this is options action. tonight. >> let's make a deal. >> ebay shoots down the rumors it's in talks with google but traders are still betting on some type of ebay deal. we'll tell you who the other suitors could be. plus -- ♪ >> despite it's break down this week, we'll tell you why some smart traders are betting big on a bullion bounce. >> and it's the hardest stock in the dow to short. >> takes a special kind of man

to volunteer for a suicide mission. >> but two traders are up for the task and we'll tell you why. the action starts right now. >> time for the nasdaq market site. these are the traders here in times square and we're going to start with troubling news from the options pitts where there were huge bets on more market turbulence. one trader betting millions of dollars that they'll double by october. how concerned should you be about your money? let's get in and find out. and mike we've seen a creep higher in the bond market and we have a fed meeting. maybe this is not a surprise. >> credit spreads probably widened by about 30 basis points in under a week and a half. so that indicating some risk. let's think about what these actually mean. what we were seeing were buyers of the october 22 calls. that is about a 10 point increase from where it was today. here's one way to think about that. for every one point it goes up that's the s&p going down 1%.

so that's talking about maybe a 9 or 10% decline potentially if that actually plays out. so when you take a look at this, here's somebody willing to commit quite a lot of capital to make that bet. it wasn't my mom that was doing this. >> yeah but you know what i would say though, $135,000 the october 22 calls traded. they traded between 34 and 50 cents. think about it on a premium basis, if you own a lot of stocks or risk assets and you think that things are topy and think it could cause volatility, this is a asymmetric bet. i doubt that the buyer of these, 45,000 of them traded in the morning at 45 cents. >> here's the thing, this is not the type of hedge you just use systematically. this is the type of a hedge that you use strategically. so this is the kind of hedge where somebody thinks there's a risk of something happening between now and october. this isn't the kind of thing

where they're always running a hedge book. this is a very strategic and specific bet and it's targeting the next 30 days. >> do you agree with that? >> absolutely. let's take a look at what's going on now. with every single one of the risk assets showing minor cracks this is the time you want to do it. you don't want to wait until it gets to 20. do it when it's at 13 and just over. >> we've been talking about this now it seems like for a year since the taper tantrum last summer we saw what happened to the high yielding instruments when we had rates start to rise. what happened? look at what happened with the iyr. that is the read index and we'll talk about it. when it get backs to three we start to see volatility and we saw that this week. this is why you will be reaching four at some sort of portfolio protection in the near future because we saw sharp declines. >> you think about these things. you have bank of america, jp morgan moving up their forecast

for when the fed is going to hike interest rates now. >> for a long time everybody thought if they're raising rates we have good economic data and that's a reason to buy stocks and if rates remained low that was a reason to buy stocks but the equity markets, actually all risk markets are going to respond and they're going to anticipate the rate increase and you're going to see a decline in asset prices. >> speaking about yielding sectors, utilities come to mind. >> that's for the utility sector. it's up about 15% of the year. that's doubling the performance of the s&p 500. 3.5% dividend yield and this is a great sector to own for a lot of reasons but thinking about what just happened in the iyr, to me the volatility is very low in the xlu and if we have a sell off, the xlu sold off 10%.

so me the technical set up is really interesting here today when the etf was 3245 i looked to buy the 4240 spread. i paid 60 cents for it. that's my max risk. i bought one of the october puts for 80 cents and sold one at 20 cents and if i get this thing between 4140 and 40 i can make $1.40. here's the key thing about the two strikes i chose, 42 would be a nice level. the stock is declining and 40 was that low right there from august and i like that. >> the irony is things like utilities and 30 year treasuries are thought of as safety trades but in a rate increase this is the least safe place to be and if you take a look at what the 30 year did this week that's sample evidence of that. there's a tremendous amount of exposure to rate increases.

>> i want to go to you. there's not much time for it to workout. >> it's tight like this a 4240 will work: there's a long relationship between yields interest rates and utilities and utilities start to get in trouble if you have inflation or if they're cost of capital is moving and neither of those things is at play here. look at this chart. this is some perspective. this is the ratio between what you get from s&p 500 utilities and 10 year treasuries and overtime this has been about a.82 and it's running almost double that. 37 versus 26. so utilities are still cheap. it takes awhile for this kind of thing to unfold and we don't think it's a long cycle thing at this point. >> >> so you might put sort of a similar trade on would you consider it? >> i would. >> i wanted to do it and it was down so much this week.

this one looks like it's rolling over. we're at a good spot to put it on. >> let's switch now to gold. >> nice to see you melissa. it was a tough week for gold by all accounts. dropping to end the week at 1230. that makes the 7th down week for gold out of the last nine. that's the lowest level we've seen since january. the move in gold is all about the dollar. as the dollar rises gold tends to weaken so the massive rally has been a serious head win for bullion. >> thank you so much. carter i want to go to you for the chart look because we have seen a massive rally. it was the biggest weekly gain since november. we're seeing the reaction to the commodity markets. >> we think that's the opportunity here is to take the other side of this in the sense that it is a massive rally and was unexpected like the huge

bump up in rates so we think it's overdone and you can actually catch a fade or a pop in gold. so here's the gold etf and of course this massive wipe out is a function of this huge move in the dollar. very clear. gold down, dollar up. now take a look at longer term pictures here of the dollar. i'm going to switch to red the highlight this. this is the dollar. this is the move that we've just seen. we're simply at the top of a range. you never in principal exceed a range when you first get there. in order to break out from a range you have to coil more often than not. our premise here is having reached the top of the range there's dollars pricing quite a bit of what is coming and then we'll start to back and fill. take a look at this picture here. that's our same lines if you will but here it is also another way. the rally of the dollar leaves you at a very difficult level and the presumption is that the rally will stop here for now on an intermediate basis which

means that gold has the potential to pull this. so we're looking for the gld to move up 8 or 9% and close at 115. >> 8 or 9% move on the gld. what's your trade? >> i think the simple way to do this. i've never been a gold bug and this is -- going this way is a little bit counter of what we were talking about earlier if you use options sometimes you can get a little leverage. i'm looking at the december 127 call spread. you can pay $1.55 for that and it can be worth as much as spread. even if you think it's a 50/50 bet that it could go either up or down from here you have a pretty good risk reward relationship on the upside. even though i don't agree with the sentiment this is a way i can do it and have the outcome. >> it's a complicated trade in that the dollar is not just a

function of what's going on here in the united states and with it's interest rates but it's a function of what's going on with europe. what is going on with the ecb and japan. >> that's the key. we had all of this, you know, these different regions all of a sudden get on the qe band wagon or think of it going forward. i don't know why gold would ever go up. if it breaks 150 in the gld it could wash down another 10%. there's so many people hanging out. if you want to play for a bounce i think that mike's trade makes perfect sense. there's a ton of technical resistance at 25. but that dollar move, mike carter said was unexpected. we also have a lot of geo political news. it didn't. >> we talk about this before. you don't fight the fed and probably couldn't fight all the other central banks at the same time. deciding you're going to buy gold. we're looking at it in dollar terms that's what you're doing. you're fighting all the central banks. i'm not crazy about that idea. i could see it going to $1,000. >> that's a big call mike. got a question out there, send

us a tweet to our new handle @optionsaction and check out optionsactions.cnbc.com. check it out. here's what's coming up next. no deal, ebay strikes down ryu morse of a potential google tie up but traders see another name swooping in. >> so you're telling me there's a chance? >> yes we are and we're naming names. >> plus trouble at home. betting against home depot but the retailer keeps heading higher. why are they sticking with their short in we'll explain when options actions returns. >> options actions is sponsored by think or swim by t td ameritrade. when the world moves, futures move first. learn futures from experienced pros

with dedicated chats and daily live webinars. and trade with paper money to test-drive the market. all on thinkorswim from td ameritrade.

[b♪ll rings] time and sales data. split-second stats. ♪ its so close to the options floor, you'll bust your brain-box. all on thinkorswim, from td ameritrade.

shares of ebay surging on rumors that google was taking stake in the tech giant. the stock ended the day much higher. ebay options traded 4 times the average daily volume with most of that activity on the call side. almost 100,000 calls traded with one raider betting the stock will be above $60 by this january. so dan if google is off the table, this activity is telling us that maybe there's somebody else out there. >> well, they're off the table today. i mean, you know t statement said we have not held talks with google about this but to me there's a whole host of other people that could be interested. let's break down the price today. a quite day in the internet space. look at this, i want to show you the day chart here. this stock was down on the day and about 10% this rumor hit on

twitter. it was all over the place. people were trying to confirm it that google was going to take a stake in ebay for their paypal unit. he's the 7th largest holder. you had a pretty nasty fight brewing with the company. actually made up and now he's been very quite about this. this guy has had a really hot hand. think about family dollar. he gets involved in that and they've been sold. they're in bidding wars for that thing. let's talk about just this price action. they declined that they were talking to google and then it basically flat lined for the rest of the day and closed up 3%. that's pretty bullish given the fact that they declined they were talking to google. this is ebay over the last year verses the nasdaq. it's obviously been a massive underperformer. this is a company people actually growing at double digits. double digit sales growth. it's a cheap stock and very well run company here and obvious they have some shareholders that want to see them unlock some shareholder value. i actually bought the stock

today to be honest. i didn't do anything in the options market. why did buy the stock? what am i looking at here? so google, these guys were rumored but let's just say if google is interested microsoft has to be interested because think about it we're talking about what apple is doing that big announcement with apple pay, they are going to be -- have apple pay buttons in app but also throughout the mobile web ultimately and these guys have to be a big player on the mobile web. google is. what about facebook? this is another one that could be taking a hard look at this paypal asset and obviously yahoo! is going to be filling with a bunch of alibaba cash. so the story is not dead just because of that one headline. i think it's going to have room to run here and i like the underperformance given the backdrop of the news. >> this is one of the few stocks trading at a reasonable evaluation. great company that's not higher on the year. there's two names on the list that dan showed us i think should be off the table. i wouldn't consider microsoft

and i wouldn't consider yahoo. we talked about it when they were considering merging. they should be looking and speaking to google especially in light of the apple news. they have to make sure that doing the best possible thing with paypal. so if management is being sensible and trying to find the right dance partner if they hadn't been considering it or been in talks they should be. >> i love potential deal activity but that would be very speculative to put a trade on on the hunch that it's going to be taken over to inner the of the charts. >> that's the only thing that could do it. >> september of 2012 to september now unchanged s&p up 40%. this has been a dud. it's stuck here. it's a gambling chip. i would say just look elsewhere. >> wow, dan. >> i would not say look elsewhere and i'm going to tell you why here, no one was thinking about paypal and partnered up with google who was all over the web. so you think about google wallet has the potential to be massive

but they don't have the traction right now. put these two units together or not even an outright merger or if there's a jv where there's an infusion of cash and investors can feel good about this thing -- >> it's not just a deal you could look at though. they've seen revenues increase by 30%. >> so you like it just by itself. >> yes, i do actually. >> and yet the market does not like it. if those things were good and true which they are. >> he's not doing it state's exhibit he? >> sometimes it makes to be a c contrarian. >> why they sticking with it? they'll explain when options action returns. >> options action is sponsored by think or swim by t.d.ameritrade.

time and sales data. split-second stats. ♪ its so close to the options floor, 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.

welcome back to options action. despite news of a serious data breach home depot has been one of the strongest components over the last month. that's bad news for them and here's why. >> just because we risk less doesn't always mean we make more and sadly that's just what happened with their bearish bet on home depot. carter said home depot shares were about to collapse. >> i would call it a well defined bullish to bearish reversal. >> all right mike let's do this but just going short since home depot or any stock for that matter could technically keep rising forever that could mean infinite losses. so to define his risk he bought for $3.60. now to make money mike needs home depot shares to fall below $70 by more than the cost of that put or below $71.40 by

november expiration. but it gets even better because if home depot shares do fall then that put will gain value faster than the stock loses value means more money in mike's pocket. >> that's the spirit. >> but unfortunately since the time of the trade, home depot has actually risen more than 10% making this trade a loser. and now every options action fan wants to know how will these two handy men improve their home depot trade? before we answer that let's cheer you guys up with a little stocks versus options. if you shorted 100 shares of home depot you'd be down over 1,000 bucks. that's now almost worthless but still almost set you back about 300 bucks but you're still bearish here. why. >> we have been clobbered. if a stock that's supposed to

rollover breaks out, you have to get out. >> we move along. >> move along. >> the jab was the beat on earnings and then the guide higher was the hook that knocked us out. that's not really what you want to see. that's not consistent with the bearish thesis we had. there isn't a lot of premiums. we'll take a look and see how these things trade next week and if the market pulls back and has a little bit of premium might take what's left and move on. >> i would have said the beat was the knife going in and the guide wire was the twist of the knife in the gut. >> i don't think you want to do that to him. >> have to tell you when this stock broke out of the huge range it got me thinking less skeptical about large cap stocks because it was so violent and i'll just say this. if the breach thing takes it back toward 85 or the low 80s were the break out level it probably gets oversold there and it's probably a good entry on the long side if it can consolidate in the low 80s. that's just taking a different

approach. >> as a principle if you fill a gap there's something said about catching a bounce. >> coming up next on "mad money" cramer focuses on one event he expects to dominate trading next week. you have to stick around for the game plan. >> coming up next, the final call from the options pitts. >> options action is sponsored by think of swim by t.d t.d. ameritrade. when the world moves, futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with paper money to test-drive the market. all on thinkorswim from td ameritrade.

i'm spending too much time hiring and not enough time in my kitchen. [ female announcer ] need to hire fast? go to ziprecruiter.com and post your job to over 30 of the web's leading job boards with a single click; then simply select the best candidates from one easy to review list. you put up one post and the next day you have all these candidates. makes my job a lot easier. [ female announcer ] over 100,000 businesses have already used zip recruiter and now you can use zip recruiter for free at a special site for tv viewers; go to ziprecruiter.com/offer2. at a [b♪ll rings] for tv viewers;

time and sales data. split-second stats. ♪ its so close to the options floor, you'll bust your brain-box. all on thinkorswim, from td ameritrade. let's take a tweet here. daniel craig. you might think of 007 of course. but he tweets and asks us how can we use options to bet on a continued rise of the dollar against the yen? >> well the good news about currencies is that the options premiums tend to be quite low. they have risen obviously in light of the recent moves but you can look to one of the etfs go out to december. try to get something that's fairly close to at the money because a lot of people you

might look for the leverage on the cheap options but small moves are big moves when it comes to currencies. that's your best bet. give yourself at least 90 days. >> carter in terms of dollar and yen what do you see for it? dollar is at a six year high against the yen. >> that's right. we think these moves are quite extreme and it's better to play for reversion. go the other way. so we would not do what this tweet is asking to do. >> that's why you would probably use calls because if it was revert you're going to be risking much less. >> time for the final call. the last word from the options pit. >> if you have utilities i wouldn't get panicked yet. stick with my xlu and if you have the stomach for it try a little gld on the long side. >> if you are a trader and you're looking for opportunities or set ups it speaks to something that could be a continuing trend. i like this trade i put on. your defined risk, risking less

than a couple of percent. >> trying to short iyr is a hard press on a short side. to be sure though looking at trades like home depot t smart thing to do when you get a completely different story is out. >> our time has expired. go to pgss action at optionaction.cnbc.com, see you tomorrow at 5:30, have a great night. my mission is simple to make you money, i'm here to level the playing field for all investors, there's always a way to find it. "mad money" starts now. >> hey, i'm cramer, welcome to mad money, i'm trying to save you money. my job, not just to entertain you, but to educate and teach. so call me. at 1-800-743-cnbc and tweet me @jimcramer. >> a lot of things going wacky, the dow fell 61