money, then things. now you stay safe. bye-bye. this is options action. tonight -- >> want to see something really scary? >> you better. we have three charts that could spell doom for the market. we'll show what they are, how you can protect yourself. plus, stocks are selling off. so why are high flyers like chipotle, netflix and price line rallying on the week. >> anyone? anyone? >> we've got the answer in a surprising way to make money. is it possible to have too many friends? >> now you're in the friends zone. >> not a single wall street firm has a rating on facebook. is the stock to go higher?

the option starts now. nasdaq market site in new york city's time square. i'm melissa lee. these are the traders at the desk. we'll get to those trades. first the story captivating traders and consumers alike. and that's tesla. shares rebounding today after a tough week, they are now almost 8% off their recent high. is this a speed bump? or is america's new favorite stock in trouble? let's get to the money and find out. this got started because of a fire video that went viral. and of course it did. these are hot cars, everybody likes them. and here they are bursting on fire. >> everybody has been waiting for this company to stumble. there hasn't been a big stumble for them to confront. and finally, we have one. i mean, actually, it's not uncommon to see cars on fire on the internet, on youtube, you often see somebody burning up their lamborghini or ferrari. >> i don't know what you watch on youtube. >> sure. but tesla, this makes the store story. plus, it captures a little of the imagination about the risks of lithium-ion batteries, we linked that to the fires in

787s, now it's the car. you're not allowed to carry it. so it's easy to understand that. plus, the stock of course had been on fire for quite some time, despite it's decline, the valuations, to me, are absolutely nosebleed. this company is trading at 40% of the valuation of ford motor company and sells one-one thousandth as many cars. >> you have to wonder if the sort of sale the news sort of thing. that's what we saw repeatedly with a lot of product issues, whether it be transparent pants from liululemon or even with bp that ended up being a great buying opportunity, if you were brave enough to go into bp >> even boeing when they had their problems, if you bought right there, you bought $95 a share, look where the stock is trading above 110. certainly take an opportunity here. but mike makes a great case here in terms of valuation, it is rather lofty. the good news for tesla, basically two things. one, it's a fantastic car. the technology alone probably is more value in there than people give them credit for. number two, their gross profit margin is far better.

it's almost porsche-like in terms of them being able to generate profit from their revenue. so trading at 22% gross profit margin, people expecting to hit 25% or 30% over the next couple of years, as they become more efficient and produce more cars. >> you have one of these things on order, don't you? you have a deposit on that tesla, don't you? >> you do? >> i do, i am number 4,000 in line for the model x. >> let's put this into perspective. a blog post came out just a couple hours ago, where he puts this whole thing in perspective. he writes, had a conventional gasoline car encountered the same object on the highway, the result could have been far worse. for consumers concerned about fire risk there should be zero doubt it's safer to power a car with a battery than a large tank of highly flammable liquid. so that's a good point. >> he does a pretty good job. but the people who want to buy a tesla are the geeks who will respond this sort of talk from

him. and they like the car. they like the stock, because there is huge insider ownership, which makes it tough for it to go down. also, "the wall street journal" is reporting the owner of that car owns the stock, likes the car, can't wait to get back into one. that says great things. i know you think he's like brian. he's trying to line up for a free car. >> i don't want to have a gasoline powered cell phone. so, you know. i don't think anybody wants to trade it. so he's got a fair point. lithium-ion, maybe there's some heat risk, from a fire perspective. >> all right. maybe it's not america's favorite stock. maybe it's this desk's favorite stock. brian, basically, you would like to do a bullish trade. >> no. actually, for now, i think momentum is so strong. 2013 has been all about growth. right? you look at any names, it's almost like the mid-'90s internet style, back then it was anything about dotcom, now anything with growth. tesla is one of those. certainly momentum is to the

upside. but you know, we talked about the valuation here, you know, you're talking about a stock even if they hit gross margin levels, they still in my mind need to hit 15 times bigger revenue growth than they are right now, just to make the case in point of realizing their market valuation right here. so i'm bullish right now. but in general, i want to make bearish bets. i think the stock is due for a pullback, it cannot keep going like this. there is bearish case here. >> so a bearish trade. brian is using a put calendar. we've done calendars before. it's good to refresh our memory. let's crack open that playbook in the strategy you sell near dated put. and use that money to buy a long dated put of the same strike. this is a bearish strategy but requires timing. you want the stock above the put you're short by the first expiration but below the strike of the longer data put that you are long by. the second expiration. so brian, walk us through this. >> great point here. this is how the trade basically works. you take a look, earnings come out november 4th. the november put will stay big. there is good value in there to sell some of those. what i'm looking to do, basically, next week sell the november 160 put. bring in income for that. at the same time go out and make my bearish bet buying the

january 160 put. so net net on this trade, i pay a debit of $6, i lowered the cost of actually buying a put. scott talked about how dangerous to be short because of the high insider ownership in the stock. so i want to reduce some of that cost of buying that put. i do that by selling the november put. i get nice premium out of the november put. the momentum is still here. i think the stock will stay above the 160 level through this next earnings here. after that i want to get bearish and basically a way to risk less and make more if we finally get a sell off on the stock. >> take a look at that chart. it's a hockey stick. i don't see how somebody could think about trying to get long at these levels despite its modest pullback at these valuations. you want to spend money on tesla, you're better off buying the car than the stock. i mean, i just can't imagine chasing it here. these types of trades, where you are collecting premium, you can't short this thing either. that's -- that graph illustrates those risks. >> no matter what you do, you have to define risk. options are the only way to do it. we talk about when making a

counter trend trade, you want to risk relatively little to make a whole bunch. and that does this -- brian's trade does that. as well as a netflix trade in this week's web extra, very similar. netflix has also been lower left to upper right. if you're going to be short that, you have to define your risk. >> good point. let's move on to one of the quiet surprises of the week. and that is the performance of growth stocks, dominic is with that story. >> melissa, with all the hype surrounding internet 2.0 stocks, we want to take a look at how they stack up to older growth names. it's not like they are that old. but check out an internet retailer or internet travel booking company like priceline.com. the stock is up 5% for the week and just off record highs. then there's of course online moving streaming company netflix, which you just spoke about. it's also up 5% for the week. how about a little mexican food to cap things off? chipotle is up 4%. social and professional networking sites like facebook

and linkedin were flat to marginally lower on the week. so the question is, melissa, will that out performance of older growth stocks continue? back to you. >> all right. thanks to dominic. is it too late at this point? you're probably asking at home to get into any of these names. let's call to the charts and get answers from carter braxtonworth of oppenheimer. hi, carter. >> we'll focus on chipotle. and the charts are important. i'm just going to zero in on this particular chart. it's the five year chart. what's important about it is this violent break, of course, you're talking about a 60% decline from roughly 450 to 220. and the rules of charting are as follows. when after taking a bad hit a stock returns to the level from which it sold off, you encounter memory -- two types. the guy who bought it here, who endured all that. he's now made whole. he wants his money back. so there is sellers from here. and then there's the person who bought here, this person wants to book gains. so more often than not, when you first return to a past top, you run into trouble.

let me show you how this happened last time. this is the '07 high, the stock had a violent selloff. when it recovered, it got stuck at the prior top for exactly six months. we are now similar circumstance, we're back to the high, this is where, if one has gains, we would start to pull away from the stock. >> all right. so, mike, would you agree with this? would you also be scared if you were chipotle shareholder at this point? >> i absolutely would. it was interesting, dominic mentioned a couple growth stocks, one was priceline, which we talked about. priceline actually one of the things they demonstrated is legitimate eps growth. talking about double digit growth every single year, year after year for a solid decade. chipotle also has remarkable growth. what's interesting here, for levels of growth that are comparable to priceline, you are paying essentially double the price. this is a stock trading about 35 times next 12 month earnings. that's a pretty lofty valuation for a company that's growing probably 16% to 18%. 1500 stores. probably adding another 160.

that's nice growth. but honestly, at some point growth is worth a lot. and since there isn't that much, people are piling too much capital into too few opportunities. i think we're seeing that. you can't short these things. >> what do you do? >> you use options. what i'm going to do is put on a put spread. specifically i'm looking at the january 400/375 put spread. i spend $12.50 and sell for $7 against it. that's a net debit to me of $5.50. obviously, the full value of that spread could be 25. so, it's almost 20% of the spread difference here. i kind of like that math. now, you notice the 400 strike looks like it's far out of the money. bear in mind, this is a $400 stock. look at the charts how it did it in the past. it could be pronounced and i could see it getting down to the 380 level. >> a potential kicker. if the debt ceiling debate turns out to be acrimonious and prolonged that could put a debt in consumer confidence and spending as well. >> absolutely.

any of these growth names we are talking about tonight could take a hit. those are the first ones to roll over if there is concern about the markets here. so making a bear bet here, on a stock that had such a great run, and sort of seems to be at this resistance level, maybe is the right thing to do. >> that's the one other thing. we need a catalyst in these growth stocks for them to actually hit some kind of resistance. because a lot of stocks, when they're going from the lower left to upper right, and there's no barrier in sight, it's hard to make those bearish bets, even using options, you pay a lot of decay away. in this instance, carter mapped out a reason why we might actually bump into a ceiling. >> the interesting thing is options on high price stocks tend to be really expensive. just on an outright basis. and mike is reducing the cost a bunch. he also makes a point that this seems a long way out of the money, but if the stock pulls back just at 9 %, you are at that 400 strike. and it doesn't have to go much lower than that for this thing to appreciate, realize its full value. >> let's wrap this up.

shorting chipotle better have a cast iron stomach. mike's put spread offers a 4 to 1 payout and limits risk to $550. got a question out there, send us a tweet at cnbc. we'll answer it right after the show on our website tonight. scott taking a look at one of those names carter mentioned. netflix. in addition to scott, find great trader blogs and educational materials. check it out. here's what's coming up next. ♪ >> announcer: talk about a well liked trade. a couple weeks back, brian bet facebook shares would rally. he was right. how does he plan on making even more money? plus, call it the face of fear. >> here's johnny! >> we've got three charts that could have investors running for their lives. we'll reveal what they are when "options action" returns. "options action" sponsored by think or swim td ameritrade.

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[ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim from td ameritrade. welcome back to "options action" 37 it's hard to talk about the broader market for options and not mention the vix. the volatility index. the fear gauge, as it's often referred to. it's a measure of expected volatility in the s&p 500 large caps, and uses options prices to help gauge how rocky a road it will be for stocks in the future. now, the vix has been on the rise for two weeks now. yesterday the reading hit highest level since june 25th. all the uncertainty surrounding government shutdown and the showdown over the debt ceiling are really taking their toll on

markets, raising volatility, and we will point this out, some strategists believe on a relative basis, the volatility levels are still quite low. remember, we're around 17 right now. during the financial crisis we were over 50. keep that in mind. back over to you. >> definitely remember those days. dom, thank you. if the so-called fear index is on the move, could there be trouble ahead for stocks. let's call back to the charts and check in with carter. hi, carter. >> a couple things. the first thing i want to talk about is breath. breath is the most important thing in the market, just as it is in any other endeavor. one says a colleague has broad knowledge or broad political support. breath is deteriorating and it's been deteriorating for months. we know the stock market made a high in may. made a new high in august and made a new high in september. yet, as that happened, if you look at this yellow line, this tracks the number of stocks, that are above their respective 100-day moving average. that peaked the 90% and it's been declining every month since.

we hit a low of 5960. we think this is going lower. but this is a divergence that is not good. it speaks to fewer and fewer stocks participating, as we get sort of nifty 50 type action in internet names. a couple things that are important. this is the all time since the beginning, if you will, chart of the s&p. everybody knows we have the '07 high. we have -- 2000 high, 07, and where we are now. what drives this is the participation rate on the part of retail investor. now, take a look at this chart. keep in mind, s&p peak in 2000, peak in 2007 and where we are now. and then what this chart maps is margin debt. meaning, all nyse member firms, my firm, merrill lynch, everyone, and the debit balances in margin accounts, meaning people borrowing excessively. it peaked in 2000, peaked in 20 07 and we're on behalf of record

borrowing to buy stocks. this is not a good circumstance. >> that's pretty scary. i don't want to be accused -- i know people are thinking, oh, "options action," cnbc, just fear mongering. we bring this up, these charts are important, and also the fact that volatility is low is important as well. >> i think that's exactly right. first of all, earlier remember what we were talking about. a handful of stocks that are outperforming as a lot of capital is chasing opportunities. the growth stocks. what other sectors of our economy are doing well? housing has been. cars have been. heavily financed purchases. stocks also have been. heavily financed purchases on margin debt. all of this a by-product of low rates. what you want to see is, obviously, other areas of the economy obviously justifying this type of growth. to me, it does seem extremely dangerous where we are. we don't have real economic growth. we have valuations, that are at or above actually historical nochls for the s&p. those two things in conjunction make me think there is little

potential upside and more to the downside. >> with volatility being low, there's an opportunity here to protect -- >> there is. the easiest way to do that against your portfolio is to go out and buy puts. i was looking at the s.p.y. january puts. pay 5.50 for those, which is not a great deal, given where we are. buy them when they're cheap, when stocks are high. if the market comes down and you want to keep protection, look to spread something like this by selling lower strike puts. of either near or a longer dated duration. >> i have to go to you, brian. you deal in this all day long, the volatility index. there are some out there who believe the vix is not a good gauge of fear, precisely because we're at just around 17, when we are in uncertain times. >> what i like to do when it comes to looking at the vix, i like to look at the trend. if you not actual number or the historical average. i like to look at the trend. if you took a daily chart going two years back, ever since the european crisis resolved itself, we have seen lower highs in the

vix being made. meaning any selloff in the market, you sort of get this rise in fear and innocence vs, actually has met with people ensuring their book and taking that insurance off sooner. that's a good thing, actually. that's a good thing for the market. that means there's real liqu liquidity going on. until i see the vix get above 20 again, or make a new higher high, and this trend is broken, where you see actually people going out and really massively trying to insure their book i'm a believer this market moves higher. i believe the bull run is intact. so i would go against what they're saying right now. i think you buy the dips until you see that vix spike get above 20. >> two sides to every trade. coming up next, could facebook have too many friends, the 46 firms that cover the stock, not a single one has a sell rating. so could all this love actually be bad for the stock, we'll discuss that when we come back. [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data.

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from td ameritrade. welcome back to "options action." time for the upside call we look back at our winning trades. a couple weeks back, brian made a bullish bet on shares of facebook, the trade was instantly liked. here's why. on "options action" our status

is always the same -- risk less so we can make more. and that's just what brian did with his bullish bet on facebook. brian liked the way facebook shares were looking. >> i want to own the stock any kind of pullback here. i think they're doing the right things to project themselves forward. >> but 100 shares cost $4,000. >> got change for a hundred? >> so instead of spending all that money brian sold the january 36 strike put for $2.05. that $2.05 is the most brian can make on the trade, but in order to keep all that money, brian needs facebook stock to stay above the strike of the put that he sold, or in this case, above $36 by january expiration. below 36 bucks and profits trail off. with the money brian collected, he won't see losses until facebook falls below the strike of the put he sold by more than the $2.05 he's taking in or below $33.95 by january expirati

expiration. in other words, brian did the ultimate facebook fakeout. make money whether the stock goes up, down or nowhere at all. >> i'm shocked, shocked. >> don't be, because there's a catch. and because brian sold that put he's now obligated to buy facebook stock at that put price, in other words, at $36, even if it falls below that level. >> whoa! just when i thought i was out, they pull me back in. >> but it's all good. because since the time of the trade, shares of facebook have surged, more than 30%. making this trade a winner. now "options action" fans and friends want to know one thing -- what will brian do next? before we get to brian's next move, i want to call your attention to this -- 46 firms rate facebook. nearly all like it a lot. and in fact, there is zero sell ratings on the stock. begging the question, who is left out there to buy this? brian, does this factor in at all to how you manage this trade? >> absolutely. it's a great point. i'm a little worried. i like counter trend trading against some of the analysts out

there. so this put has decayed enough and gone down to about 60 cents here. so i probably just take it off. there's not enough value, i made a good trade and made decent money quickly on something that i thought would take time for me to collect on that $2.05. now i got that right away. i'm pretty good on closing that and moving on. >> coming up next the final call from the options pits. [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪

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♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim from td ameritrade. people always say that two heads are better than one. in this case, it's no exception, a calf was born on a farm in vermont with two heads. the calf is a perfectly healthy female born at 75 pounds. in case you're wondering, yes, the calf eats and moos with both heads. the woman who owns the farm says just like humans, abnormalities sometimes happen. in this case the calf would have been a twin if the sac broke.

the condition is extremely rare. thank goodness. that's nice optional viewing. time for final call. last words from the options pit. >> i stay with brian's facebook put. >> brian. >> tesla, get short it, like the car hate the stock. >> dan, get better quickly. we'll see you next week. >> our time expired. check out website. see you next week for more "options action." program is a paid advertisement for the shark rocket brought to you by euro-pro. >> [ laughs ] [ british accent ] this is me new dyson slim ultra-light vacuum. >> this my new shark rocket. it's also an ultra-light vacuum. >> now, my dyson has no-loss-of-suction performance and go-anywhere versatility. >> same no-loss-of-suction and same go-anywhere versatility. but my shark rocket is the only ultra-light vacuum that can truly deep-clean carpets better than a full-sized upright. >> deep-cleans carpets better