money, then things. now, you stay safe. bye-bye! ♪ this is "options action." tonight after apple beats by dre deal, what will be the next takeover. plus. >> it is the world that has been pulled over your eyes to mind you from truth. >> the truth is only a handful of stocks are hold up in the market. we'll tell you which ones and why that could spell trouble. >> we'll tell you why it's about to get worse.

"the action" begins now. with apple reportedly looking to by beats electronics, everyone is asking the next question. what is the next deal. how about the public companies? >> i think there's menty to be had. let's take a step back and see what happened this week. the market went said ways for the most part. we started the week, we had the twitter lockup ipo, it broke and the thing just careened down 20%. then that next night we had the ali baba, biggest ipo over and then we have the beats by dre. there's a lot of tech stuff going on. if you're think about it with a

no so rosy glasses on, doesn't look great. >> this feels like a little bit of a frenzy for me. it probably was the late stages of a bull market going op. we had valuations above their historical averages. everybody is fired up on the stocks and look what happens when a little bit of bad news come out of these things. to me this feels like the late stages of, you know, the second tech 2.0 rally. >> part of it is i think that google and facebook are going head to head like a couple of kids in the sand lot that they want to buy all of these new companies before they get public. they're racing to put a stake in the ground and get these names. it's a little bit more like what happened in the cloud space when we had hp and dell trying to buy all these names. it worked out great if you owned those names. but the point is the companies being bought are relatively

small, except for whatsapp. >> this brings you to the original question. >> you see the momentum stocks and all of the sudden these are cheaper targets. >> we don't know that the beats things is going to happen. when you think about it, their streaming service has 500,000 paying users. the one thing i'll say is this is not apple's mo. they don't buy versus building. they choose one of the smallest players in the market if this is going to happen. somebody, maybe it's google or faus book, may want to leap frog the next one or amazon. that what bring me to pandora. they have 76 million players. you want to become a player, that's what you do. when you think about it, you just said in the last show that spot fie is valued. pandora has a market cap of $4.5

million. the stock is down. it's almost been cut in half from the all-time highs in delm delmar. let me tell you, yelp has a little less than 4 billion market cap. so on a relative basis you would make an argument this is a cheap new economy company. >> this one of those -- first of all, is there anybody here who doesn't know somebody who is on pandora all the time. in my own house one of the things that happens all the time is did you forget to hit the button? are you still there? this is going all of the time. to dan's point, five-time sales, let's not forget that aloit of tech names can have astonishing margins. let's assume you can achieve 40% margins. at five times, you're looking at a reasonable multiple if they can achieve that, plus they've got growth and a big footprint. >> what's the trade?

>> you got it, lady. so, no, let me say, like today, i'm not a big fan of these names. netflix. to me what i want do, i'd say, okay, i think this thing could be many play, it could be reasonable and it could be the sort f 0 acquisition target that makes sense for a lot of deep pocketed players. so when the stock was 22.5 today, i actually looked out to september and i bought the september 2835 cost spread. that's way out of the money. i paid a dollar for that. i need a massive move to 29 just to break even in september. this is the sort of thing that if someone is going to pay for this, they're not going to sell for much below those priest highs. that gets you to a 30, 40, maybe 50% premium. i wanted to spend as little as possible, risk 1 dollars to possibly make 6. and you know what? i have shorts on in this space

against it. this is a speculative trade. >> scott. >> dan makes a great point that this is speculative but he also make as great point that even though he's playing for a takeover, he's not going to buy a call. he is making a much smarter bet hear and reducing the cost by a third by thurng it into a call spread and i think that buying calls or call spread is the only way to get along in this. the chart is really ugly. hit 40, roll over convincingly, lower highs and lower lows. the only reason to be long here is because you think it's a take out candidate. >> who would buy it? what do you think would buy it? if the premise is here that pardon ra is a potential takeout candidate, who is the buyer? >> maybe you have a merger with netflix. there's a ton of things. this is my part about the market

and all of the craziness in tech. we don't know what's going to happen. if things are going to get weird, it's going get weird. >> netflix or am skon, it makes aheck of a lot of sense. >> consumer stable stocks have actually been some of the best trader ps tom is back at headquarters with more on this. >> stocks like coca-cola, you got walmart, proctor and gamble, they rose on the day. we did see the bulls come out an buy calls. two times as many traded as put options and in coke nearly four calls were traded for every single put. the volume wasn't necessarily huge but we're certainly seeing some bullish speculation in some of the consumer staple companies. this is a sector that's up 4% on the year. so again, some of these big

names showing some nice options action. back over to you. >> so the question now is are those bullish traders right? got to go to the chart master. carter what do you see? >> this is a fear base a approached to markets. people buy defensively. usually it comes to an end. let's take a look. just to set this up, going back to the you recall 19078s, the sector, staples versus s&p. this is just an epic out performance. by that score alone you to wonder what's left in the trade. but more immediately, the strength of the last six or eight months has taken us above these well-defined lows and highs of the channel, you can see this, yes. and mean reversion is a powerful principle. to overshoot this means there

will be come revisiting of the top of the channel which is a 10% move lower from here. here is the index again and i would, if you will, draw the line like this. we've reached the top of this sort of thing and again we're thinking back like this. let's do it one other way. this is a five-year chart since this current bull market began and this is the xlp, the instrument you can trade. and you can again see how well-defined the channel is. it responds beautifully over and over. when you overshoot the top, you have the tendency to revert. we're looking for a 10% climb to the middle of the range. let's talk about fear in number form. kraft, general mills, proctor, you know the names. the average is 21 and that is earnings growth over the past year. the results are zero. zero. and yet people are willing to

pay that kind of price for this. it's a fear based kind of behavior and it comes to an end more often than not. >> not even keeping up with inflation as far as erjs growth is concerned. does this seem familiar to anybody? i think we did this exact same thing about a year ago in the sap l stocks, these fear trades, they sort of track u.s. 10-year treasuri treasuries. everybody goes running into them and then it falls. i don't see how anybody would want to potentially chase this trade. where do you think these things are going to honestly go. you have some people who are wanting to maintain a buggish stance. that representing the call buying you're seeing there. but the smarter bet is on a downside move. when there is a equity market downdraft, even the safety stocks are going to get pulled down. >> you've got a simple trade. >> we're looking out to september, going to pay $1.15 for these thing. staup ls have relatively low

volatility. the options premiums are going to be cheep. on the index it's cheaper. we're going to give yourself the entire summer to play it out. >> given the price action in so many other sectors of the market. if you want to go after the staples, i get it. that costco right there, that trading at 25 times given the growth that it has and the technical setup is a disaster. it's very contrary to what's going on in the s&p. >> if you press the weakness, you're going end up selling some bottoms in some of the names that have rolled over. i think mike is trying to pick on top. he's doing it really inexpensively. if you think that it's not going to go down, you might think it's going sideways. the problem is you don't collect much money and risk a fair amount of money. mike is risking a little bit of

money he's only spending $1.15. go a question out this there, send us a tweet. scott will answer it. in addition to scott you'll find some great trader blogs, educational options gossip, believe me, it's hot. well, maybe not so much. check it out. here's what's coming up next. ♪ >> what do tesla shares and these people have in common? ♪ they're both doing the electric slide but it's about to get worse for the car maker. we'll tell you why. plus, why are some traders betting big on a twitter turn around? >> it's a bold strategy. >> if facebook is any indication, twitter could move higher. we'll tell you how to profit 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.

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♪ [ 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. #epicfail. twitter shares getting creamed on this week's lockup operation. since the start of the year, the stock has lost half of its value. don has been bearish but you did see some interesting bullish activity today >> the stock broke at $40 right before the lockup and it was just lights out. had the down 20% day on tuesday. there was no technical support anywhere. the stock went public at 26. it went much higher. where do you buy? one of the things that was kind of interesting today, the stock

has been hovering above 30 for the last few days since the lockup anwhen the stock was $31.84 there was a risk reversal where a trader sold 2500 of the september 27 puts for 220 and bought 2500 for 320. that trade cost them a dollar. what is he really doing? between 27 and 35, he risk that dollar or $250,000 in premium and on the upside he basically has long exposure unlimited above 36 bucks. where was this stock just at? it was at 40. that's going to be an interesting level when you think about it going forward. and if you're looking to get some leverage and take advantage of the next thing here, this is why i think kind of traders sold the put to fans the purchase of the kwal. volatility, why it's down, it's likely to go lower when you

think about the fact that the lock jup expiration puts more shares in the flow here. the trader doesn't want to own premium and that's why he financed it. you know, twitter, the sentiment is really bad. think back to fis book. that ipo was a bust out of the gate. twitter is still up. look at what happened to facebook. as soon as they were able to demonstrate how they were going to monitor their user base, bam. at the end of the day the trader may be thinking about the q 2 report these going to come in august and think that's the time that they could basically demonstrate to the street that they know how to monetize this thing. >> what's interesting about the facebook analogy, the performance is it bottomed in september 2012 which coincides roughly to where we are with twitter. >> when people began to turn the corner on facebook, they began to see the revenue growth they

hope for. a number that got thrown out was $12 billion. the company has had half as much revenue as it does now. i look at the situation and i think it makes some sense to sell some downside puts in this thing. this tl is going to be a level where the people who were originally interested are going to have a chance to buy in. i look at this situation and i think that's an interesting place to start looking at it. >> i think all of that is legit except sometimes you can say there is such a thing as fellow money. there's no rush to do anything. probably after having the plunge that it has, it become as period of equilibrium. there's nothing urgent. >> that's one of the reasons that selling puts is interesting. >> that's what the show is about. >> you can through under the market and say listen, if it really catching maybe i'll get to buy -- >> if you think you like it at 32 and you're really going to

like it at 27 and you're going to love it at 2. i don't see a reason why this stops. it's not facebook. they're not going to figure out how to monetize mobile. these things don't stop and turn around. they get really ugly and mushy at the bot tom. >> i'm not particularly that negative on the stock at 32. before it's all said and done i think the stock goes back and makes an attempt at that $26 ipo price. 200 million shares of insider and some of the early vcs said they weren't going to sell. they're certainly going to sell. >> coming up next, twitter wasn't the only high flier taking a nose dive this week. there are also big concerns about electric car maker tesla. how bad could it get? we'll find out when "options action" returns. ♪ [ cows moo ] [ sizzling ]

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and trade with papermoney to test-drive the market. ♪ all on thinkorswim from td ameritrade. it was an awful week for tesla, the stock plunging 14% after reported earnings and that was very bad news for a certain pair of options actions al stars. take a look. ♪ >> on "options action" just

because we risk less doesn't mean we're going to make many more and unfortunately that's what happened with mike and carter's bullish bet on tesla. carter said the shares were about to accelerate. >> we think the resolution is up and out. >> all right, mike thought, i'll hop on board. 100 shares cost more than $20,000 or roughly the price of -- >> a new car. >> to spend lez, mike instead bought the september 2015 call for $25. now mike needs the stock to rise above the strike price or 240 by september expiration. but mike really, paying 25 dollars just to get into tesla. >> it seemed to be a good idea at the time. >> so to reduce his cost mike then sold the september call for $12.50 and created his call spread. he did something else. he made making money easy per.

between the $25 he spent and the $12.50 he's collecting on that higher strike call, mike cut the cost of his trade to just $12.50. that means mike just needs tesla to rise above 215 by more than the $12.15 he's now spending. >> i love it when a plan comes together. >> me too. but sadly that didn't happen here. and since the time of the trade, tesla has fallen 8% making this trade a looser. mike and carter are barely on speaking terms, bitter and resentful on a trade gone bad. but let's not forget about the trade because the options actions fans are asking the same thing, what will they do with tesla now. >> hopefully they can make up. let's answer that. carter, got to go to you got us in. what does the chart tell you now. >> this was violent quick and

bloody. i'll show you what i'm looking at in terms of levels. this is the trim line and there's your break, the unhappy event of just the past four or five sessions. what matters from my point of view is this and this. we close today on the average, around 182 and change. we would use today's low as your walk away point which is 177. so if this doesn't come to life now, it's over, walk away. but we would give it another hour, another few points. after that you've got a bigger problem. >> what do you do, mike? >> we're at a tipping point here. one of the reasons we put the call spread on in the first place is because from a fundamental standpoint it seemed awfully challenging to chase the stock. the good news is we lost a lot less than we otherwise would have. i'm with carter on this. we're going to wait and see how this resolves itself which we're probably going to find out very shortly.

>> it's not resolving itself to the upis side. i give you guys a lot of credit for taking a shot there but it's over. the sentiment and the psychology of the market changed. it's a great story and going to be legs for years to come. >> everybody is still waiting to figure out where the battery giga factories are going to be. >> it's going aba bmw factory. they're going to kill these guys. i love that carter is being ruthless and taking the loss. you have to do that. >> coming up next, the final call from the options pits. ng, ] 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.

♪ ♪ ♪ [ 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. sfloo time now for the final call, the last word from the options pits. carter worth. >> reduce your exposure to the overprice no growth area of consumer staples. >> happy mother's day. >> pandora i wouldn't buy the stock out of the call spreads. >> cheap way to buy downside

staples. >> looks like our time has expired for more options action, go to our website and check out the daily segment inside fast every day. we'll see you back here next friday at 5:30 p.m. in the meantime "mad money" starts right now. >> announcer: the following is a paid presentation for the power pressure cooker xl, brought to you by tristar. do you love sitting down to a big sunday dinner with the entire family? do you wish you could enjoy the taste of those all-day, slow-cooked, labor-intensive recipes without the time, the work, or the wait? well, now there's a new way to take grandma's favorite recipes and turn them into everyday family meals with just a push of a button and do it in a fraction of the time. how would you like to make a hearty pot roast with all the fixings done in 25 minutes... fall off the bone short ribs ready in 40 minutes... or how about chicken wings,