♪ this is options action, tonight, facebook is on fire. >> i don't want my face burned off. >> could earnings ruin the rally? we'll tell you how you should play it with a special report. plus, will apple earnings get this guy off this guy's back? >> it's like the old story, where, you know the wife keeps hitsing her husband. >> and you won't believe which tech stock is poised to break out. >> why don't you go ahead and take any one you want, i'm feeling lucky today. >> the action starts right now. >> live from the nasdaq markets

here in new york city's times square, i'm melissa lee. there is one flame sending a chill down the spine of investors' backs, that's tesla. shares of the electric car maker showing signs of weakness, is this just a single stock story or perhaps broader cause of concern for the markets? let's get the money and find out right now. dan, this is a sort of stock that encapsulates a broader trend of speculative highflyers and people wanting to find the beta in this market. >> no doubt to your initial question. is this a problem for the market? it's not a problem for the market. the stock is down 13% from an all time high it made on september 30th. in some ways you could say it's pretty healthy, it's consolidating here above $160. i'm not telling you that means that it's all clear to get back in here. they are going to report earnings november 5th. i mean, this is a story, the stock is up 400% this year. it's not on anything -- anything fundamental other than the hope that this story becomes a real player in the automotive industry. and you know, that's going to take years to figure out. >> this is a company that's trading like a tech stock, but

at the end of the day, what they do is sell cars, i think people need to remind themselves of that. i find the valuation of tesla difficult to understand. and i think when you see this type of a situation, what you're looking for, when you find that the valuation just has no bearing with react, you're trying to look for a stock that's beginning to break down. sort of to dan's point here. i'm not sure this is the breakdown you're looking for, what you want to see is a big reversal type days, huge volume. >> it's actually done that and moved back on many occasions. >> it's done that a couple times, the battery fire and also that german magazine report. >> but i do believe we'll have another one of these, that will be your exit sign. the big problem, though, when you have concentrated holders, right, you get these situations, where bad valuations can remain. we see that in a lot of stocks, where a lot of shares are concentrated in a couple hands and they aren't doing anything. >> i don't think we've seen anything close to the sort of selloff you have to in order to step in and buy it and feel good about it. it's up a torn. it's come back a little.

interesting, about as many puts sold traded as calls. few more puts, but the only way to short this is to buy puts, you have to define risk. you mentioned concentrated holders, no way to really short it, because five guys, essentially own all the stock. if there is too big a shortage, they will run it in on you, you get crushed. implied volatility, about 80%, really high. but not incredibly high if you want to buy puts. but again, given as many calls as puts traded today, i don't think people are going crazy for the stock. >> given valuation, options may be the only way to get long the stock. >> absolutely. >> and to scott's point to, go out and buy puts and calls depending what your directional inclination is, it sets you back. you have to get so many things right in this name. with implied vol where it is to do that. meaning the options prices are expensive. you can buy calls and the stock goes up a lot. the value of the options will go down. >> particularly on earnings. >> to me, if you do this, you know, we'll set up a calendar here, because you know, for those longs, we get this question all the time. i think the stock is going back to 194 on earnings i think it

will break 200. this is the way you do it through a calendar. you have to finance the purchase of puts. >> all right. so obviously, dan is using a call calendar. here is how this trade works. it's a bullish strategy. you buy a call and finance that purchase. how do you make money? well, you want the stock to fall just below the strike of the call that you are short on the first expiration, but above the strike of the call that you're long on the second expiration. so this requires a little bit of timing here. dan, walk us through. >> so the timing is this. they will report november 5th, weekly expirations, what i look to do on monday, and this is really one of the things i want to set up, if i want to own calls. if i want to own calls for that earnings event. i want to sell the november 1st next week expiration to finance the november 8th expiration calls. so i looked at the november 1st, november 8th 180 call calendar when the stock was $170. that costs $7. you sell one of the next friday, november 1st expiration 180 calls at $2 and buy one of the

november 8th, 180 calls, for the following week, at $9. that costs you $7. what i like to see happen, the stock trickle up toward the strike. and have those next week options expire worthless. then what i have is a cheaper option, than i would have had run out and bought two weeks before earnings, then i can actually spread it and really reduce my break even on the trade. >> i think really the best way to play options in a name like tesla, high premium names is to trade calendars. i upon wouldn't do this one, though, i'm not bullish on the stock. i mapped out my fundamental view on it. if anything i'd finance by selling shorter dated ones. >> we like calendars on the show. this is not exactly a calendar, because earnings comes between the expirations, so the math that we talk about, you often get it working with you on a traditional calendar. not quite working the way it might here. but dan explains why he wants that -- he wants to own that call for the events. he's not -- the one he's selling he won't theen through the event. not exactly a calendar.

he's trying to save a few bucks selling that short dated call. >> let's move to what will be the other huge story next week, that is facebook. since the company last reported earnings, shares have doubled. social giant now sports a $126 billion market cap. so what should investors be expecting? dominic is back at headquarters with more on this. >> facebook investors are gearing up for what could be a crazy volatile work for facebook shares. the world's biggest social network will report earnings on wednesday after the close. and the options market is already pricing in what could be a greater than 12% move in this stock, up or down. now, remember, facebook has only been public since may of last year. and we've seen five earnings reports since that time. we've gotten really double digit percentage stock moves in three of those last five quarters. last quarter, facebook shares rocketed higher by nearly 30% after earnings, which is best single day gain on record. now, on that day, the company

gained $14 billion in market value. so you can see why options traders are gearing up for what could be fireworks in essence, melissa with facebook. >> all right, dom, thanks for that. certainly mike, big move here. 12% up or down. that's like a netflix like sort of move. >> that's really unbelievable. it's more unbelievable, when you think how big this company is, what you're actually looking at is the options market suggesting that the value of this company could swing by almost $20 billion up or down. $20 billion would actually put a company with that market cap would actually be in the top quarter of the russell 1,000 all by itself. one thing i would say, looking at those percentage moves, go back and see how much the valuation changed. so i am guessing that the options markets might be overstating things a little bit here. i'm kind of thinking that probably this move is going to be a little bit smaller than that. i do notice, though, that any bit of good news, and people seem to want to buy it. like whatever was left out there to sell, those people seem to have gone away.

55 times earnings, this is not a cheap stock. >> so mike, what's the trade? >> i will do exactly what dan did here. i'm just looking to do a call calendar. mine is going to be a little longer. i'm looking to buy the march 57.5 calls, a 5.25 for those. is sell for 220. a net debit of $3.05. the whole idea, i think the move is overstated. i get to own calls relatively cheaply. this is my way to play it the next couple months. >> this is interesting, this encompasses a time period twitter goes public. >> yeah. to me, i'd much rather own twitter. i think you'll have faster growth. if you bought facebook on its ibo back on may 18th, 2012, you languished with a company that did not articulate how they would monetize their users. twitter is going to be growing off a much smaller base. i will tell you this. when people have the comparison of two real social media companies, and they see the growth twitter will have, i think facebook will run up against difficult comps, sales comps in the next couple quarters, you have to watch

their guidance going forward. >> twitter has real money users, i agree. if it price where is it is right now, which is less than 10% of facebook's market valuation at about 12 billion bucks, it seems like there's a lot more -- >> twitter is not profitable yet. facebook is profitable. we talked about how expensive options in tesla are. these are actually only 10% less expensive, lots of calls traded today about two times as many calls as puts. and the last big trade of the day was a big buy. this is a more traditional calendar, because they catch -- both of the expirations catch the catalyst, which is really what you're looking for in a traditional calendar. >> let's wrap this up a little stocks versus options, 100 shares of the social giant better have a lot of friends, because that will set you back around $5200. mike's call calendar offers a leverage bet just over $300. got a question out there, send us a tweet. we'll answer it in our 101 web

extra. tonight scott is looking at apple. in addition, you'll find great trader blogs and educational materials, so check it out. here's what's coming up. >> these two men are fighting over money. >> i get no respect. >> caught in the middle is dan's trade. can earnings give cook cover from icahn's wrath? plus, which tech stock is poised to break out next week. >> my answer is i don't have the first damn clue. >> no wor piece, jack, because we do. and we'll reveal it, when options action returns. [ 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. ♪

♪ [ bell ringing, applause ] five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade. we are back in options

action, want to know how to make over 60% of your money in apple in just over a month? that's what dan did with his bullish bet on apple. here's how. >> on options action, it's how we trade like legends. risk less so you make more. that's exactly what dan did with his bullish bet on apple. dan thought apple shares were going higher, but buying 100 shares of the stock would set him back over 50 grand. so to spend less, dan bought the apple november 500 strike call for $25. to make money he needs apple to rise above that call strike price by more than the cost of the trade or in this case above 525 by november expiration. but 25 bucks? >> the whole situation was, in my mind, a complete travesty. >> you said it, karl. show us how to do it for less. >> i sold two of the november 550 calls. >> genius. to spend less, dan sold not one,

but two of the november 550 calls for a total of $18. but he did something else. he made making money even easier and here is how. between the $25 he spent buying one call. and the $18 he collected selling the other, two higher strike calls. dan reduced the cost of his trade to just $7. >> we feel pretty good. >> and now instead of needing apple to rise above 525. dan can see profits if it rises above that 500 strike call by more than that $7 he spent on the trade. or above 507 by november expiration. but there's a tradeoff. by selling more calls than he bought. dan will get short apple stock at that high call strike price. or in this case, above 550. beyond that point, profits trail off and eventually dan will face infinite losses. >> good lord. that's a lot of money. >> to protect himself against just that, dan then bought the november 600 strike call for $3,

and completed his call butterfly for a total cost of 10 bucks. now dan is protected but since he spent more, he won't make as much. and now to see profits, he needs apple to rise more than that $10 he spent on the total cost of the trade. or above 510 by november expiration. >> yeah! >> and since the time of the trade, apple shares have rallied, 6%. now dan in & these guys are ade and a battle for apple's g cash horde. but with earnings just around the corner, options action's biggest fans just want to know one thing. what will dan do now? before we get to that answer, let's see just how much money was made here. had you bought apple stock at the time of the trade, you would have made about 6%. that's not bad. dan's call fly can be sold for just over $16, a return of over 60%. now, two quick questions, dan. what are you doing with the trade? will earnings actually give cook cover from icahn? >> it could.

here's the thing. if you put this trade on, i think you have this trade right where you want it, you have this event coming on the 28th here. i think you want to stick with it. i think i chose the strikes 500, i thought that was an interesting resistance level on the upside. that should be support right now, 550 in the middle is basically the hirer the year, second day of the year the stock traded 555. i think that would be a reasonable target. but the stock obviously hit into technical resistance about 532 in the last couple days, and it fell back. so as far as earnings are concerned and icahn, listen, he's basically maybe rallied that board around tim cook. i think they should say, mr. icahn, you should happy with your investment, we're taking your opinions. but -- >> i don't know. i don't think that earnings gives him any cover at all. that's not the issue. karl isn't criticizing management of the company in terms of earnings. >> he loves tim cook. >> what he is upset about is the management of the balance sheet and what they are doing with excess cash. if they burn out earnings they are generating more cash, more should be returned to

shareholders, karl is right. think about how creative the bye back would be. we are talking 60 bucks a share, on $150 billion buy back based on 12 month earnings, i think karl is probably spot on on this one. >> it might actually help mr. icahn's position in the stock. >> and every other they're holder. >> i don't think he's worried about every shareholder. i think he's worried about his position. people have been talking about apple and this cash that they have for months and months and years. and the company is not giving it back. that's just not what they want to do. one thing about this trade, it's working, you want this stock right at 550. that's where it pays off perfectly. and so if the stock gets up there, then you want to start thinking about taking it off. one final thing, this week's web extra is about apple options, because the stock is expensive. and options, that we do in the web extra are long dated. those options get extremely expensive. so you can use mini options.

>> let's talk about the 550 level. right here at 525 and change, you mentioned 532. that's where apple entered the year. maybe that's why we're seeing resistance. >> what's interesting, if you look at earnings in technology, the stuff that worked is the stuff that's been going up all year, they continue to make new highs, the stuff that hasn't worked was the laggards, ibm, ebay, stocks that have underperformed, the broad market disappointed on the earnings and didn't go up. this is an interesting test. because the sentiment has changed in apple. if they come in with an inline quarter, the stock is up 15% since early september, when they introduced new iphones, you could set up for disappointment. back to the trade. i was risking 10 to make 40. i like the risk reward here. i think if they do do something slightly better than expected, i think you probably see a new high on the year. >> it could be next week's mystery breakout stock. we come back, our traders reveal the name they think can really take off. back right after this.

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[ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪ welcome back to options action. it is a name both of our traders see going higher. ebay, but they disagree how to profit from that move up. time for put up or shut up, dan and mike agree on the direction but not on the trade. dan, kick it off. >> you know, ebay caught my eye. they had some pretty sour commentary about the ecommerce environment for the fourth quarter, heading into the holiday season. the stock got nade. when you look at this chart, this is really interesting to me, this is a company that is a clear market leader. this is -- i'll draw this line right here. look at this, this is $50, this

is going back a year. how many times has it bounced off this level here. and every single time, it had almost a 10% run. this is why this stock has caught my eye. i've been trying to figure out a way to play with defined risk. i don't want to buy the stock here. i really only see three, four bucks of potential upside from a bounce at this level. that gets you to here. 55. so the trade, that i came up with, was a call fly. we just went over one in apple. i think it's important. let me go through it. really what i'm trying to do is isolate this $50 support level. so here's the trade. okay? i want to look out to december expiration, we have black friday, whatever that monday thing is. amazon keeps going up. i think at some point you may see investors look for a laggard like this, before there is some definable event. i looked at the december 50, 55, 60 call butterfly. when the stock was about 51.60 today, that cost 160. so what am i doing? i'm buying one of the 50 calls

for $2.80. i'm selling two of the 55 calls at 70 each or 1.40. then to cover myself on the upside i'm buying one of the way higher 60 calls for.20. it cost me $1.60. it's at the money. i set my stop on the downside. i think it gets to this level which is 55. >> can we get back to the chart, here we are. this is an interesting situation, there aren't too many stocks we can take a look at this year, where you actually have opportunity to buy it essentially at the same price. but not the same valuation. this stock is actually growing, this is a company growing, their top line almost 14% a year over the course of the last five years, revenues going from 9 to 16 billion all of that coming from the payment side of the business, which was less than 30%, now going to be close to 50%. i think if you are taking a look at this trade, what i don't understand, premiums are low. we think we're at the lower end of that range. what i think you ought to do here is go out and buy calls, wait for the stock to rally. then spread out of it.

i'd go a little further out than december, actually. i might go out to january or march. buy calls, look for opportunities to spread. you don't need to do this. >> in a low vol environment, the vix at 13.5. we made a mistake on numerous occasions, you go out and buy cheap calls, what does that do? the time value, it will erode. if you don't get the move you want. what i'm doing here, i'm establishing an at the money position, a hard 50 stop. >> all of that is fair by december. but if you go to march, those won't decay as quickly. >> we got to get the verdict here from scott. what do you say? which trade door you like better. >> i like dan's trade. he's buying the call spread and paying for part of it selling the 55-60 call spread. he's doing it because he has specific spots on the chart he likes. >> all right. good job, guys. coming up next, the final call from the 07gzs 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. ♪ ♪

[ bell ringing, applause ] five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade.

a 3-year-old french sheep dog has been officially verified as the fastest four legs on wheels, that's right. norman the scooter dog propelled himself 100 feet in just over 20 seconds at a charity event in marietta, georgia back in july. and friday, the guinness world records verified the scooter feat. how does he do it? norman balances himself on the scooter with two front paws then uses one of his hind paws to push forward. it's the latest trick for the accomplished norman who can ride a skateboard and pedal on a bike with training wheels. that's your optional viewing. does somebody take the time out of their day to train this dog. >> she was pulling him. that doesn't count. >> cheats. all right. time for the final call. scott. >> we talked about butterflies, be careful in executions. >> dan? >> apple has had a nice run, i think if you have defined risk plays that target 550 to the upside in near term that makes sensemike.

>> there is support for apple. i think the stock found support here. >> looks like our time expired. i'm melissa lee for more options action check out our web site, and also, take a look at our daily segment inside fast money every day at >> my mission is simple, to make you money. i'm here to level the playing field for all investors. there's always a market somewhere, and i promise to help you find it. "mad money" starts now. >> hey, i'm cramer. welcome to "mad money." my job is not just entertainment. it's to teach. call me at 1-800-743-cnbc. this market doesn't seem to know how to quit. it's running on