this is options action, tonight -- >> do you understand the words that are coming out of my mouth? >> wlnt it comes to the bond market and the fed. we'll tell you why the markets got the taper wrong. and why bonds could be a better bet than stocks. plus, double down. stocks are falling. but casino names are hitting the jackpot. why the winning streak is just starting with a special report. and trouble at home. >> i just want to smash your face in. >> not that kind of trouble. we'll tell you why home depot's recent weakness could spell trouble for stocks. the action starts right now.

live from the nasdaq markets in new york city's times square i'm melissa lee these are the traders on the desk. stocks continue their surge higher we are focused on a market mystery. why are investors suddenly anti-social on a day that saw the dow jump almost 200 points, facebook, twieter pandora were down. so why are investors shunning these high flyers, let's get in the money and find out. dan, these are the names that typically provide more market move. >> i think it has to do with the fact investors have huge gains in these things. you think about it, they are really expense if stocks here, if the market is going to have another leg, if we continue to go, if all this news -- you know we're in this goldilocks phase with the data we're getting and potential taper and the market can handle it. maybe more cyclical names, industrials names, and these speculative names are not as interesting. >> it seems this is a good point for the market rally. >> it is. imagine you're sitting here managing money, and you're

trying to play on the momentum that you see in these stocks, suddenly you think maybe this is for ream. maybe it makes sense to buy general motors at about 3.5 times ebitda. maybe it makes sense to say i think dear is bottoming out. you can't buy in unless you believe the economic story is improving. right now it looks like people believe that. >> if you want to be in the space, why not be in a company that actually makes money, that would be linked in. intended for people who have jobs and money. more people have jobs and money as of today. and linked in, up a bunch. it's still way off the 52 week high. i think linked in is the best way to play the space. twitter doesn't make money. i don't know when they will. linked in already makes money, got an upgrade today. >> i actually think twitter is one of the most unique social media properties out. there i think facebook story is pretty well known, facebook was a mature company.

twitter is much small earl. it will have higher growth going forward. i think as far as social media is concerned, i don't even put linked in in there. they get half of their revenues from companies, not individuals, that sort of thing. to me, twitter is this really unique property, yeah, it trades at 25 times next year's sales, and nobody will be able to get their arms around. that but i would put this one in an amazon category, where you may not be able to get comfortable with this valuation for years. >> you hold your nose and you buy. >> possibly. >> here's the question you have to ask yourself when looking at twitter. could twitter get to facebook in terms of revenues and earnings as facebook likely to do that kind of growth? i don't think that anyone believes the latter. and it doesn't price like that. twitter, basically the price of the stock is suggesting that people think it could be a facebook story. i think at the current valuation this didn't make sense. but that is the story that people are playing out there. >> those two are different. you don't like linked in because it gets half of its revenue from companies. twitter and facebook get 100% of

revenue from companies because all they get money for is selling advertising. >> right. >> i just think twitter will be a utility for a lot of users that have 250 million registered users, a lot outside the states. i think this will become a ubiquitous service. >> you want to take advantage of this. >> i wouldn't buy it, to your point. listen, there's like 30 wall street analysts who just initiated on the stock. most of them, nine buys, 21 holds, six sales, average price is 40. stock closed at 45 today. what i want to do, i have not traded twitter yet. it's been around for a missouri the options have been around a few weeks. i want to set up for bullish trades. >> what is dan doing since he's bullish, buying a calendar call spread, strategy we don't use too often. so we want to check that playbook to see how this works. it's a bullish strategy, buy one call and finance that purchase, you sell a nearer dated call of the same strike. how do you make money? you want the stock to be below the strike of the call, that you're short. the first expiration. but above the strike of the call that you are long on the second

expiration, so this does require some timing. so dan, set us up. >> to me, the stock has traded over the last month in about a $10 range between 40 and $50. and it closed today about 45, right in the middle. so to me i think there's a good shot it will take a run at that previous high at some point towards the end of the year. i think people who own the stock want to see it go higher. to me, the next piece of news is going to be late january, the report there, fiscal -- q-4. and that's a real catalyst. i think you could have this new year effect, people come in and buy the stock. they don't want to buy it now up so much from the 26 ipo. today the stock was 45. i bought the december january $48 calendar call spread. i paid about a dollar for that. i sold one of the dlm 48 calls at 60 cents, bought one of the january 48 calls for 1.60. what i want to happen, i want the stock to move up in two weeks, december expiration, to about 48. that 48 call in december i'm short will expire worthless then i own that january call for a dollar. at that point i may continue to

roll weekly calls against it or turn it into a vertical call spread. >> the dates are very interesting, because they happened before any of the lockups happened. >> correct. >> yeah. >> i think that makes sense. because when you take a look at how expensive these options are, even the short dated ones, ahead of that catalyst, those are options you probably want to sell. this is one of those stocks you have one of the better opportunities, 60% implied volatility. that's why these trades can work. but of course, i also think you're going to own the long dated one. you have to keep a close eye on t. the valuation of the stock is one i find nosebleed territory, i'd rather write about it. >> i don't agree. if you are bull issue need the math working for you, define your risk. the one thing i like, he talks about selling weekly calls, once that front option is expired. i like to call that a super calendar, great way to get the math on your side. >> let's move on to a bit of a market mystery. prior to today, market had fallen five straight days, over this time, casino stocks were rallying. so what gives? dominic ciao back at cnbc with

more. >> so the markets may have been on a slide. but upside action has been with the gaming stocks, the big names with operations both here in las vegas and shares of wind resorts up nearly 7% in just the last three trading sessions, and then there's las vegas sands up 6% during that same span as well. now, the larger u.s. listed international players have been faring well. and it doesn't hurt when las vegas sands gets a credit rating upgrade earlier this week from s & p, it goes from basically a junk status company to investment grade. so melissa, las vegas sands, really kind of helping to power these casino stocks. >> dom, thanks for that. so can the hot streak continue at this point? let's call to the charts to find out from the man who counts cards in his sleep. carter braxton worth of oppenheimer. >> the relative strength is important. when the week was very poor until today, these stocks acted well all week long. let's take a look at a few

charts. las vegas sands, one year chart, what's important about this, basically, a dead asset for quite some time, that has come to life in a big way. and an orderly way. this throws to about 80. we closed today around 75, 76. take a look at it another way. here's the same up trend, same chart. but it's this breakout, that kicks things off. so we're in this channel, the presumption again is around 80, 81. so put it all together. this is the level from which we broke out. it's important. a big range. the breakout is young. there's more to go presumptively. we're looking for low 80s, buy, stay long if you're there. >> all right. well, it's no secret mike and carter are friends. i guess you guys have been hanging out. you brought a chart of your own, mike. >> yes. why don't we take a look at this. the interesting thing about this chart, this actually shows the growth of the gaming business. this is basically a chart of the number of casinos in macau, we

have 35 casinos, how big is the macau business? las vegas sands gets less than 16% of revenues from las vegas, singapore is bigger than las vegas but macau is the bulk of the story, they have done more than $40 billion in gaming revenues. only thing is you see at the upper right-hand corner in yellow, there actually aren't going to be new casinos online until 2015 at the soonest. so basically what we have is a supply constrained market over there. and you can see that in how much they are actually getting to bill for their hotel rooms. you can see it in their occupancy rates, which are higher than they are in las vegas. so this is kind of the ideal situation for the casinos, i think that is one of the reasons we're seeing these things. it's not just the growth in revenues, they are starting to trade at higher multiples, the expectations is that strength in the gaming industry will translate into significantly higher margin. >> what's your trade? >> the thing is all these stocks we're starting to see the options premiums declined a great deem.

when they're getting cheap, the only thing you can do is go out and buy them. i'm looking at the march 80 calls, buy those for $2.75, the idea here, i will look for an opportunity to spread the trade. these things, the valuations, multiples have expanded. this is trading about 27 times trailing earnings, and probably 22 times or so forward earnings, this is a situation where it is trading at a premium to the market, to its peers. the market is setting up so i can do so inexpensively. >> would you be cautiously bullish, dan? >> the chart looks beautiful, it's a nice breakout. that's the way to do it. i can't speak to the fundamentals, that long term chart that carter has, when you look at '07, the stock when from 80, where it almost is right now, it went to 140. then at the lows of the financial crisis almost to zero, that's the reason to be buying calls in stocks like this rather than owning stock. >> i would still be less cautious than dan, why? revenues in november for the entire space, that is macau up over 21% expectations were 20%,

which is still a huge number, they met it, they beat it. i actually think that mike points out problems with constraints as far as volume over there is concerned, i think it's a great name, a great space, and i would be even more bullish than mike. >> let's wrap this up. little stocks versus options, 100 shares of las vegas sands better get a line of credit. it will set you back 7600 bucks. mike's call purchase offers leverage to the upside and costs just under $300. got a question, send a tweet at cnbc options, we'll answer it after the show. tonight, scott has a way to play the rally in general motors, in addition you'll find great trader blogs, educational material, keys for leading a happy and healthy life. so check it out. here's what is coming up next. >> housing has been on a mend. >> little problem in the kitchen. nothing trivial. >> so why home depot shares are falling. we'll tell you why the answer

could spell trouble for the market. plus talk about a bold call. >> i want to eat his children. >> well, not quite that bold. selloff in bonds might be over. they'll tell you why. that's when options action returns. ♪ [ 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.

who found a magic seashell. it told him what was happening on the trading floor in real time. ♪ the shell brought him great fame. ♪ but then, one day, he noticed that everybody could have a magic seashell. [ indistinct talking ] [ male announcer ] right there in their trading platform. ♪ [ indistinct talking continues ] [ male announcer ] so the magic shell went back to being a...shell. get live squawks right in your trading platform with think or swim from td ameritrade. welcome back to options action, so good news got a good market reaction today, now, that hasn't been the norm given all of the fed stimulus, the jobs number was better than expected, unemployment fell to the lowest level in five years. now, traders want to keep an eye on the interest rate sensitive plays with yields on the rise

underperformance could come from income substitution plays think the conventional wisdom. it's the utilities, telecom stocks, they would all fall in value if rates rise. all three sectors were in the green today. none of them were among the worst performing sectors, even the real estate investment trust and the etfs that track them was higher on the day. but let's be honest here. it might be comforting for many to see good news be interpreted in a good way by the market. so maybe it means guys, melissa, that fundamentals are back, question mark. >> we'll see, dom. thanks for that. is the relatively strong performance of interest rates sensitive stocks giving a clue about where bonds are going. let's head to what we call the bears lair. >> all sorts of charts. the bonds worked well today. this is a yield chart over the past one year. we know the high is around 302. this is a symmetrical formation,

the presumption is, we have returned back to that top, and usually this is about where you stop. now, let's but this in longer term. that action there, which i'm showing you here, take a look in the longer term chart, that's this action here, long term you can call this a cup and handle, and it is. it implies this, but in the first instance, before you do that, you back in fill for quite some time or back away. so let's look at the action, the ten year note. we actually close out or near the high of the range, it has all the hallmarks of something of a head and shoulders bottom. take a look at the 30 year bond, which of course, it held the low. that's important. and finally, the tlt, the instrument in question, it's right here at these lows, and it, too, closed at or near the high. the presumption is tlt bounces. this of course is the etf for 20 year and longer bonds.

>> so this is one that to me, you know, i find this interesting. i think this is as a trader, a tough press right here. like you said, it was counter intuitive, that bonds were actually up on a day like today. to me, i take it a step further. when i look at this, here's the tlt, this is backing out for five years. this to me is like danger zone here. all right? this is where we were on that other chart right here. okay? so this is a tough press. and the price action today didn't really suggest that you should get in there and press it right now. when you look at this chart right here, of the ten year treasury yield, i'm going back to 2009. we got to 4% right there. and the tlt was at 90. so here we are over here. we closed at 2.88. and the tlt is at 102.5. to me, i actually -- carter is bullish. he thinks the bonds are going to rally here a little bit. >> based largely on the way they performed today. in light of what should have been a horrible day. >> exactly. so to me, i actually don't want

to press it this short. but if it rallies to where you think it is, resistance at 105. this is an important chart here. this is the implied volatility of the tlt. look at this, it's at five year lows, setting up for an options trade to be a little bit contrarian, if you want to do it. to me, i'm not doing this monday morning. but if i get that pop that carter thinks will happen in the next couple days or week, what i want to do, just because that implied volatility meaning price of options is just so low, i would just buy a put, i would look out to march, we're talking taper, maybe it's january, march, those are the next two meetings after december. if the price today at 102.5, you could buy that at the money for $3, it breaks even at 99. down 2.5% on the down side here. i like the risk reward. if you think bonds are going lower. >> what do you think? >> i'm completely with dan. look, if you buy long dated treasuries at this level, that's essentially like selling cheap puts. dan's trade is to buy a cheap put on a cheap put. there's a lot of leverage.

fundamentally, we really can't expect rates to go a whole lot lower, so you're sort of capped on one end. but you have a lot of room to run on the other. so these are the kinds of situations, that options traders wait for. and i absolutely, would support dan's trade. >> interesting thing here, they are looking at different time frames, i think carter wants to -- thinks the market is going to back and fill for a short period. i think it will be a very short period of time. so if you agree with carter, i would wait to put dan's trade. but i would not wait long. >> dan. >> that's the whole point of the trade. i love his analysis. and it shows me, that there is an opportunity for a short term technical bounce. that may get me the opportunity to get in there. >> in fact, because the bonds were down so hard before the payroll report. and they snapped on the news. >> coming up next, could a warning for the market be found in the aisles of home depot, we'll tell you why this big box retailer could make or break the next leg of the rally. when we come right back. stay tuned. [ indistinct shouting ] ♪

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welcome back to options action time to do something we have not done in a while. time to get called out, we look back on trades that have not worked out. a couple weeks back mike and carter made bets on home depot. the stocks have rallied but they have not lost too much money, here's why. it's how we build winning trades. risk less to make more. and that's just what mike and carter tried to do with their bearish bet on home depot. carter thought it was time to ditch home depot. >> something is not right here. >> but just shorting the stock, so to define his risk bought the strike put for 95 cents. now to make money mike needs home depot shares to fall below the $66.50 strike price by more than the 95 cents he spent or below $66.55 by february

expiration. a risky 95 cents just to bet against home depot. this ain't a million dollar listing, boys. so to spend less, mike then sold the december 67.50 strike put for 35 cents and created his put calendar. but he did something else. he put the odds in his favor. here's how. between the 95 krepts he spent on the longer dated put, and the 35 cents he collected on the shorter dated put, mike cut the total costs of his trade down to just 60 cents. and now instead of needing shares of home depot to fall below $66.55 to make money mike sees profits if the stock falls below 67.50 by more than 60 cents he spent on the trade. or below $66.90 by february expiration. but it gets even better. that's because the value of the shorter dated put that mike sold will decrease faster than the value of the longer dated put he

bought. letting him do something even the handiest men can't do. turn time into money. >> are you sure? >> but remember, there's a tradeoff, in order to make the most money, mike needs home depot shares to stay above the strike price of the put he sold before the first expiration. but below the strike price of the put he bought by the second expiration. and since the time of the trade shares of the big box giant have risen 4% making this trade neither a winner nor loser. >> wow. >> and now options action fans only have one question. will these two property brothers do to fix this trade? well, perhaps this might be some consolation, had you shorted 100 shares of home depot at the time of the trade, you would have lost about $500. now mike's put flies lost half its value but when you risk less you lose less, if you close out his position today he would look at a loss of 25 bucks. so here is where it gets interesting, though. the shorter dated put, that mike sold is now worthless, which has

helped offset decline in the longer dated put. but in order for the trade to work out mike needs hd shares to fall by the second expiration in february. so will that happen? carter got us in. so we got to turn back to carter. what do you see ahead for hd? >> we think it looks quite stalled. the stock is the perfect intersection of retailing, of home building, of consumer, and it acts heavy. it is not kept up with the market month to date, quarter to date. we think the risk is to the down side. >> what do you do, mike? >> other than go to home depot twice a weekend since i bought a house, i have been supporting the stock myself, i think. if my wife is watching, that's what she'd say. the thing is the put we're short, if you buy that back at a penny, that's what you do. the other put we are long we have to roll that up, if we continue to press a bearish bet here. just too far out in the money and that probability dropped too far. >> up next final call from the options pits. ♪ [ 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.

who found a magic seashell. it told him what was happening on the trading floor in real time. ♪ the shell brought him great fame. ♪ but then, one day, he noticed that everybody could have a magic seashell. [ indistinct talking ] [ male announcer ] right there in their trading platform. ♪ [ indistinct talking continues ] [ male announcer ] so the magic shell went back to being a...shell. get live squawks right in your trading platform with think or swim from td ameritrade.

time for final call, the last call from the oepgzs pit. >> all about general motors. >> twitter call calendar. >> i like dan's trade on the mk out our website, "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, just trying to make you a little money. my job is not just to entertain you but to educate you. call me at 1-800-743-cnbc. what a day. what a day this was! we got an employment number that had something for everyone. and it catapulted the averages