bye-bye. 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. we'll tell you why it could be the single best tech company to own right now. the "action" starts right now.

live in the nasdaq 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 billion in market cap, meantime, google and amazon have seen their shares gue s get slashed. so does america have a new favorite tech stock and will it soar even higher on next week's earnings event? let's 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 extravaganza for hedge funds and mutual funds this year. stock at $68 about a month ago. now the stock is at $99. when you think about it, they have tremendous 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 in the s&p 500? >> 11th largest company in the s&p. it's not in, but, yeah, where it would rank it, and right there vying for tenth place with procter & gamble, actually. so -- >> wow. >> which is crazy. so here's the deal. this company, they have 80% of the e-commerce market in china. that's a $450 billion market that's growing at 40%. they have 50% ebitda. sound fantastic, right? the thing is working, so why would you get out of it? one thought. know what i mean? mike probably 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. netflix, hasn't. a lot of money moved into the stock. a crowded trade. >> i'm not concerned about valuation except extremely concerned about the stock. the reason i'm not concerned about valuation is,

trading probably 35 times next month 12 month earnings top line growth rate 50%. if that's real, phenomenal. my question is -- you have a funky ownership structure. that's the first thing 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. that is 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, though, in the time spam of november? that's a very short-term period now. >> 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.

most of wall street, most analysts, investors, e they saw their ipo road show in late summer. a good look how they trade with wall street analysts. think back to facebook. a ipo. first publicly traded, stocked nealed. down 12% after the first call. twitter down 24%. this 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 some serious market cap. okay? >> market trade. >> 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 drive 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, when i priced it up. the november 100, 110, 120 call

butterfly. you could 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. that's $2.50 in total, and then you're buying one of the november way out $120 calls 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 is that one of the things we do know, is that 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 that will permit a reasonable price before stocks and trade. 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, expressly trusted in? >> think about twitter right out of the gate, public companies,

so many questions. so few questions about it. but that also means that if everyone's on one side of the boat, maybe you want to be a little cautious. that's why we lay out a defined risk to play to the upside 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 knocking on your door. just saying. >> move on. utilities. rare is it that the words hot and utilities share the same sentence, but alongside health care it's actually been the best sector this year, and our own carter worth nailed this move over the past five months. here what he said back in may. >> strength right here, right now, implies a breakout above the 2000 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? >> well, i think we had a bit of a ka pitch laer to move in rates, and the breakout carried too far. look back and figure it out. driven by utilities interest rate sensitive. we 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. here's 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. over and over and over to the

top of the channel, and bottom of the channel. well, we're at the top of the 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 for a slow moving beta kind of 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 for all of the constituents of the xlu here. carter's point, rates, if anything i could see them going higher rather than lower. and on top of that, this is one of those 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 in gopro.

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 here. i've tried to play it from the short side. it just 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 too 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, 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. >> all right. good call. right? got a question out there? send us a tweet @optionsaction. for everything fkz fkz "options action," check out the website. we have the hottest options news. videos throughout the week and exclusive trades. you'll want to check it out. here's what's coming up next -- could herbal life be in the midst of a massive turn around? >> every dog has its day. plus -- ♪ looking for love 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 monday for herbal life. the company has been besieged

by a class action suit and ftc investigation. in the midst of distractions the company is set to report earnings monday after the bell. now, the options market is looking for a massive 14% move on the event. our next guest said in addition to earnings the stock could move so much, 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. tim, 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 10th. so sometime between now and november 10th, there's a reasonable chance we get the

bostic put to bed, but i think that's important for the stock. could happen monday, but no reason monday is particularly sacred from that stand. standpoint. >> i'm cure, tim, in terms of price target, practically double where the stock is now. what are investigations and lawsuits and aside from settles settling with this class action lawsuit, there could be that the ftc investigation goes away. that could be another catalyst, but 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. so that's the number we'll certainly be watching closely. china will surpass the u.s. in terms of contribution to the company sometime 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 analyst at this point? or are you being paid for this rating? >> not at all. >> 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. tim ramie of pifb ittpivotal

research group. >> thank you. 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 story 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 does smell 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 ones. those to me are telltale 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%. that's the chart right over he. reaching 12-month highs at a

time when the stock is down 33% 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 you the 8.75. $8.75. if you bought that you need that move to the up side 61.25 or to the down side, 43.75 to break even on next friday's expiration. that's a massive move. i'll make one point. last quarter stock down 13.5%. a first earnings miss since 2008. this is also a company that actually levered up, issued $1.1 million in converts if february used the proceeds to buy back their 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 stinks here. someone's selling. carl icahn, number one older, holder. 18 1/2% and five board members out of 13 on herbal life's board here.

so he says he's not selling. somebody's certainly selling. at some point i want to know what sort of disclosures have to happen? no ftc settlement, at what won't and why won't mr. icahn sell? if that happens, it's done. whether in 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? that would be one of the best values found anywhere to you right now. that's probably what herbal life sales person is telling 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. actually, holding aside everything idiosyncratic to the business, these things 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 facts. coming up next, talk 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, when "options action" returns.

time for "total recall." taking old trades and find a way to make them better. last week 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. i would 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? >> it was very wide protection, and really what we were trying to do was 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 90 out 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, i think you leave it on. at some point soon you cover the call. you 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 especially against stock. >> you could also 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 days where it was four days prior. knoll really 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. what i'm looking at is the january 60, 50, one by two. spent 50 cents to buy that structure. >> now, the stock rose off earnings, but the trade hasn't lost too much money. so, carter, what do you see in the charts? >> start with interesting thing about the inflection points, just that. get to the point and hope you

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. grab 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? >> sure. i've got two kids. put one 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 in 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. okay? that was it. sooner or later, the buyers 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. if it's as good as it gets in the holiday season, i'm looking out in january. in the q4 print, the kwcq2 prin. the stock closes below 70, below the 50-day, it's at good as it gets. >> coming up, final call from the "options" crew.

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. at this point. >> dan? >> if you have to play alibaba long into the report next week, i do like the november 110, 120 call butterfly for $2. >> at all-time highs. you can just like rock climbing reset your anchors, 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 friday at 5:00 p.m. eastern time. meantime, have a safe and happen halloween. >> announcer: the following is a paid presentation for body beast, the fast, proven way to build muscle, shed fat, and sculpt your best body faster than you've ever thought possible, brought to you by beachbody. >> this is real, as real as it gets. we're gonna learn, we're gonna sweat, we're gonna have fun, and we're gonna see results. >> before body beast, i was just soft and chunky and -- and pudgy, and this is the "after" result. >> it's gonna be amazing. come on. you can do this! >> body beast has completely transformed my body. swimsuit season is here, and