose if it sits here, it will be a longer dated call at a very cheap price. Dan, what do you think . When you do this in a stock like netflix versus microsoft, its almost leaning to the short side when youre playing for not that sort of move, but youre bullish, youre really saying, you know what, i think its probably going to come in, and theres other ways to trade it in that scenario his analysis of evaluating an implied move is really important. We make this disclaimer all the time when you trade long premium or directionally into an event like an earnings, you need to get a lot of things right, timing, direction, and magnitude of the move what mikes trade is doing, trying to give you an edge on some of that i think it makes a lot of sense. But dont do a calendar if you think its going to go up 10 after earnings, then its the wrong trade. Good news is, even if it does that, if it goes up 10 or 20 , the risk youre taking here is 2. 70. Thats not a lot of risk for a trade that typically has a pretty good probability of success. Netflix, we have a little bit of transparency this time around. I think people have a sense. Obviously there could be a big surprise, but whether they hit their numbers or not, the stock is trading very close to the highs. Its going toic ta a lot, i think, to move it sharply higher from here and im not expecting it its a whole different kind of thing in terms of microsoft, which is a low beta, a steadier eddie. This is going to be aggressive typically despite what the option market would say, i think either way im biased to the upside in this one because its weakness is not idiosyncratic. This was caught up in general tech selling and i think thats a positive, but riskier stuff. Yeah, i mean, put very simply, if we get anything that looked like the moves that we saw in the previous two quarters, youre going to end up owning that longer call at a cheap price. What would we do with one more thing ill tell you why i dont have a twitter, its like people asking wheres your facebook page, they dont ask that anymore. Sprint spiking today on reports that Warren Buffett could invest in the telecoms giant. Sending the market into a frien frenzy hey you, send us a tweet, if its nice, we might read it later in the show. Find out much more options action after this what are you working on . Let me show you. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place and lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim. See options data like never before. With thinkorswim only at Td Ameritrade. Oh hey john, im connecting our brains so we can share our amazing trading knowledge. Thats a great idea, but why dont you just go to thinkorswims chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders . I know. Your brain told my brain before you told my face. Mmm, blueberry . Tap into the knowledge of other traders on thinkorswim. Only at Td Ameritrade. Welcome back sprint shares spiked 5 on reports the companys chairman met with Warren Buffett about a potential investment that news sent the market into a frenzy call volume was eight times that of puts. Dan actually played the stock for a takeout back in march we could use options to maybe construct a trade strategy that would let you participate on a move to the upside and give you room on the downside if your long entry isnt great look to january 2018, sell the seven put at 80 cents and use that to buy the january 1015 call spread. Costs you nothing. All right, dan, now what . The most important thing about this trade, you are naked short a put. If the stock goes below that pric