this is "options action." tonight, wipeout. we'll show you the shocking chart that says gopro shares could go to 50 bucks by next week. we'll tell you how you can profit. plus, first netflix, then amazon. have we just witnessed the death of a cult stock? >> awesome. >> the traders will tell you which name is next. and talk about unusual. >> 106 miles to chicago. we got a full tank of gas. half a pack of cigarettes. it's dark. and we're wearing sunglasses. >> hit it. >> well, maybe not that strange, but traders made huge bet on

ford today. and you won't believe how high they see it going. the action starts right now. live from the nasdaq market site i'm melissa lee. the word is epic, an epic week for tech. apple, microsoft, facebook, adding 177 billion of market cap. are these the stocks you need to earn particularly as facebook announces earnings next week. why the rush to own these stocks when there have been so many other tech names that have fa fallen out of bed? >> that's the key there. bottom line they've worked it. they're the bess stories in all of mega cap tech, so why get out now especially when you see the market come back the way it did off the lows of last week. we had apple, those results were stunning and the guidance was fantastic. when you think about it, to me, you stick with what's working. if you're getting worried in volatile times. but that being said, we saw

names that disappointed get punished. ibm was a good example of that, but coke was another example. when you think about it, people talk about stock tickers market. i don't know exactly what that means but stick with what's working and cut the losses on the ones that's not. >> i think what it means is that names like apple are actually a pretty good place to hide out if market's really volatile and in distress. it works. if the market's going up, those will do well, if it's going down, it will hold up a little bit better. they're not a hold 'em and hope story which some of these other types of stocks tend to be. they're actually delivering results. when you look at other names where everybody is sitting around hoping that something is going to happen that these will deliver at some point in the future, that's the first place where cracks start to emerge that people start bailing out. >> if we are to believe that the markets will go higher at year's end, isn't the natural tendency to go to where there's more data, so you're going to the stocks that are smaller that are more beaten up that are not the big cap tech names.

>> there's a lot of broken stories. today look at pandora. this was a darling earlier in the year, down 14%. it's actually down 50% from the all-time highs made in march. this story is effectively over here. you know what i mean? trying to pick a bottom in 3-d printing stocks or some of these social media stocks or social services stocks that were really all the rave a year ago, i don't think that's the right strategy. to the open, stick with what's working. >> look, if people are nervous about a lot of things, they remain nervous. the fact that the market was up today given the fact that we had ebola in new york city, the futures were trading off at 10:00 last night, that's a demonstration of confidence but the only places where people feel safe, these are the stocks that they feel safe in. >> facebook with earnings next week. >> this is the last mega one. google, actually, we didn't mention that yet. that traded very poorly. it could be because of some of the stuff that facebook is doing in mobile apps. but this company is supposed to

have $12 million in sales this year, this is facebook. to me when you think about the earnings next week, the opss market implying about a 6 1/2% one-day move in either direction. the stock had gone from 80 down to 70. now all the way back up. it closed at a new all-time high today. this is a very widely held stock here. i think you want to think about how the options market is thinking about this event, potentially volatile. then they just made this or completed this what's app acquisition. so again, if the theme is to stick with what's working if you're long facebook here, i would think about putting a collar on the stock. trying to protect a lot of these gains. the stock's up 47% year-to-date right now. heading into the event when the stock was 80 today i was going to look out to december. and wie sell the december 90 call at about 120 and use those proceeds to buy the december 70

put. what i've done here is created a band where i can lose money with the stock i own, against long stock, between 80 and 70 and i'm protected below 70. >> when you look at callers like this, if you sell to protect your stock positions you usually have to buy a put that's much further out of the money than the call you have to sell. in this instance, this is one of the relationships that seems to be setting up well because they're equidistant. into catalyst, the premiums to options tend to be elevated. i would consider a put spread collar here that i would be able to buy closer to at the money put and be short a couple of options in this case as a mechanism to protect myself. >> that's a fairly advanced strategy. it's working a lot of legs and you have your stock position too. to me that makes sense. but really why i targeted 70 on the down side, that was the breakout level in july and the q-2 earnings were better than expected. that's really where last week was the low also.

i think if for any reason you have a disappoint in a guide down that would be the level that you really want protection. >> talk about the flip side and that's to the up side. what would you do if a stock hits 90? >> that's a great point. so you're short the 90 call against your long stock and you have to make a decision. okay? if you get to december expiration and the stock is above 90, do you -- and oftentimes people make these decisions about paying taxes. the stock up there will be almost 60% on the year. do you want to book that gain in 2014? and if you do not, you can actually cover the call back and cover the loss there. >> let's turn to gopro. that was the disaster du jour today. this is tanking after an oppenheimer analyst issued an underperforming rating. on the "fast money" halftime report, he explained his call. >> as gopro pivots away from action capture, what they've been known for into what we call life logging, taking pictures of your kids, weddings, that's going to be a very difficult market to crack and ultimately

we think growth rates will decelerate pretty rapidly as we head through 2015, 2016. >> on you own chart master was bullish on the stock on the way up. what do you see now? >> sometimes you can kind of play things both ways, make some money up side and then on the down side, now time to do the latter, make money on the down side. not a lot of history, but what there is quite clear by my work. you have a stock that's in a range for two months, june and july, then it doubles from essentially 45 to 90. then the topping out. let's draw the lines. there's a trend line. there it is without. back to the trend line, clearly we've broken trend. now, you also can do it this way. you can clearly see a head and shoulders top, we clearly have a neckline. and this is the risk of a very violent break. so here's our trend line. here's our head and shoulders top. here's our neckline. and where does it in principle go to if it does break? it goes back to the range from

which it started. so bring it all together. there's the range, there's the double, here's the head and shoulders top, here's the neckline, it projects right to 50, where the whole thing started. that's a lot of down side from where we closed today at 71.91. >> a negative is what you're seeing. >> we were just talking about hold 'em and hope stocks. this is definitely one of those stories. we're talking about a stock that's trading many multiples of sales. from a fundamental standpoint you really have to believe they're going to transform their business. that's kind of hard for me to understand because this isn't necessarily a transformative business that they are in. unless everybody starts wearing these things around on their head, it's hard to figure out from a fundamental standpoint how it's going to justify its current price. there is another interesting situation. this stock is very heavily shorted right now. 40% of the float and the stock is shorted. that's almost impossible to borrow. that's up a couple situations, not the least of which is the potential for a squeeze.

that also makes for the dynamics of the options a little more challenging as well because the puts are extremely expensive. take a look at the pretty good example. the puts are twice as expensive as the call at the money. 14 bucks for the puts, 7 bucks for the calls. this is a situation where you have to pay up. you have to sell the options and take a little risk. what i'm looking at is the january 60, 50, won by two. you will buy one of the 60s, sell two of the 50s and you're targeting that 50 strike. this is a little bit of a threading the needle trade on a stock that's a little scary. you will be jumping off the cliff, if this thing blows through 40, you're still on the money. if it goes to 35, you're long at 40. >> i know you don't like it because you were giving me the triangle of death. >> i don't know why carter is boycotting that. >> what a buddy you are. >> yeah. >> in terms of the trade itself

though. >> i couldn't agree more with him, technically and fundamentally i do not like the trade at all. if these guys disappoint when they report you'll have a lockup expiration, a six-month lock upup, if the bottom comes out, it could be back up 40 very quickly. threading the needle, this would work out if for the next month it went down a dollar. slowly. but if it goes down in a straight line those puts will be uncomfortable. >> that's a reasonable point. if this thing shot trait to 50, this would look bad on paper. that's the risk you're taking. you think the stock goes down to 50, but at 40 i'd be willing to do it. >> what do you make of a that assessment in terms of at 40 mike would be willing to own snit. >> in principle, if you do double, in a quick order, which is what this is and then return

or give back all those gains there's a lot of memory at the 45, 50 level. at 45, 50, not a bad risk/reward proposition. >> got a question out there? send us a tweet @options action. check out our website. rumor has it george clooney reading it in his free time. be like george and check it out. here's what's coming up next. what do these two people have in common? >> those people have never been in my kitchen. >> not only that but some traders think their stocks are way overvalued. and we'll tell you how to play it. plus -- ♪ have you driven a ford >> wow, that was cheesy, but traders were still piling into ford calls today. we'll tell you how high they see the automaker going.

something's not right and if goes lower we're in the bear camp down. >> we can actually see not only is that happening. >> this is the triangle of death right here. it could be lights out. you could see 250 something like we saw in netflix. >> as you can see the options action gang has been very bearish on amazon. they were proven right now as shares plunged 8% off of earnings. between amazon today and netflix's plunge in earnings are we witnessing the death of the cult stock? such a hot question came over here to the plasma with dan. what do you think? >> a lot of people would make the argument that money coming out of these sorts of names is actually going to help the market because that's going to better stories than something

people just totally disregarded valuation the whole way up. let's talk about amazon. this has been a revenue growth darling for years here, but really when you think about what happened, this stock topped out back in december and january earlier this year. basically back in december, you remember when jeff bezos went on "60 minutes" and he was talking about drone delivery. >> the drones, yes. >> that was it. that was like an a-ha moment for investors. this is the q-4 gap when they missed on earnings, this is the q-1 gap, this was the q-2 gap. here we are, new 52-week lows in amazon. investors have exited this stock. they do not believe the story, anyway, at least the way they did before disregarding valuation. that brings us to netflix. because this was also the one last week that broke that got us talking about amazon to begin with. this is back when they raised prices and there were a lot of issues about this. they have sub vibe escriber chu. this is where icahn got this on

this one. and i'm bringing this up. obviously this stock has come all the way back, but these were kind of self-inflicted wounds by the company. amazon and also netflix, but it got investors to wake up to certain issues about their financials. that brings us to tesla. this company does not report until november 5th. i actually think you can have a similar situation, not exactly that the stock goes down. the stock is already down 20% from the highs just made in september, but again there were two gaps here. this one where elon musk, the ceo and founder of the company hyped up this product announcement. >> the d and then something else? >> exactly. and here we are. this thing has lost momentum. we know what the market has done in the last week. this stock can't rally here. to me what i'm talking about three companies that were cult stocks where valuation was disregarded the whole way up but maybe with some self-inflicted wounds by the companies that got

investors to wake up a little bit. >> dan makes a very compelling case, mike. i'm curious where you see the differences in each of these cases are. because for amazon we're entering the seasonally strong period. shouldn't that help propel the stock even if the short term? because the decline he showed us on the chart was q-4, that was a january report. >> amazon will report record sales again this year. we can be pretty sure of that. tesla is capacity strained. they don't have a demand problem for their product but you see it will grow into ambitious valuations here. this is a capital intensive business, you have to build plants. there are other issues. we don't know whether middle american demand for their product will be quite as good as it is on the coast where it's much easier to own products like this. so that's definitely a challenge. netflix, you know, we've got hbo announcing they're going to start offering content directly.

those are also going to provide some competition. so really not just a hope story. there's other issues that have been identified now in the marketplace that i think are also lending some concern. >> in terms of the patterns, they're virtually identical in the sense that they all have the precondition which is required for weakness, which is extreme proceeding strength. and what gives you double to down side is that precondition of having advanced for a long time, brought in a lot of people, then you start to reverse. reversal formations are very real. you can call them head and shoulders tops, triangles of death, whatever you want, but they happen and they repeat. it looks to be very much happening here in tesla. down side is severe. >> let me ask you this here. over here the stock was low, right? this is a great buying opportunity. how do we know -- sorry, that where we are right now is not another great buying opportunity? >> it can be. tesla is a very different story than those other two.

to me, this is a company that actually could change the world where the other two just kind of made things easier that we were doing already. you know what i'm saying? >> those were commodity businesses, amazon, right, and netflix basically with pricing pressure. tesla is a luxury goods business. >> it is. i don't know if it's a great buy right here. the first time that some of the big auto companies roll out their high end electric models, that's going to be the moment of truth for this company. we don't know when this will happen. >> coming up next, have you driven a ford lately? some options traders have because the stock has tanked the bulls hopped on board. we'll explain why. [ male announcer ] eligible for medicare?

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tough day for ford that went into reverse after the earnings. >> it was interesting. ford saw two times its average

daily call volume today. what we saw were people that affected bullish boents the stock rolling out to next week. they were buying next week's 14 strike calls paying 13 cents for those and buying them in good size. if you're doing that you're making a very short-term bet that the stock could actually rebound off of this sort of bad response that we saw from earnings which i personally didn't think were that bad. >> this is a mess. >> i can just tell by the way you're looking over here. >> and general motors and if you look at the nasdaq auto trust which has got some 80 different manufacturers, nissan, honda, toyota, global index, it is in a free fall. starting to spill over to parts like borg warren. >> but odd that this happens when we have oil that lk has a seven handle on it. >> why is that weird? oil is a barometer for global growth? >> well, to your point, mel, why is the s&p now 2 1/2% from the

all-time highs? to me, isn't this a tell? so that's what i don't get. i just don't get it. >> weigh in, carter. i can tell you're full of opinions tonight. i can tell it. >> peak auto sales here. we've come a long way. and their price action leads the fact. >> they don't look like a mess to me. why aren't people extrapolating the weakness in one of the most important industries in america? >> i want to extrapolate that. if auto sales are weak, what does that mean for home builders and the housing market because pickup truck sales have been a leading indicator for housing. >> i would say it's not that great. maybe one of the reasons is because a big part of the support in housing market that was fueled by quantitative housing came from fuel investing in housing. consumers, the people who live in these things, aren't racing out and buying new houses. we're seeing softening there. >> one of the disasters this week was lumber lick wa daquidl.

they're selling the heck out of lumber lick wa daters. we've got the final call.

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tweet. donald kelly asked with the end of october being so historically active, what's wrong with buying november spy puts? >> when the market is up and premiums come in, that's a great time to buy puts to hedge your portfolio, but i would not look to november. first of all, we're very close to expiration. january options are still relatively cheap. i'd probably look out a little further. if the market wasn't going to be down today, hard to see why you should be counting on that for next weekend. >> i'd say forget the spy. i'd say look at the dia, the diamonds of the etf. that's where the biggest disasters of the week,

disappointments, ibm, coke, mcdonald's all in the dow. i don't like large multinationals. >> which looks worse, the dow or the s&p? >> they all have big up trends, they all have breaks in trend and these impetuous rallies back to very difficult levels. getting short this way or any other way is the right thing to do. >> dan makes a good point about the disasters being on the dow. >> but one of the things i don't like to do is defuse those bombs that have already gone off. that's where a lot of those have been. the spy, the s&p 500, if the market does start to crack, that's the barometer we want to look at not the one we've already seen so much trouble. >> worst thing we could have done is rally 120 points. we should have gotten rid of all this complacency. we set the problem up again. >> it may surprise you, i agree with everything he said. if you have facebook and you're lying you have huge gains, i'd along to tangtically hedge it

with collars. >> apple is a safe place to hang out. buy puts against your long positions no t to blow everything up. >> looks like our time has expired. for more check out the website, optionsaction.cnbc.com. 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. qult mad money starts now. >> i'm cramer, welcome to "mad money", other people want to make friends, i want more weeks like this. my job is to explain how this stuff happens. call me. or tweet me at jim cramer. last night we learned that a doctor in new york city had contracted ebola. the news immediately caused the