things. now, you stay safe. bye-bye. 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 -- it's been a 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 market site. 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. are we seeing a rotation out of the winners, and what could that mean on the rally as a whole? let's get on the money and find out, start trading with the desk skeptic. >> skeptic? >> yes, you're the desk skeptic. what do you think? >> all of those names that you had up there before, they have 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. to me, all of a should now, 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. at new all-time highs. in 2014, i think a lot of things looked different. the growth picture looked different. some of 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. people are looking in the register a little bit. >> 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? >> i think dan is exactly right, and that 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 that this portends a bigger selloff than the s&p. s&p still above 1840. 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. than it was a couple of weeks ago, 14 obviously a floor in the vix. 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, march, may, july, those were all very active. i would make one distinction, though, priceline, google, they're a different story than a netflix and tesla. some of them have real growth under them and 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 hit first. we shouldn't be remotely surprised based on the news we saw coming out today. >> okay, dan, you have been looking at facebook as the next to fall so what's 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. they wouldn't have pinned $19 montana out for what's here. 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. let me tell you what it is.

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. that cost me 80 cents. that's my maximum risk. how do i make money on this trade? between 64.20 and 55.80 on april expiration, i could make up to 4.20. with my max gain at 4.20 right in the middle at 60, that is the level i had circled 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'm not showing you the stock. 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. but what dan is doing makes

sense when you consider that 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. that's when these things are going to make the most sense and when you're going to get leverage embedded in them. >> something interesting, we like butterflies. this is a bearish trade. i think you want to take this off before expiration. why is that? the range where you realize that profit is timing. it's timing. if you take it off beforehand, then you get pretty good leverage without spending a lot of money. >> we're going to stay with the theme of what is hot is suddenly not. we're going to talk about biotech.

tell us what's going on with 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. they're up 30% in 2014. regeneron is up 20%. 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. now we need to know 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. the s&p the official. and what we know is it keeps over and over and over bounces off its well-defined trend line of the past year. but now take a look at one of 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.

now not only do 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 presumption is that we have 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. there are some potential catalysts to the down side 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 145-125 put spread. spending about 9.50. selling the others for 3.50. a net debit of 6. this is away we can do that and not have that neighborhood exposure to the up side. in any kind of a gross sector is going to be dangerous, but biotech in particular, explosive pops to the upside. you wouldn't want to be short that under any circumstances. >> you know, mike, i would add one thing the charts do look bearish, analysts expect it to grow 23% alone. the stock trades at pe to growth 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, this stock is going to get hit. if they lose that patent issue, this stock's going to get hit. if they don't get approval in britain, this stock is going to get hit. >> i would say if you can get this stock at 130, 135, you're getting it on the cheap. >> i don't think you would be short any lower than 124. >> this is interesting, the technical setup sitting on the 200 day average, 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 bullish trade on apple. in addition to scott, you can find great trader blogs in educational material because we always want to learn more. 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. [ 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. you know, they say you can't win them all, and unfortunately our dear friend dan learned the hard way. two months ago 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 because 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 for $3.50. between the $7 he spent on that 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 55 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, 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 rises above just $65.60 by march expiration. 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? now, dan, the segment is called "fix my trade." >> this was taking advantage of the high volatility, the price of option before the event. to me the stock was 55, now it's 62. this is much better than being long the stock at 65. that's really what we were trying to do here. so you think about this now, you're shot that 55 put. you are long on the stock there, you have to make a market call where you think the stock is going between now and then. >> why has facebook done so much better than twitter this year? scott? >> i think people believe that

twitter is done. everybody that's going to use twitter has already signed up for it. how do they have growth and how do they sell ads? >> what do you think? do you think twitter might be done? >> first of all, i'm a big user of twitter. i think there's valuable information there, it's delivered in real time. i think the content is probably better. the reprobabhe'll problem is va. 50 times revenues? that's rich. that's a lot to live up to. i think that's his biggest problems. not what its promise is. it could have great promise. it's very difficult to grow into a value like that. >> and to cheer you up, you get the final word. >> i think it's going to change very quickly, much like we saw in facebook right out of the gate. if you can get this in the 40s in the few months, i think it's going to be a good buy.

>> don't turn a trade into an investment. >> okay, guys. that's the word on twitter. coming up next, did someone find out about the herballife investigation just ahead of the news? we have our ear to the wall and we'll tell you about this week's fairly suspicious activity. ♪ ♪ ♪ ♪ [ tires screech ] 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. ♪

it's been quite the strange ride for herbalife investors. first the federal trade commission retweeted a question that asked "why have you not shut down pyramid schemes like herbalife, nu skin and others? what is the ftc waiting for? then on monday a big "new york times" piece detailing bill akerman's tenacious attempting to take it down. then 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, this is prior to the halt, with the ftc releasing the

letter. 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 largest line of opening is january puts. >> they certainly feels suspicious with that action going on. scott? >> 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.

>> how many times do we see big put volume when the stock doesn't strike? >> 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 is some market asymmetry as far as information is concerned. some are going to have a better sense of what's going on. some are going to have less. so the way to take advantage of this is to monitor activity, the same way that 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. [ 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.

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. i'm long on april put fly. >> 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.

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