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 in how you can profit on the way down. plus, a top analyst says herbalife is about to make a shocking announcement. >> i am no longer. >> 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. aliba 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. these are the traders. after a strong month of stocks, one name is standing out and that is alibaba. the chinese internet giant has added some $80 billion in market cap. meantime, google and amazon have seen their shares get slashed. so does america have a new favorite tech stock and will it so i remember ev soar even higher? dan, this could be a important event for the company. first conference call held by management. >> you said, does america have a new favorite tech stock. i think most americans don't know who alibaba is. you know who does? this was a free money extravaganza for large hedge funds. they got stock at $68 just about a month ago. now the stock's at $99. when you think about it, there's been tremendous pent up demands as consumers and retailers have been buying it in the after

market. it's traded up 45% from the ipo price. $80 billion in market cap. they had a $240 million market cap. what does that make it in the s&p 500? >> the 11th largest company in the s&p 500 is where that would be. >> it's not in. >> no, it's not in. yeah, that's where it would rank. it would be right there vying for tenth place with procter & gamble actually. >> whoa. >> which is crazy. this condition, 80% of the ecommerce market in china. that's a $450 billion market growing at 40%. trades at 35 times earnings. so the thing is working so why would you get out of it? that's one thought. i know mike probably has some issues with valuation here. i'm going to say, as a lot of you just said, google has not performed well since september 19th. amazon has not. netflix has not. a lot of money has moved in. it's kind of a crowded trade. >> i am not concerned about

valuation. this is trading 35 times. next 12-month earning with a top line growth rate of 50%. if that's real, phenomenal! my question is, you have a very funky ownership structure. that's the first thing that concerns me. secondly, china doesn't have the best possible record of protecting the interest of ownership outside of the chinese. that's just a fact. we've seen it with dan non, we've seen it with other companies that have invested there. that isseen it with other compa that have invested there. that is a big concern. when i take a look at this and if everything is legit and you have your piece, the valuation is fine. >> is that going to come together in the time span of november? a very short term now. >> i would argue that that's the battle that's being played out right now. if we did not have those concerns, the stock would be higher than it is right now. >> let me tell you why i'm talking about it. >> you can't prove a negative. that's a weird statement. >> why not? >> look at facebook. facebook's multiple.

>> the company -- >> it went high zwrer from the get-go. >> they'll report the first quarter as a publicly traded company. most of wall street and analysts saw the ipo road show in late summer. they got a good look of how this company kmcumulative communicat with wall street experts. twitter the same thing. the first time they had their first publicly traded earnings call the stocks got nailed. facebook was down almost 12% after their first call. twitter was down 24%. i'm thinking of it this way. the implied market is 6 1/2 percent either way. if you have not been in this thing and you don't have the 45% gains, you think the stock can go higher and you think the company is going to put up good numbers and drive more buyers into it, i would look. this is a tactical trade. a call butterfly. today when the stock was $99, i

priced it up. it was the november 100, 110, 120 call butterfly. you could buy that for $2. you're buying one of the november calls for 4.20. you'd be selling two of the november 110 calls at 1.25 each. that's $2.50 total. one of the november way out. costs $2. that's your match list. you can make it up between 1.02 and 1.18. that is a massive to the upside and risking 2 to the down side. >> i like this trade a lot. they have half of the chinese online payments. that's why it's absolutely staggering. with all of the questions that i was raising earlier, it's still hard not to have some interest in participating. this is one of the trades that will permit you to do it at a reasonable distance in the tribes in terms of price. >> we have not brought up apple and a potential partnership with apple which he said he was expressly interested in. >> this is such a different

story. when you think about twitter when they were out of the gate, there were so many questions about it. there are so few questions. that means if everyone is on one side of the boat, maybe you want to be a little bit cautious. that's why we lay out a defined risk to the up side. the opening day the stock got to 99.5. that's where it is. if you see a breakout, there is no overhead resistance. >> jack ma played hard to get. i think tim cook should be knocking on your door. i'm just saying. let's move on to one of the market's hottest trades this year, that would be utilities. rare is it that the word hot and utilities share the same sentence. but alongside this is the best sector. carter worth has nailed this over the past five months. here's what he said back in may. >> strength right here right now implies a breakdown above the 2,000 top, the 2007 top. a textbook conventional buy juncture.

>> the utilities etf is up 7% since he made that call. now the chart master is ringing the register. carter, what's the problem you see here? >> i think we have a bit of a move in the rates. the breakout is carried a little too far. let's sort of look back and try to figure it out. here's really what this is all driven by. of course, utilities being very interest rate sensitive. we plunged to 1.86% on the yield. we've ricochetted back to a range where i think we're going to get stuck and stay 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. while it's not a stock that can continue higher, it's a big, slow moving sector, the breakout if adjusted for beta is good despite the fact that it looks like nothing. this is the sector since the bull market. i don't draw the trend lines, they draw themselves. this has been a perfect

response, perfect, over and over and over from the top to the bottom of the channel. well, we are at the top of the channel. i think you faded here and come back like that. so, where to? back to the daily chart. this breakout. i think we fall back to the midpoint which is around 42. that would be about a 5% decline, which is really substantial for a low moving, slow beta thing like this. >> michael? >> three quick points. number one, when you take a look at valuation in the utility base, a lot of these things are at or above their longer term average multiples. trading and the xlu, to carter's point, i think rates if anything could see them go higher rather than lower. on top of that, this is one of the spaces where options remain cheap. the trade is quite an easy one. we'll go by the january, buy the january 45 put. it's spending 2.5%. at the money put. because options are cheap i'm not interested in the spread like what he was doing and bob

orr, what we didn't go for. i would buy that put and look for an opportunity spread, look for an opportunity roll. >> what do you think of utilities? >> this is a defensive sector and the rate thing. to me, it doesn't work. even as rates have come down and stayed down, the xlu continues to make new eyes here. i've tried to play it from the short side. it hasn't worked. you're nth business of picking tops, do it in the way these guys are doing it, with very cheap options prices and don't get too fancy. if you do have a move down from 45, 44, you'll have an opportunity to sell a pull tt a reduce your break even. >> carter, i'm curious. how does your call on utilities fit in with your broader market view? >> well, what's interesting, it's been a year that's been volatile, we know. take this ricochet which gets us back to decent returns. a year led by very defensive assets. we think that probably is partly crowded. the move in staples and

obviously utilities. it's all a genre saying i would rather do other things, not this at this point. >> good call by carter. got a question out there? send us a tweet @optionsaction. send us an e-mail. we have the hottest news and video trade. you'll want to check it out. here's what's coming up next. could herbalife be in the midst of a massive turn around? every dog has his day. >> and we'll tell you why monday could be herbalife's. plus -- ♪ ♪ looking for love in all the wrong places ♪ >> go pro is rising but it could be for all the wrong reasons. we'll explain when "options action" returns. >> announcer: options action is sponsored by think or swim by t.d. ameritrade.

♪ ♪ it could be a very big

monday for herbalife. the company has been besieged by both a class action suit and s.e.c. investigation, but in the midst of all those distractions the company is set to report earnings on monday after the bell. now the options market is looking for a massive 14% move on the event. our next guest says in addition to earnings one of the reasons the stocks could move so much is because it may announce a settlement in its class action lawsuit. tim ramey is an analyst with pivotal research group. his ceo is one of herbalife's biggest shareholders. tim, welcome to the show. >> thank you 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 likelihood we get the

bostic class action put to bed, and i think that will be important for the stock. could happen on monday but no reason that monday is particularly sacred from that standpoint. >> so i'm curious, tim, in terms of your price target, which is practically double where the stock is right now, you know, what other catalysts do you see out there aside from settlements of investigations or lawsuits? i mean, aside from potentially settling with the class action lawsuit there could be the ftc investigation goes away. that could be another catalyst. what are some of the fundamental catalysts that will drive it to your price target? >> sure. we follow eson health sciences i think that was up 26% 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 herbalife as well, so that's a 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. >> all right. and, tim, i've got to ask you this as well because you used to work for d.a. davidson and you were known as being one of the biggest herbalife bulls on the street. right now you're working for pivotal but you're also getting a paycheck essentially from one be of herbalife's biggest shareholders. do you actually consider yourself an objective research analyst at this point? >> of course. >> or are you being paid for this rating? >> not at all. >> not at all. even though you're taking a paycheck from both? >> that's -- that's true. post has nothing to do with herbalife. >> okay. tim, we're going to leave it there. thank you for your time.

>> thank you. >> tim ramey, pivotal research group. >> here's one of the things. i understand where his number comes from or price target. if you believe that the company is totally solid, it's incredibly cheap. that's really 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 will eventually collapse under their own weight. i hope for the sake of the thousands of people that are involved with herbalife one way or the other that it's fully legitimate. the thing does smell to me, and the fact that you see all of the good news is always coming from new markets whether you were looking at -- and new communities because they've essentially saturated the existing ones. i think those to me are telltale signs that something is amiss here. >> dan, i want to go to you. we mentioned the big move that the options market is predicting. what do you see? >> it's interesting. we know that there is a very high short interest here. about 43%. that's the chart right over here. it's reaching 12-month high. that's at the time where the

stock is down 33% on the year which is kind of interesting here. i just make a point, let's just talk about what the options might be smart for this pricing for next week. the at the money straddle, if you bought it when the stock was 52.5, the weekly 52 half call and half put that will cost you $8.75. if you bought that, you would need that move to the up side. $61.25 or to the downside 43.75 to break even on next friday's expiration. that is a massive, massive move. i'm going to make this one point. last quarter it was down 13.5%. that was the first earnings since 2008. this is a company that leaf verdict up. it issued 1.1 in converts. they bought back their shares. then in april, okay, they discontinued their dividends to use those proceeds to buy back shares and the stock is down 33% or so. so to mike's point, something stinks here. carl icahn is the number one holder with 18.5%.

he also has five board members out of the 13 on herbalife's board here. so he says he's not selling, somebody's certainly selling and at some point i'd just like to know what sort of disclosures have to happen. if this company misses again, there's no fcc settlement, at what point does mr. icahn start selling. if that happens this thing is donether it's a pyramid scheme or not. >> there's a spread between the lower and upper end of that valuation, $5.8 billion company, why would a company where you have some fairly prominent shareholders piling in when the company's been purchasing its own stop be trading 7.4% earnings. that would be one of the best values found anywhere available to you right now. >> that's probably what your herbalife salesperson is telling you about their drinks as well. i'm not having any of the kool aid or any of the shakes. >> we know it's a poor performer. holding aside everything that is idiosyncratic, their problems are not. look how it trades with gnc or vitamin shop.

this is not a good business and it's dull. the burden of proof is on the show. >> coming up next, talk about a wild son. last week owen carter make a bearish bid on gopro. they haven't lost much money but find out why when "options action" returns. >> announcer: "options action" is sponsored by think or swim by t.d. ameritrade.

where we take a look back on 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 on facebook i would think about putting a caller on the stock, trying to protect a lot of these gains. i would sell the december 90 call at about 120 and i would

use those proceeds to buy the december 70 put. >> that was a good call to get protection, dan. what now? >> it was very wide protection. we were trying to get protection the stock was at 80. it was at 80 going into the earnings result and really i wanted to protect on that 70 breakdown level. that caller didn't cost anything. the stock is down $5 now. the calls you sold at 90 in december, they're worth 20 cents. the put though is worth $1.20. all of a sudden you have $5 losses, you have $1 in gains in your put. i think because we have almost two months left until expiration, i think you leave this on. at some point you cover that call. you don't need to be short a call way out of the money. you have this put right where you want it and i think that's why we do these trades tactically especially against stock. >> you can also look to consider rolling that upper call down to the level where we just came from because it's unlikely that's going to blow right through that the next time it gets there and also look for opportunities to work into a put spread on the other side.

that was a great trade. >> when do you think it will level? >> it's gained back in two days where it was four days prior. it's sort of a push. nothing happened really. >> let's move on to gopro because carter and mike bet against that. >> it projects right to 50 where the whole thing started. that's a lot of down side from where we close at 71. >> unless everybody starts wearing these things around on their head, it's hard to figure out how it's necessarily going to justify its current price. what i'm looking at is the january 60, 50, 1 by 2. you can spend 50 cents to buy that structure. >> the stock rose off of earnings but the trade hasn't lost too much money so, carter, what do you see in the charts? >> to start, the interesting thing about inflection points is just that. you get to the point and hope to get that. this is reflecting up instead of down. what to do? things are encouraging from those who are short. it's our position it closes poorly. while it gapped up, it closed lower.

it looks to be a bit impetuous. the move ill-considered if you will and i would say stationary. >> what would you do? >> i'm happy with the trade. anybody who happened to put this on will notice it didn't really lose money. one of the things we looked to do was to try to shorten unshortable stock. by selling the two additional down side puts, that's what we did. we pointed out before they're probably going to have stellar christmas results. i'm going to buy a couple of these devices. >> a couple? >> two kids. i'll put one on each of them. >> on each head. >> my point is where you would get forced to purchase the stock is significantly lower than it is. you have a lot of time for this to play out for the shorts to get their way. there's big shortages. >> i think that some of the things that they've done with some of these lower ends, there are cameras at $129. it reminds me of the flip camera that was all the rage for one christmas, people, that was it. sooner or later the barriers to entry aren't high. >> we're talking about short term. we're talking about through the

holidays. >> it doesn't matter. the markets are discounting the mechanism. if it's as good as it gets in the holiday system, i'm looking out the next quarter. i'm looking out january their q4 print or q2. if it sells below 70, you push the short. i think it's as good as it gets here. >> coming up next, the final call from the options pits. >> announcer: "options action" is sponsored by think or swim by t.d. ameritrade.

time for the final call. last word from the options pits. carter. >> so if you're going to get long in something, it's not a time to be doing utilities. the yield's not sufficient at 3.3 relative to treasuries at this point. >> dan. >> yeah, if you have to play alley baba long into the report next week, i do like this november 100, 110, 120 call butterfly for 2 bucks. >> here we are at all-time highs. just like rock climbing, reset your anchors. puts are cheap. you can stay long in the market.

>> that's a nice simile, mike. nice job. i'm melissa lee. thanks for watching. for more "options action" check out the website and check out our daily segment. see you back here next friday at 5:30 p.m. eastern time. meantime, have a happy and safe halloween. >> announcer: the following sponsored program for the butterball electric turkey fryer is brought to you by masterbuilt. everyone loves turkey. it's an all-american favorite. but preparing turkey can be such a hassle. it takes hours and hours to cook, and you worry about getting it right. will it be underdone, or worse, the dreaded overcooked turkey? now imagine if you could make the most savory turkey you ever tasted and the turkey was done to perfection in just one hour! introducing the butterball electric turkey fryer, from masterbuilt, the revolutionary new way to enjoy turkey faster