things. now, you stay safe. is "options action tonight." >> look, up in the skierks it's a bird, it's a plain. >> no, it's just twitter. ly is worth more than jcpenney and pandora combined. plus, talk about a mystery. >> a machine inside a robot built in the form of a woman. >> don't know what you're talking about? i'm talking about the strange prime action in safety stocks. and why does regis philbin have

a beef with "options action"? because he loves my product. our traders say it's a sell, they'll explain now. starts now. >> live from the nasdaq markets, i'm sitting in for melissa lee. hello, everybody, thanks for joining us today. hello, gentlemen, great to see you once again. and, riddle me this. the market hit a one-month low today. why are stocks on fire? names like twitter, facebook and tesla. it's a huge week but the market sagged. we'll also hit twitter later on in the show. you know what, it feels like this was curious price action. >> it was. it wasn't even in small names. think about the market caps we named. tesla was the smallest one. face pook had stock specific news that will go into the index

in a couple weeks, the twitter thing, you know, we'll talk about it, i think all of us are scratching our heads a little bit. don't know how you can gain $8 billion in market capital in a week with no real news. to me it speaks to maybe some chase for performance at the end of the year and the lead in the nasdaq and s&p, you saw some of these go berserk. >> do you think there's a squeeze going on. valuation, relatively high than what we thought it was going to be priced and it has gone to the upper right ever since. anybody thought the valuation before thought i can get in front of this. >> i think the interesting thing is the change for performance. last month we saw a bunch of people going to s&p options, they bought a porch of calls. because they needed rocket fuel. we saw early in the weeks that's not going to work out.

so they are going in stocks. a lot we're going to talk about today, they can kind of push higher. that's what is going on. dan makes a great point going into the s&p. today more calls traded for every put. if you're looking for an s&p-based sump for facebook. all of these names, including twitter saw more calls than puts. people trailing the benchmark, say they are no longer going to buy s&p calls. i'm going to buy calls that we'll get going. >> let's talk about tesla for a second. this is a stock that captured the imagination throughout this whole year that we saw momentum names. pretty much -- it was the man of the moment. >> it wasn't just on tesla. this was an outlyer. it capped out on september 30th. >> really, quietly, as a lot of

stocks were kind of creeping up this week, not creeping up, shooting up, tesla was creeping up. look at that chart right there. got to 152. that's a 50-day moving average. that's a momentum indicator that a lot of traders use. it got there and failed. and the horizontal line was key resistance level. not taking a view on the company. but more on the price option of the stock given 20% rally the stock had off the recent low. i want to make a short-term bearish bet. >> do you mind i ask a question about the company, whether or not we put the fees behind us now? >> i don't think they have to worry about the car fires. there's a lot more car fires with cars running around with gasoline in their tanks. one of the things, i don't think

everyone wants to use a gas-powered cell phone. i think the biggest issue, the fire under tesla is not the lithium ion batteries. but the valuation. >> one thing that's interesting, we haven't been doing outright cull or put purchases in tesla. volatility is high. the implied volatility, price of options has come down as of late making it interesting. today, i look at the december 27th expiration options. that's right after christmas. when the stock was 151, i bought the december 27, 150 put, paying 550. and there, i have a lot of room. what i'm hoping to happen here, after finding my risk. if the stocks start moving lower, applied volatility is likely to pick up. then i'll look to spread these long puts and create a lower

breaking. >> this is absolutely a tactical bet, folks. you'll not want to run out and every time you're bearish on a stock, start buying puts. this can get costly quickly. i look at a stock like this, there's no way i would consider shorting it. if you want a bearish bet. you may want to do chart-term. >> you may want to spread your way out or take a profit. this is something mike mentioned. avoid a squeeze. the most you lose is what you spread. the downside is 120 level, that nice rounded bottom, or the 200-day moving average. right now the stock is between the 50 in the upside and 200 moving average on the downside. >> you don't want to by a $550 option p and sit with it. >> okay. let's check this a little bit. you might be thinking if dan is bearish, why wouldn't he short the stock? it's simple, shorth a stock

would literally electrocute your portfolio. a little dramatic, but you could as it carries unlimited risk. but the put to the down side defines his risk to 550 bucks. let's move on. i want to go on to a bit of a market mystery you could say. on a down week, stock traders looking for safety found exactly the opposite. back at mothership in englewood cliffs, explain this for us. >> when the market is weak, consumer staples are expected to outperform. that's not what we have seen. this week, s&p 500 fell 1.6% consumer staples fell 2%. now, the pain was felt in names like color ox, proctor and gamble and coca-cola. interestingly that's a trend. consumer staples have not provided shelter when the market

has fallen. if they can't look for staples for safety where can they look? >> to reiterate, why has the safe sector become so dangerous. let's go to mike and carter. start us off. >> not only is performance in absolute business, this group is really in trouble. let's take a look here. this is the -- there we go. so, these are some of the biggest consumer staples that all of the world knows. what i have here is may to december, the past sex, seven months. general mills down, pepsi down, schmuckers, down, kellogg's, mcdonald's, coke, philip morris, a disaster, 10%. the s&p is up 7%. so not only absolute, but the relative is really, very, very poor. here's the visual of this. we have, since may, keep this in mind. this is where this started. starting in may, the sector was

keeping up with the market. there's may. this is where the divergence starts. it's been going on for quite some time. now it's getting quite extreme and implications are bad for the sector and for the market. here's a long-term chart of the etf for the consumer stable sector. this is outperformance. this is where the may problem begins. we've beening traing along the top the channel. presumption, we're going to get back into the mid or low points. we're looking for a 10% decline. close to 42 and change, we think 39 and 38 is where this is going. >> mike? >> interesting, we take a look at another chart. what we're looking at is a 50-year history of corporate earnings for the s&p, compared to the ten-year u.s. treasury yield. what is important, obviously as interest rates rise, we could expect how much we pay for stocks which would also reflect higher yield expectations, what is interesting, we see this

spread narrow significantly right in here. what is particularly noticeable in this situation. may, that carter highlighted is about the time we saw interest rates start to spike. we saw a very sharp rise in rates at that time. now talking about more taper. the safety trade is basically what is at risk. consistent with that theme, technically and also the notion that these are bond proxy, i'm going go along with carter's view. what i do is simple. staples stocks have low volatility. what i'll do is give myself time. i'm looking after march. i'll buy 41 and pay 80 cents for that. that's tight and you afford the possibility the fact the stock has low volatility. this say short directional bet. obviously we're not risking much at 80 cents. >> what do you think? mike's trade is a good idea? >> i love the trade. when you look at some of the members of the xlp. i'm short a budge of them

through options. costco, walmart. it would make my life easier going the xlp. >> this makes sense. mike is throwing over the names that aren't doing well. this goes back to chase for performance. you're not going to make your bogey based on these names. mike does something smart. he's buying options but longer dated options. we like to do that, because the match is on your side. this is the question. if mike thinks this is an interest rate play, when do you think that the interest rates start hitting higher and these names have a problem? >> i think there's really two issues, one, people talked about the possibility we would see some tapering activity. the market is anticipated sooner rather than later. if we expect that to take place, queue one, we expect treasury market before anticipated and these stocks will, too. >> mike, if you got a question,

give us a tweet @cnbc options. and that is right after the show on our website. go to "options action." in addition, you'll find great educational material and exclusive trade. check it out. it's interesting. this is what is coming up next, though. forget facebook. >> good luck with your video game. >> would twitter be the next $100 billion tech giant? we'll tell you why 2014 could be the year of the tweet and how you can profit. >> plus, why are regis and david suddenly besties? because they've made a ton on micron. we'll tell you why they may want to take the profits when "options action" returns. ♪ [ 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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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. ♪ thanks for staying with us here on "options action." it was the story of the week. yes, we're talking about twitter. last week, dan made a bullish bet on this name. you got the directions spot on. but the timing was a little off, and this is why that mattered. >> on "options action" we don't need 140 characters, risk less so we can make more. that's what dan tried to do with his bullish bet on twitter.

dan thought twitter was about to take off. >> twitter is really unique. >> just buying stock, set him back 4500 bucks. >> darn, darn, darn. >> so, instead dan bought january 28 strike call for 160. to make money dan needs twitter to rise above that stock price by more than the cost of the trade or by $4.60 by the january operation. spending $1.60 just to bet on twitter? >> no, i don't want to do that. >> to cut his cost dan sold the strike call for 60 cents and created his call calendar, but he did something even better. he made making money even easier. here's how. between the $1.60 to spend on the longer call and 60 crept he collected on the near call. dan cut the total cost of his trade down to $1 even. now instead he needs shares of twitter to rise above $1.60 this

saves money if the cost rises above 48 bucks. or by $49 by january. it gets better. that's because the value of the call dan sold will decrease faster than the longer call that he bought. that he can do something that the savviest tweetist can't do. turn time into money. there's a trade-off. in order to make most money, they need shares to stay below the strike that he sold before the expiration, but above the strike by more than the cost of the trade before the second exploration, or in this case, above $49 by january expiration. >> everybody get in this so far. >> since the time of the trade. twitter shares have risen almost 14%. meaning dan got the direction right but the timing off. now, options action fans have taken to twitter demanding the answer to one question.

what will dan do now? let's try to find out. dan is over the plasma. dan, i have two questions four. not just one but two. first of all, what are you doing with this trade now, and do you see the stock having a kind of rung that facebook and linkedin have of late? >> first of all, anybody saying trading is easy. they're wrong. what do you do with this trade here? yesterday, we tweeted it out, ironically, i closed the trade for what i paid for it. no harm, no foul. but a missed opportunity, nonetheless. i closed it, i moved on. let's look at what to do now. what's the opportunity in twitter after a 30% run. making all arguments about valuation even more difficult. thing is. turning 50 times sales. let look at the first year of trading on linkedin and facebook and see what is going on on

twitter. this is linkedin. this is down 50 first. down 50%. this is all the first year and since then it's been up 350% off the lows back in 2011. let go to facebook. same sort of thing. ipo gap here. we have a 50% decline. we come back up. another 30% decline and it's been up 130 percent from there. wild trading here, guys. really big cap stocks here. here's twitter. we have 28 days of trading. not a heck of a lot of time here. again, the stock sold off from as high of 50 down to 40 and it's moved around a lot. this is the one that's caught a lot of people off guard in the last week here. to me, what is it from a price action standpoint? these stocks continue to be volatile. this stock settles back in. i'm certain it will make another push higher at some point. real quickly, this is an options show. we talk how to play it with options. we talked about the tesla trade.

we want to see this. if you're a directional options player. this is linkedin applied volatility. the price since inception has been going down, down, down. hit a high of 80, now it's in the 30s. facebook same thing since its ipo. did have a spike since earnings. and twitter. there's not enough time to figure it out. the thing is spiked. ultimately it will come in and there will be opportunities for sales and opportunities to play this thing but not right now, buying options will be really hard to get things right. >> indeed it can if pros like you can get it off. obviously it's hard for a regular guy. i know you like to tweet. just because you tweet, not necessarily bullish on the stock. how would you play this? >> dan is right. you don't want to be long options in these type of situations. we know implied volatility will come down. these are speculative businesses. wait for your opportunity. you'll get a better one than have you right now?

>> why is regis, the nicest man in show business, hating on "options action" the reason could make you money after this break. 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.

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look at the multiples, and look at ha the earnings power here can be. what we think, the earnings will be a lot better than people think. next year maybe 3 1/2 dollars a share. the following week. $4 a share. the stock is 19 or something like that today. at that point, even if you get a reasonable multiple, you don't need a market multiple, you need an ugly multiple that shows sustainability of improvement we can do pretty well. >> i was the first one to tell you that. and i heard scoffing. >> you're right, you're right. >> wow. getting very fired up. that was david and regis, expressing mutual admiration for micron. proving once and for all there's common ground between two people. can they be making a mistake? we have "the bear's lair" with

the answer. >> we think it's too much of a good thing. here we are now. 6 to 24. a four-bagger. here's the important thing. four important advances. this is ten weeks, nine week, six weeks, six weeks, and appreciation is 65%. 65%. 45%. and then you get these corrections. it's all very symmetrical. does one buy, sell or hold? you take profits. this is what we think is coming. >> mike? >> just pay attention to this graph right here and what it looks like. that shape right there. going david's point. this is the the ratio for micron technology. maybe we'll see multiple contraction when we start delivering. this is proof they have it. as the price appreciated, all that was was increase in earnings multiple. this is one of those situations, if you look at it technically, they have yet to deliver on the

promise. that's also what volatility looks like. options prices are also appreciating. i'll take advantage of the high volatility. look to sell options but limit my risk. i'll go sell the january 24, 25-call spread. sell the 24s for a dollar. i'll collect 30 cents on that. taking advantage of the volatility. price looks like that. earnings multiple doing this kind of thing. so we'll sell it. >> is that a trade that resonates with you as well, scott? >> we're risking 70 cents to make 30 cents. in order to z loo 70 stocks rally. you're probably buying the cheapest option on the board. >> coming up next, your tweets and the final call this friday evening from the options picks. stick with us. ♪ [ 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. ♪

♪ [ 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. ♪ time now for "the final call." scott? >> best is liquid options.

>> risk in tesla. >> find s&p. >> looks like our time is running out. "mad money" is up next. have a fantastic weekend, everybody. we're out for now. >> announcer: the following paid program for the shark sonic duo is brought to you by euro-pro. [whirring rapidly...] >> both imitate: zzt zzt zzt... [whirring...] >> zzt zzt zzt... [whirring...] >> i have never seen anything like it! >> oh, my gosh, i love the shark sonic duo! the carpet's like new again! >> my kitchen floors are cleaner than they've ever been. [whirring...] >> it's the best cleaning system i've ever used in my home. zzt zzt zzt... [laughs] >> announcer: bright, beautiful carpets, rugs and floors make your home look amazing. but no matter how much you vacuum or mop, you get frustratec