this is "options action." tonight -- ♪ you're the best that's what some traders are saying about alibaba. we'll tell you just how high the tech giant could go. plus, it's the question every trader's asking. >> can i borrow your towel for a sec? >> no, not that. they want to know if crude has bottomed out. and we have a secret indicator that says yes. we'll reveal it. and more like abercrombie & ditch? >> ha! yeah. i kill me. >> a & f shares tank on earnings. and we'll tell you why some traders see even more pain ahead. the action starts right now. live from the nasdaq marketsite i'm melissa lee. these are the traders here in times square. and we start tonight with a juicy story that is the talk of the options world. an unconfirmed rumor saying bill ackman is taking a stake in walmart. the talk causing a serious intraday bounce in the stock and leading to a flurry of call buying. this as retail stocks are at all-time highs. could walmart be the next activist target? let's get in the money and find out. dan, some are saying ackman is

going to press walmart to spin off sam's club, which of course would unlock value. >> yeah. listen, this has been a theme throughout. multiple different industries throughout. big underperformer. walmart unchanged through the year. they just issued a profit warning a few weeks ago. a company that's not expected to growth. when you look at their growth estimates, it's basically low single digits for eternity. this is a massive, massive retail company. so it does make sense. like some of these huge, huge targets, although in past activists never wanted to get into the mega cap, but they're going after it. it's worked in apple. it's worked in procter & gamble. >> the thing about this that does make sense of course is the idea that you do need to unlock some shareholder value. walmart has been stuck in the mud for a long time and spinning off sam's could make a lot of sense. what doesn't make a lost sense to me is that walton enterprises which is the holding company of the walton family which founded this company owns 50% of the outstanding stock. it would be very hard for an activist to come in and do

anything. you can go in and they can either take your advice or not take it. basically, they can tell anybody to go take a walk if that's what they want. >> here's the other thing. it's not a particularly expensive stock. it trades at market multiple. there's not a lot of growth. it's got a pretty decent dividend yield. >> so you believe this could be ksh. >> think about it this way. what if it's an investment you believe in that you think is kind of a low-risk investment and then you maybe have the potential to have this family see the sxliet say here, you guys own 50% of this thing, let's unlock this together and make money together? >> yeah, certainly the way this would work is if he is in conversations with them and saying okay, let's talk about how we can get more value out of the company that you own. that is the only thing that would really make a whole lot of sense to me. >> does this have broader implications for the retail sector in we are seeing the stocks have very nice performances here. but is this a walmart-specific story? and what do you make of the move in retail we have seen, dan? >> obviously we're going to talk about oil here but i think the rth is making a new all-time high here. the xrt.

every one of these indexes are going up. and obviously i think a lot of people think that you know, cheaper oil's going to be better for the consumer. we're heading into a seasonally strong period. i think it's important to remember, though, that the u.s. consumer is kind of strapped here. if you're looking at autos, the home builders, they're not acting well. we've also seen a number of disappointments. i just mentioned walmart. but even when you look at just in the last xum weeks we've seen coach, we've seen kors. there's a few others that i'm kind of forgetting here. so to me i actually don't think that this is the sort of thing that you want to chase at this stage of the game. especially it could be as good as we get as we head -- >> you say coach and kors. for coach and kors there's kate spade. it just depends on the retailer, right? >> that's the perfect point. is that there are retailers that are brand specific. coach, kors, ab krom booe & fytch which we'll talk about more later. these are names where you're talking about are they falling out of favor. it's not so much about consumers. consumer confidence has been

rising and we're going into the holiday season. so my expectation actually is that we're probably going to have a pretty good season for generic retailers like macy's. >> it's interesting. as you well know yesterday, we celebrated our 25th anniversary at cnbc and as part of the program mickey drexler of j. crew was saying he would not want to be a retailer that sold other people's stuff. and to that point, dan, you were taking a look at macy's. >> why wouldn't i, right? when you think about it. that guy's a genius. but think about it. oh, kohl's was the other one that disappointed a couple weeks ago, and that's the same concept. macy's is going to report next week. this is a company that's performed very well in the last year. early in january announced a big restructuring, brought their costs down fairly dramatically. but when they reported their fiscal q2 in august they disappointed. and the stock has just in the last few days rallied from about $56 to $60 just in four trading days. they're going to report next week. i think the implied move is 4 1/2%. the stock has moved on average about 5%. i don't think this is a great setup right here to chase the stock. i think the stock is probably

just fine. it's traded between 55 and 60 for six months now. but to me it looked like a really good entry for a near-term trade on the short side. and i'm just going to tell you why. if i was the management of this company going into a potentially difficult holiday season and my stock was just back up at these highs, i'm not certain i would give overly ambitious guidance. to me the trade was very simple. at 60 bucks here i was looking at a november put spread. that's two weeks out. november 60, 55 put spread. it cost $1.30. i was buying one of the november 60 puts at $1.65. i was selling one of the november 55 puts at 35 cents. this trade breaks even at 58.70 and down to 55. and think about it this way, people, the stock was trading at $58.70 this morning and this is headed into a potentially volatile event next week. >> it is a potentially volatile event. the other point i would make, trading at about 12 times next 12 month earnings it's not like this stock is incredibly expensive.

so shorting it here especially coming into a season with consumer confidence high, that is something i wouldn't do. the other thing is doing the spread makes a lot of sense because options premiums, in anticipation of all this volatility-v actually gone up a little bit. is the spread makes more sense. if i was going to make a bearish bet on macy's this is absolutely the way i would do it. but i'm not so sure that there's a whole lot of down side in a stock that's trading in this kind of multiple right here. >> to be clear,'s in just a train into the event but longer term do you like macy essence. >> what i thought about doing is playing for a consolidation trade because i think it's the sort of thing 23 they do give poor guidance and the stock sells off i think it's a buy. and i'll tell you why. it's cheap. >> at 55? >> yeah. that's where i'd want to do it. this is just an event trade. >> let's move on to one of the biggest stories in the market this year, the incredible drop in oil prices. a barrel of oil is almost $30 cheaper than it was five months ago. but there are some signs that the bottom is in. let's call to the chart master, carter braxton worth. carter. >> importantly, even as crude

has gone lower, energy stocks have not. and we think that's a good tell as to the end for the sell-off in crude. a few comparative charts. this is all s&p 500 energy stocks versus of course the commodity itself. and starting on october 15th when the market bottomed obviously shares have actually rebounded even as crude has gone ohher. but take a look at a few other comparative chart. here's a five-year. and this again is the shares market versus the commodity. this spread is fairly extreme. here's an even better one. crude overshoots. crude undershoots. this looks like an undershoot to us. and we would start to play for a bounce in crude here relative to -- and even going back 20 years. this is about as wide a spread as you're going to get. we think you would play crude for a bounce. let's look at it. two things we know. we know we found the 2012 bottom. and today we reversed kind of nicely. right at that low. about the 76 level. you have a 30% decline over six

months. and the presumption is here that we're going to -- see if i can move this forward. we seem to be stuck. here's the play for uso. we're looking for a 10% move back up to this trend line where we've -- yikes. excuse me. a 10% move in uso to reflect ab oversold condition in crude to catch up with energy shares. >> all right, carter. technical difficulties. we've also got an opec meeting in april. >> to the extent that opec is really as relevant i think as u.s., north american crude production is, i think it's going to have some kind of an impact. i'm wondering whether we're seeing basically a lost -- an effort just to sort of scare everybody out of it. i personally take a look at the longer-term chart in crude and basically what i look at, when

you go back to 2009 right when we were in the depths of the credit crisis, everything was as grim as it could be, we were getting down to 70. it is a technical trade. if you're going to sit and try to catch the falling knife on its weakness i probably wouldn't reach out and buy it right at these levels but i am inclined to think that it is better set up for a bounce than it is a a much sharper sideline. >> so your trade is on uso? >> using uso for those who can't go out and trade the commodity directly. i think what you can do is look out to the january 28 30-32 risk reversal. you can sell those puts for 70 cents and buy the return calls for 60 cents. you can collect a dime to do the trade. the point i make is that targets a lower level. about 70 bucks in crude is where you'd be effectively getting long. that's the long-term support i would see going back more than five years. >> dan, would you set this up too? >> michael's doing me a big solid because some of the viewers, back in august i looked at a very similar structure in uso and at the time i was looking at the 33-37.

when you think about it in january mike is doing the 28-32. his timing's a lot better and i've got to tell you the thing looks very washed out here. the trade looks like a very good one. when you consider the move xle has had off 9 bottom, 13%, 14%. >> in terms of the xle you outlined the move in crude. does the xle predict this move or does it coincide? >> the crude market is a very thin market. it sounds ridiculous but it truly is. only a few big players in the middle east and some very wealthy people in texas. whereas the equity market and specifically the shares market reflects you will the judgments being made by the biggest pension plans and biggest mutual fund managers in the world. the presumption is, and this is often the case, that shares lead a commodity. it happens in gold mining stocks versus gold bullion. and here too we think the non-follow-through to the downside in energy stocks is a tell that actually crude is at or near an end in terms of its sideline. >> got a question out there,

send us at tweet @optionsaction. for everything "options action" check out our website, optionsaction.cnbc.com. we've got the hottest options news throughout the week and great trades. do check it out. here's what's coming up next. what do these three people have in common? they all made a boatload on alibaba. and one of them has a way to make even more. plus talk about the dangerson. >> i am dangerous. >> not you, maverick. we're talking about a & f shares, which are tanking and you won't believe how bad some traders think it will get. stamps.com is the best.

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want to double your money in a week? well, that's what dan did with his bullish trade on alibaba. here's how he did it. on "options action" it's how we trade like tech titans, risk less so we can make more. and that's just what dan did with his bullish bet on alibaba. dan thought alibaba shares were worth a play ahead of earnings, but just buying the stock, dan, what would jack ma's idol forrest gump say? >> mama says stupid is as stupid does. >> buying 100 shares of alibaba will mean risking $10,000. so instead dan bought the 100 strike call for $1.20. now dan needs shares to rise above 100 bucks by more than the cost of the call or by 104.20 by november expiration. but something's wrong. >> what's the matter, mama? >> the matter is we're spending more than four bucks just to bet on alibaba. so to cut his costs dan sold not one but two of the november

strike calls for a total of 250. now instead of needing alibaba shares to move above 104.20 he'll make money as long as they rise above $1 hu$100 by more the $1.70 he's spending or $101.70 by november expiration. >> it's the most beautiful thing i've ever seen. >> slow down, forrest, because there is a down side. since he's selling more calls than he's buying, dan is effectively short the stock at 110. and if it rises above that level by more than the money he makes on the way up dan will see losses stretching up to infinity. >> and beyond! >> so to define his risk dan then bought the november 120 strike call for cents. now between the $4.20 he's spending on lower strike call, the $2.50 he's collecting ont on those middle strike calls, and the 30 cents he's spending on the higher strike call dan is laying out a total of $2. that means dan makes money as long as alibaba rises above $100 by more than the two bucks he's

spending. above 110 profits start to trail off, but he won't see losses until alibaba shares hit 118, and his losses will be capped at the 120 strike call that he bought. and since the time of the trade alibaba shares have indeed risen sharply off earnings, making this trade a quick winner. and now "options action's" biggest fans want to know one more thing. >> you got a daddy named forrest too? >> actually, what they really want to know is what will dan do now? >> so dan, what do you do now? >> well, stupid is as stupid does. if i had known the stock was going to go up 14% i would have sold every put, bought every -- listen, this is one of the problems here. i think at this point you have two weekends to ex-traipiration. the stock has gone in the direction you want td to. the magnitude of the move is bigger than i expected. it's really what you want this thing to, do settle in a little bit. we november on november 11th it's singles day.

this is going to be their biggest day of the year. last year in 2013 they did like 6 point something billion in gross market value and sales. alibaba alone. look what we did on black friday and look what we did on cyber monday. it's going to be massive for them. i think the stock could be rallying ahead of that and maybe it sells off ahead of that. really what you want is this thing to set until around 110 -- >> hyped site is 20-20, but there were good reasons actually to do a trade like this and the fact is that the pgs options premiums were very high. you don't put the odds in your favor when you go out and buy calls. the fact it went up as sharply as it did obviously would have worked out in that case but i think this trade was the smaller one. >> is there a corollary trade, dan, when it comes to yahoo!? >> yahoo!'s moved up very nice with it. but to me at some point yahoo!'s going to have to stand on its own -- >> so there's no pop on yahoo! into singles day? >> it's going to continue to move into alibaba. but at in point alibaba's a much

better trading vehicle in my mind. i'd rather trade alibaba and not deal with the mess of the yahoo! core. >> carter. >> it's a classic breakout. ipo high, consolidated, broke out at 15% move. i would harvest some gains here. >> what does this mean for technology, carter? i'm just curious. what do the charts look like? >> one of the issues is technology is the nasdaq composite is being driven by huge names like this. microsoft, of course, and apple. in fact, there are some good statistics showing that. here they are. let's take the nasdaq itself. the composites up on the year. the nasdaq 100 is up 16%. but average stock on the nasdaq is actually downgrade 1%. so you have very much of a skewing. and you could look at it in terms of a cumulative decline line or a breadth line. but we've got big names doing all the lifting and at some point that runs its course. >> if you look at the nasdaq 100, the top ten names have about $2 trillion way t in market value. the rest of the 90 have about the same. when you think about it, those

top ten on an average are up about 25%. they're doing all the heavy lifting. in some ways the majority of the stocks could be in bear markets if you want to drill down. >> the filing i would say, know, it's pretty hard to imagine how baba's going to sell off really hard going into the end of the year. we had a lost institutional interest in the name. a lot of people are going to have this thing on their sheets at the end of the year and now you've got retail taking a look at it. as long as people have faith in the structure of the business it actually looks cheap. 50% year on year revenue growth. >> but extrapolating it to the rest of the nasdaq, from september 19th it's extracted $282 billion out of the rest of the nasdaq. when you think about it. that's the market cap right there. >> that would be my bigger concern. if institutions really want baba and want to have that thing on their sheets at the end of the year that could draw away somefrom some of these other losers as we go into year end. and exacerbate this. >> google is one of the biggest names. down on the year and -- >> it's very much a case of

haves and have nots. it usually ends with lower prices for the aggregate. >> coming up next, traders are ditching the fitch. we'll tell you why some traders are better -- betting, i should say, on even more pain. we'll come right back. stay tuned.

abercrombie shares very much out of fashion today, dropping 17% after badly missing third quarter earnings estimates. but mike, it seems that some options traders are thinking that the teen retailer would even get cheaper at this point. >> yeah, that's right. this one trade more than four times its average daily options volume today and now we're going to see if i have trouble with this board as well. and what they were buying was the november 28 outputs. they were paying about 35 cents for that. the stock was trading a little over 30 at the time. that means it's going to have to break down below 28.15 for that trade to be profitable in just two weeks from today. taking a look at a one-year

chart we can see this has been a pretty volatile stock. but what's interesting to me is this marks the fifth consecutive quarterly revenue decline. i don't wear appar krom booe & fitch but i don't need to to figure out that apparently others don't want to either when i start seeing revenue numbers like that in what otherwise seems to be a pretty good economy. >> yeah. and i would mention it's not just abercrombie. gap went from a 52-week high in september to a 52-week low in october. this is the l. also another teen retailer. >> not a teen retailer but -- >> there's a lot more retailers that have disappointed than your kate spade just because you like their shoes. i know that about you. >> all right. you totally called me out on that. carter, mike was looking on the chart. what do you see on the chart? >> it's a testament to resisting any temptation to buy weakness. that's what value traps are all about. and today even though it's down 17% it didn't get cheaper. it got more expensive. after a drop in gap typically it is not all price in red in and there's a lot of authority to

the 30 level. we think this breaks again. we think 20 bucks is where this is going. >> mike, is it your thesis this is representative of the retail sector in general? >> i think this is very case specific. abercrombie had a certain look, they had their name emblazoned on their shirts. it's clear people aren't interested in that. the company has discussed that fact and said they're going to everyhaul their fashion. but that's a relate tough thing to dpop when you're defining a fashion trend one minute and the very next you're trying to figure out what everybody actually likes, that's a very dangerous game, and i don't really see how they're going to fix that anytime soon. >> okay. well, grab the popcorn and oversized soda. epr properties has a 6% yield in a portfolio full of megaplex theaters. plus cramer's got an appointment with henry shine, one of the top performing stocks, to see if they can make you smile. coming up next the final thought from the options pit.

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ann berlin asks, how are you trading ibm, carter? how are you trading ibm, carter? >> i wouldn't. but if you're long i just -- look, get out and resist any temptation. this is what value traps are all about. you think it's going lower, stay away. >> what do you think? >> well, this is another one of those situations. when you see flat to declining revenues, it's evidence that there's a business problem there. and the valuations don't matter at that point. when things look cheap, it's only because they're going to get cheaper. >> is it a short? >> no, it's not a short here and i'll tell you why. if you get to the end of the year lower than here you're going to see a restructuring. that could be a catalyst. there's my little crystal ball. >> time for the final call. carter braxton worth. >> i'll be contrarian and play crude for a bounce. >> danny. >> macy fs you want to play for a pullback giving back some of the gains of this week looking at november put spreads. >> mike kuo. >> if you are going to play crude i think a risk reversal in uso is a good way to do it. the 28-32 in january lookses like a good way to play it. >> looks like our time has expired. i'm melissa lee.

check out the website optionsaction.cnbc.com and check out our daily segment inside "fast" every day. sigh back here next friday at 5:30 p.m. for more "options action." in the meantime "mad money" with jim cramer starts right now. 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. call me at 1-800-743-cnbc. it is not the economy, stupid. onean