♪ ♪ this is "options action" tonight. drug bust. no that kind. we're talking about viotech. one of the hottest sectors is

about to break down. we'll tell you why. talk about social problems, why is facebook suddenly kicking twitter's -- one-sided fight. we'll tell you why a twitter turnaround could be on tap. did someone know about the investigation into herbalife, before it was public. wait until you hear just how much money they made. the action begins right now. ♪ we're live from the nasdaq marketsite. happy friday, everyone. traders here in times square and also in austin, texas. hi, guys. great to see you. happy friday to you, as well. this week, if you're in a momentum stock, you're in a bit of trouble. google, tesla, priceline, all having big declines on the week. let's get on the money and find

out, start trading with the desk skeptic. you're the desk skeptic. >> all of those names that you had theup there before, they ha performed fantastically. you need to see money flow into new areas. you see that. the names that you had up there have defied gravity. they have had great performance. we have seen a very volatile q1 in 2014, very different from what we have seen over the last year. >> were you expecting that as a risk. >> i think we were due for it. the calendar is concerned, we closed on the tippy-top. in 2014, i think a lot of things looked different. the growth picture looked different. so much the pressures from outside the u.s. looked different. back to those names, though, i think they're crowded names, i think they have a lot of performance, things are jittery right now. >> of course, scott, we've got

one of the poster childs for this sector, green mountain, going to join s&p 500 on march 21st. what do you make of this? >> the rotation is healthy. lot of these stocks, the three we talked about specifically, all are dollar-expensive stocks. they're natural candidates if you want to raise money, put it someplace else. i don't think this protends a bigger sell-off. i think what's going on, people are nervous and understandably so, because the market can go down in a big hurry. so, what they're doing, they're buying puts. vix is getting much higher. now, people bidding the vix up above 17. there are some healthy skepticism. people want to be long stocks. >> mike? >> scott, first of all, certainly we did see that skepticism in the vix.

the 20 calls were very active. i would make one distinction, though, priceline, google, they're a different story than a netflix and tesla. the multiples aren't crazy. priceline is an example that i would provide ten years of double-digit growth. tesla is trading on speculation, the second coming in the auto industry. same thing is true for netflix. you're going to see, when it's risk-opt, they'll get hit hardest and first. we shouldn't be remotely surprised. >> okay, dan, you have been looking at facebook as the next to fall, what is your trade there? >> i'm not going to say it's the next to just crash, it's a stock that's very crowded, i think people feel really good about their prospects and the company feels good about its prospects.

but here's the thing, if things are going to get a little bit rockier, i think facebook could see down 10% move in a market that's down 5%. to me, i wouldn't short this stock here. but i like this options trade. i'm looking out to april. when the stock was 67.70. okay, i bought it at 65. i bought one at 2.20. i bought one of the april 55 put for 30 cents. how do i make money on this trade? between 64.20 and 55.80 on april expiration, i could make up to 4.20. the level i had circle on that chart. i think that's a very interesting target if the stock gets going. here's the thing, this is a

risk/reward trade. i like the options trade. i think the market that comes in, it will get hit harder. >> mike, do you agree that facebook is going to fall. >> first of all, facebook is trading at a level that's pretty hard to justify on many levels. it has been exceptionally different to short some of these growth stocks, you know, basically, there seems to be no ceiling as to how high they go. there's something else i like about it, volatility has creeped up, that's when you want to be net short. butterfly trade does that. the other thing that's excellent about this, he's trading out to april, using april that's a near-date of expiry. when you're going to get leverage embedded in them. >> something interesting, we like butterflies. i think you want to take this off before expiration.

the range where you realize that profit is timing. it's timing. if you take it off beforehand, then you get pretty good leveragespending a lot of money. we're going to talk about biotech. >> those biotech stocks once the darling of wall street, but some of the shine has come off the industry group as of late. it was down almost 2% today. but so far this year, they're still up 6% as a group, that's not too shabby, now leading the way higher are alexion pharmaceuticals. regeneron is up 20 mkt. now, valuations are a concern here, all of these stocks have nearly doubled in value over the course of the past 12 months,

alexion, a plain and simple, investors may be taking some profits. mandy? >> dom, thank you very much. a little bit of background there. whether or not we should be concerned about this, what do you think, carter? >> mandy, some of the actions, here is the set-up, of course, we know how well biotech has performed relative to the s&p. it's five fold increase over the last ten years. with that setup, here's the biotech index. it keeps going over and over bouncing off its well-defined trend line. the leading four stocks in the group, celgene has bounced and bounced. now it's starting to falter. which is to say it's broken below its trend line. that's how trouble starts. one starts, then the next.

here's celgene versus the biotech index. you're seeing this as a divergence between celgene and its own group. we have the break in the trend. we have a minor head and shoulders top forming. it's fairly well defined. the neckline is right here and the presums is that we a break. finally, you can look at it this and just rely. the presumption is lower. >> thank you very much, carter, for telling the technical story there. mike, would you press the short here? what is your trade? >> it's interesting. some potential catalysts to the downside on celgene, some patent

concerns coming up. approval issues they're facing in britain. carter, this isn't one of the biotechs that's trading at insane multiples. because they do have revenues. i'm going to target that 135 level. we don't have a whole lot of expirations to choose from. i'm going to go out to july, i'm going to look to purchase the july 145 put spread. spending about 9.50. selling the others for 3.50. a net debit of 6. in any kind of a gross sector is going to be dangerous, but biotech in particular, explosive pops to the upside. >> you know, mike, i would add one thing the charts do look

bearish, analysts expect it to grow 23% alone. the stock trades at less than that. >> dan, i'm going to have to interrupt you, the analysts are expecting this thing to do 10 bucks a share in 2015, 10 bucks a share, that would be incredibly cheap for a stock that's growing. as a group, valuation, if the whole sector gets thrown out, it's going to get hit. if they don't get approval in britain, they're not going to get hit. >> i would say if you can get this stock at 134 -- >> i don't think you would be short any lower than 124. >> this is interesting, the technical setup n the short

term, the stock is probably in trouble. we like buying puts spreads and this one makes a lot of sense. i like this. >> okay, guys, back to you professor kohn in a second. you can send us a tweet if you want. at cnbcoptions. we'll answer it in the web extra. scott has a bull iish trade on apple. this is what's coming up next ♪ talk about suspicious activity. why were so many traders betting against herbalife before the bombshell ftc news, we'll tell you how they made money. twitter shares have plunged this year, why they're betting on a big turnaround? and that's when "options action" returns.

chewley's finds itself in a sticky situation today after recalling its new gum. [ male announcer ] stick it to the market before you get stuck. get the most extensive charting wherever you are with the mobile trader app 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. ♪ you know, they say you can't win them all, and unfortunately our dear friend dan learned the hard way, two months he made a bullish bet on twitter well, the stock has plunged. but he hasn't lost too much money and here is why. >> on "options action" just bass we risk less doesn't always mean we make more and sadly that is exactly what happened with dan's bullish bet on twitter. dan thought that shares of the social stock were set to fly. but buying the stock 100 shares would set you back more than

$6,000. to spend less, dan instead the strike call for 60 bucks. to make money, he needs twitter shares to rise above $60. or 72 bucks by march expiration. do we want to spend 7 bucks just to bet on twitter? >> no! >> so, to spend less, dan then sold the mark 75 strike call. between the $7 we spehe spent o lowest strike call dan has reduced the total cost of his trade to 3.50. that means, instead of needing twitter to raise $72, dan sees profits as long as it rises

above $72. >> i like it very much. >> we like it, too. ♪ >> but, he's not done yet. >> you can sell the march 55 put. >> that's right. to make the trade even cheaper, dan then sold the march 65 strike put for $3 and created his call spread risk reversal. sounds tricky, right? let's do some simple math to make money. between the $7 he spent on the strike call and the money he collected collected, dan is spending just 50 cents on the trade. that means instead of needing the stock to rise above $68.50 to make money, dan now sees profits if twitter raiises abov just $66.50. the only problem, if he didn't sold that put, he'll be

obligated to buy the stock for $55 even if it falls well below that level. sadly, since the time of the trade, twitter shares have fallen more than 15%, meaning, dan might have to buy that stock. "options action" biggest fans have take on the twitter. they only have one question, how can dan fix his trade. >> an "options action" selfie, don't you? before we answer that question. let's cheer dan up. let's play a stocks versus options. if he shorted twitter, he would be out over $1,000. how are do you fix this. >> this was built as a long trade. the price of options at the time before the event, so, to me the stock was 65, now it's 52, this was much better than being long on the stock at 65 and that's a

really what we were trying to do here, think about this now, short that 65 put, you're long on the stock there, you is a week until expiration, you have to make a market call. >> i have a fund amental question, why has facebook has done better than twitter? >> i think people believe that twitter is done. how do they have growth? >> do you think twitter may be done? >> no, actually, first of all i'm a big user of twitter. i think it's valuable information there, it's delivered in real-time. the real challenge for twitter is simply valuation. where they finished up last year, $35 billion market capitalizati capitalization, 50 times revenues. that's rich. that's a lot to live up. that's its biggest problem. it can have great promise. >> and because this is all about

cheering you up, you get the final word. >> i think twitter is in the first inning, i think it's going to change very quickly. much like facebook right out of the gate. i think twitter, if you can get this thing in the 40s, i think it's going to be a good buy. >> okay, guys, that's the word on twitter. up next, did someone find out about the herbalife investigation just ahead of the news? we've got our ear to the wall and we'll tell you about this suspicious activity. [ 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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[ 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. it's been quite the strange ride for herbalife investors. first they retweeted a question

fr -- that said, why have you not shut down pyramid schemes like herbalife, nu skin and others? what is the ftc waiting for? >> wednesday, we finally got news that the ftc will be opening an investigation into herbalife. dan, does it look like maybe someone got that news early. >> possibly, this is battle ground stock, obviously, we know the story here, this was the action on wednesday, this was prior to the halt of the stock with the company releasing the ftc letter. this is after, almost 20%. okay, let's look at what happened in the options markets. this is what they were buzzing about. prior to that 118 halt on wednesday, there was a lot of activity in the april 55 puts. a bunch of them were bought between 71 cents and up to a $1. you know where they are right

now, they traded as high as 640 on wednesday. what's interesting about that, you know, people have their eye on this 50 strike. we talked about that on this show back in january. the longest line of opening is january puts. >> they certainly feels suspicious with that action going on. scott in >> i don't think it's suspicious at all, i think someone got lucky. we talked about someone buying puts. they don't want to be short. bill bought puts -- >> he got lucky. >> big put volume when the stock doesn't -- >> scott, there was no open interest in the opening stock puts. i mean -- >> let me just say this. >> okay. >> there should be a takeaway here, let's assume there's asimilymmetry as far as informa

is concerned. some are going to have a better sense of what's going on. to take care of it have better monitoring. carter takes a look at the charts. this is another tool you can have in your quiver to keep an eye on what's going on. >> look at the debate. 50 is the key level. when the news broke in 2012 that's where the stock dropped to. 50 looks like where we're heading now. >> it's all very interesting. debate is what this market thrives on. coming up next, the final call from the options pit. [ tires screech ] chewley's finds itself in a sticky situation today after recalling its new gum. [ male announcer ] stick it to the market

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♪ [ 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. ♪ it's time now for the final call the last word from the options pits. mike, you go first. >> options premium has ticked up. so use puts. >> this week's web extra, spreading out of a trade.

>> dan? >> i wouldn't short facebook here. >> on that note, it looks like our time has expired. see you next friday at 5:30 eastern and have a fantastic weekend, everybody. thanks for joining us tonight. . >> my mission is . >> 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 kramer. welcome to ""mad money."" welcome to the 9th anniversary of "mad money." other people want to make friends, since 2005, i want to help you make money, cramerica. my job is not just to entertain you, but to call you and teach you. calm me or tweet me