this is "options action." tonight, did the hottest trade of the year just burn out? >> oh, no! >> we'll tell you which sector may have just made a top and how you can profit on the way down. plus, a top analyst says herbal life is about to make a shocking announcement. >> i am your father. >> not that shocking, but he'll explain why traders are in a frenzy ahead of monday's earnings, and the new kid on the block. ♪ the right stuff >> alibaba that is. why it could be the single best tech company to own. the "action" starts right now. live in the market site, i'm

melissa lee. after a strong month of stocks, one name stands out. that is alibaba. since its ipo, they add $80 million in market cap. seeing shares slashed. so does america have a new favorite tech stock and will it soar even higher on next week's earnings event? get into the money and find out. dan, an important event for the company in the first quarter as a publicly traded company and the first conference call? >> does america have a new favorite tock stock? most americans don't know what alibaba is. a free money ex-trauv ganz sa for hedge funds and mutual funds. stock at $68 about a month ago. now the stock is at $99. pent-up demand as consumers, retail investors learned about the name, buying it in the aftermarket. stock traded up about 45% from its ipo price now. you said, $80 billion in market cap. a $240 billion market cap.

what does that make it? >> 11th largest company in the s&p. it's not in, but, yeah, where it could rank, and right there vying for tenth place with procter & gamble, actually. >> wow. >> which is crazy. so here's the deal. this company, they have 80% of the e-commerce market in china. a $450 billion market that's growing ap 40%. they have 50% ept bitda. the thing is, would go's why get out of it? one thought. know what i mean? miy has issues with valuation here but i'm going to say. as a lot of you just said, google has not performed well since september 19th or ipo. amazon has not. neck flix, hasn't. a lot of money mooshed into the stock. a ud kroed trade. >> i'm not concerned about valuation except extremely concernened a the stock. not concerned about valuation, trading probably 35 times next month 12 month earnings top line

growth rate 50%. real? phenomenal. a funky ownership structure. that concerns me. secondly, china doesn't have the best possible record of protecting the interests of ownership outside of the chinese. that's just a fact. we've seen it with danon and other companies that invested there. a big concern. you know, so when i look at this i say, if everything's legit, and if you actually are getting your piece, the valuation is fine. >> are those issues going to come to a head in the time stand of november? that's a are the sow of trade that -- in a very short-term period. >> that's the battle played out right now. if we did not have those concerns the stock would be higher than it is now. >> let me tell you why i think we're talking about it. >> no, no. >> can't prove the negative. a weird thing. right? trade much higher? >> facebook multiple and traded higher right from the get-go. >> report first quarter at a publicly traded company. most of wall street, most analysts, investors, saw the

road show in late summer. a good look how this company communicates with wall street n analy analysts. think back to facebook. twitter same thing. first time they had first publicly traded earnings calls, stocks nailed. down 12%. twitter down 24%. this thing is a different animal. a massive company. i'm thinking this way. implied move in option the next week 6.5% in either direction. that's serious market cap. okay? so simply, if you have not been in this thing and don't have those 45% gains but think the stock can go high are, you think the company will put up good numbers and it's going to describe more buyers into it, i would look, this is a tactical trade, in november, expiration, to a call butterfly. today when the stock was $99, priced it up. the november 100, 110, 120 call butterfly. buy that for $2. buying one of the november 100 calls for 420.

selling two of the november 110 calls at a $1.25 each. $2.50 in total and buying a november way out $120 call are for 30 cents. make up to 8 between 102 and 118. a massive range to the up side and you really are risking two to the down side. >> i like this trade a lot. one of the issues here one of the things we know, they have about half the chinese online payments business. that by itself is absolutely staggering. with all of the questions i was raising earlier, it's extremely hard not to have interest in participating in this thing. this is one. trades actually that permit you to do it on the first big catalyst that the stock will see at a reasonable distance between the strikes inner its of price. i actually would do the trade. >> we haven't brought up apple in a potential partnership with apple, essxpressliest tred in? >> think about twitter right out of the gate, public companies, sow e many questions. so few questions about it. that enmoos if iran's on one

side of the boat maybe you want to be cautious. why we lay out defined rick to play to the upsite like we said on the opening day, the stock got to about 99.5. where it is now. if you see a breakout gone news, no overhead resistance. >> play hard to get by the way. hatch of the online payments business in china, tim cook should be new yoknocking on you. just saying. >> move on. utilities. rare is it that the words hot and utilities share the same sentence, but alongside health care it's been the best sector kniss year. our own carter worth nailed this move over the past fish months. what he said back in may. >> strength right here, right now, imply as breakout above the 2,000 top, the 2007 top. just a textbook conventional buy juncture. >> well, the utilities etf is up 7% since he made that call. now the chart master is ringing the register. carter, it's what's the problem you see here?

>> a bit of a could pitcher to move in rates, the breakout carried too far. look back and fick efigure it o. driven by utilities interest rate sensitive. pe plunged to 1.8 % on the ten year yield, and now have ricocheted back to basically a range where i think we'll get stuck and staying range bound for quite some time. you don't have the tail wind at this point for utilities. here's the breakout on the daily chart. and while it's not a stock that can continue higher, it's a big slow-moving sector. the breakout, if adjusted for beta is quite large, despite the fact it looks like nothing. the real important thing. this is the s&p utilities sector since the bull market in '09. again, the point of trend lines is i don't draw them. they draw themselves. this has been a perfect response. perfect. overened and ober to the top and bottom of the channel. we're any other the tocht channel. i say i think you fade it here and come back like that.

so where to? back to the daily chart. breakout. we fall back to the mid-point i think, around 42. that would be about a 5% decline, which is very substantial thing like this. >> three quick points. one, look at valuation in the utilities space a lot of these names are at or well above their longer term average multiples trading about 18 times earnings. on average all of the constituents of the xlu. carter's point, rates, if anything i could see them going higher rather than lower. and op top of that this is one of those is spas where options remain cheap. the trade is actually an easy one. go out to january buy the january put. spending 2.5% value of the underlying to buy that at the money put, because options are cheaper, not interested in the spread. like what he was doing, in gopro earlier. buy the put and look for an opportunity to spread or roll. >> dan what do you think about utilities? >> this has been a defensive

sector and also because of the rate thing. to me, just hasn't worked. even as rates actually come down and stayed down, the xlu continues to make new highs. tried to play it from the short side. hasn't worked, people. to me, in the business of picking tops do it the way these guy, doing it with very cheap options prices and don't get fancy, because if you do have a move down to 45, 44, an opportunity to sell a put and reduce your break even, but to me, yeah. flip a coin. whether 44 or 48 in a couple months. >> carter, cure. how does your call on utilities fit in with your broader market view? >> what's interesting, obviously, a year that's been volatile. we know. take this ricochet, back to decent returns. a year led by very defensive assets. we think that's probably partly crowded. the move in staples to some extent, health care and obviously utilities. it's all a genre saying i would rather do other things, if one wants to be long. not this, at this point. >> good call.

right? got a question out there? send us a tweet @optionsaction. check out the website. we have the hottest options news. videos throughout the week and exclusive trades. here's what's coming up next. could herbal life be in the midst of a massive turn around? >> every dog has its day. >> and plus -- ♪ in all the wrong places >> gopro's rising, but it could be for all the wrong reasons. we'll explain, when "options action" returns.

it could be a very big mopped for herbal life, besiegeed by a class action suit and ftc investigation. in the midst of distractions the company is set to report earnings monday after the bell. the options market looking for a massive 14% move on the event. the nebs guest said in addition to earnings the stock could move because it may announce a settlement in its class action lawsuit. we should mention that our guest is a part-time consultant with post holdings whose ceo is one of herbal life's biggest shareholders. welcome to the show. >> thanks so much. >> why do you think a settlement is coming? >> well, there are really two issues here. one is the bostic class action where both sides have been in productive negotiations, and recently petitioned the court for a two-week extension that

ends on november 10 many. so 10th. sometime before now and november 10th there's a reasonable chance we get the bostic but to bed and athy important for the stock. could happen monday, but no reason monday is particularly sacred from that stand. >> i'm curious, tim in terms of price target, paractice atlan pe where the stock is now. what are investigations and lawsuits and aside from settles with a class action lawsuit, there could be the ftc investigation goes away. another catalyst. what are some of the fundamental catalysts for the stock to drive it to your price target? >> sure. we follow usana health sciences up 26%, for instance, earlier this week on the day they announced, and that was really all about the strength of their china business. they showed 85% growth in

associates and 66% growth, i believe, in sales in china. china's a big operating opportunity for herbal life as well. and so that's the nubble we'll be wat -- number we'll be watching closely. china will surpass the u.s. in contribution to company sometimes in the next few quarters. >> tim, got to ask you this. you used to work for d.a. davison and one of the biggest herbal life bulls on the street. working for pivotal also getting a paycheck essentially from one of herbal life's biggest shareholders. do you actually consider yourself an objective research an legitimate at this point? or are you being paid for this rating? >> not at all. >> even though you're taking a paycheck from post? >> that's -- that's true, post has nothing to do with herbal life.

>> okay. we'll leave it there. thank you for your time. >> thank you. >> from pivotal research group. you know, here's one of the things. obviously i understand where his number comes from, price target. if you believe that the company is totally solid, it's incredibly cheap. that's the story. but the other part of the stoert is that if you happen to believe it's a pyramid scheme, whether or not they win this particular settlement. pyramid schemes eventually collapse under their own weight. i hope for the sake of the thousands involved with herbal life one way or the other, it's legitimate. the thing. shes to me. all of the good news is coming from new markets, whether it's -- looking at a new -- and new communities. they've saturated the existing one. those to me are tell tale signs that something is amiss here. >> dan, go to you. we mentioned the big move at the options market predicting's what do you see? >> interesting. we know that there is, a very high short interest.

about 43%. the chart right here. reaching 12-month highs at a time when the stock is down 33 mrs percent on the year. make a point. talk about the options market pricing for next week. the at the money weekly straddle, bought when the stock was 52.5, and weekly put cost youed the 8.75. $8.75. if you bought that you need that move to the up side on down side, the 4ds 3.75 to break even on next friday's expiration. a massive move. i'll make one point. last quarter stock down 13.5%. a first earnings miss since 2008. this is ools a company that actually levered up, issued $1.1 million in converts if february used proceed to buy back shares. then in april, they discontinued their dividend to use those proceeds to buy back shares. and the stock is still down 33% or so.

to mike's point, something st k stinks here. carl icahn, number one older, 18 1/2% and five board members out of 13 on herbal life's board here. saying he's not selling. somebody's certainly selling. at some point i want to know what dish closureses have to happen? no ftc settlement, at what won't does mr. icahn sell? if that happens, it's done. weren'ter a pyramid or not. >> the lower and upper end of the valuation, a $5.8 billion company, why a company with fairly prominent shareholders piling in when the company's purchasing its own stock be trading at 7.4 times next 12 month earnings? one of the best you have as found anywhere available to you right now. that's probably what herbal life sales person is el itting you about their drinks as well. not having kool-aid or shakes. >> this is outright speculation. we know it's a poor performer year to date. holding aside all things

idiosyncratic to the business, their problems are not. look how it trade with gnc or vitamin shop? it's not a good business. it's sort of dull and the burden of proof is on the bull. the bear has to point to the fax. coming up next, ta uk about a wild stunt. last week owen carter made a bearish bet on gopro. the stock jumped but haven't lost much money. find out why, where "options action" returns.

time for "total recall." old trades, making them better. dan decided to get protection on facebook ahead of earnings. >> if you're long facebook here i think about putting a collar on the stock. trying to protect a lot of these gains. sell the december 90 call at 120 and use those proceeds to buy the december 70 pus. put. >> a good call for protection, dan.

what now? >> very wide protection and what we were trying to do get protection. the stock at 80 when we priced that up. actually at 80 going into the earnings result and really i wanted to protect on that 70 breakdown level, that collar didn't cost anything. so the stock is down $5 now. the calls you sold up at 90ous in december are worth 20 cents. the put though is worth like $1.20. all of a sudden, $5 in losses in the stock. $1 in gains in your put. because we have almost two months left until expiration, leave it on. at some point soon you cover the call. don't need to be short a teeny call out of the money. you have this put right where you want it. and i think that's why we do these trades tack takely especially against stock. >> look to consider rolling that upper call down to the level we calm from, because it's unlikely that's going to employee right through that the next time it gets there and look for opportunities to work into a put spread on the other side. a great trade. >> levels? carter? >> gave back in two bay days wh

it was four days. nothing happened. carter and mike bet against that stock late last week. take a listen. >> it projects right to 50 where the whole thing started. that's a lot of down side from where we closed today at 7191. >> unless everybody starts wearing these around on their head, hard to figure how it's going to justify the price. i'm looking at the january 60, 50, one by two. spent 50 cents to buy that structure. >> now, the stock rose off earnings. the trade hasn't lost too much money. carter what do you see in the charts? >> start with, interesting thing about inflection points, just that. get to a point in heim and hope it get it right. reflected up instead of down. what to do? encouraging from the point of view who are short. our position. closed poorly today. gab gapped up and closed near the lower end of the range. ill-considered if you will. i would say stay short. >> what would you do? >> i'm actually happy with the

trade right here and anybody who happened to put this on will notice it didn't really lose much money. one of the things we look to do, find a way to shorten an unshortable stock. selling two additional downside puts that what we did. the other thing i expect, pointed out before, probably having stellar christmas results. i'll buy a couple devices. >> a couple? >> two kids. sure. put one on each. >> on each head. >> my point is, where you would get forced to purchase the stock is significantly lower than now and you have a lot of time to for this to play ow for shorts to get their way. supporting any of these incht some of the things they've done with lower-end phones. cameras, $121. reminds me of the flip camera, all the rage for one christmas, people. that's it'ssooner or later, the bayers to entry aren't so high. >> we're talking about a short-term -- about through the holidays? not next year? >> doesn't matter. the markets are a discounting mechanism. as good as it gets in the hol

k day season, look in january, q4 print and q2 print. the stock closes below 70, below the 50-day, it's at good as it gets. >> coming up, final call from the "options action."

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charmin ultra strong cleans so much better it meets even the highest standards of clean. with a soft duraclean texture, charmin ultra strong is 4 times stronger. and you can use up to 4x less. are you good to go hun? cleaner than ever. we all go. why not enjoy the go with charmin ultra strong? time for the "final call." carter? >> if you're going to get long something it's not a time to be doing utilities. yield's not sufficient, 3.3 relative to treasuries. >> dan? >> play alibaba into the report next week i like the november 110, 120 call betterfly for $2. >> at all-time highs. you can just like rock climbing reset anchor,y a just put strikes. puts remain cheap. stay in the market with a lot of protection. >> a nice simile, mike.

that's it, check out our daily segment. see you back here next monday at 5:00 p.m. eastern time. meantime have a safe and happy halloween. 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 cramer. welcome to "mad money." welcome to cramerica. other people want to make friends, i'm just trying to make you a little money. my job is not just to entertain you, but to educate and teach you, so call me at 1-800-743-cnbc or tweet me @jimcramer. tonight i want to take a step back and talk about the big picture. my ultimate goal in this show, as always, is to teach y