money, and it is this -- people first, then money, then things. now, you stay safe. now, you stay safe. bye-bye. this is "options action." tonight, that's what traders say about alibaba, and just how high the tech giant could go. plus, the question every trader's asking. >> can i borrow your towel for a second? >> no, not that. more like abercrombie and ditch. >> yeah, i kill me. >> shares tank on earnings, and why some see more pain ahead." the action" starts now.

live from the nasdaq market site, these are the traders here in times square, and we start tonight with a juicy story. an unconfirmed rumor that bill is taking a stock in walmart. this is retail stocks at all time high. could walmart be the next target? let's find out. dan, some say that ackman prezes walmart to spin off sam's club to spin off value. >> this has been a theme, big under performers, walmart unchange on the year, issued 10%, a profit warning, a company not expected to grow. it's low single digits for eternity. this is a massive retail company. it makes sense. you know, like some of the huge, huge targets, you know, past activists never wanted to get into the megacap, but they are going after it, working apple, procter & gamble, right?

>> the thing that makes sense, of course, is you have to unlock shareholder value. walmart has been stuck in the mud for a long time, and spinning off sam's could make sense. what doesn't make sense is walton enterprises, founded company, owns 50% of the outstanding stock. it's hard to come in and do anything. you can go in, and they take your advice or not take it. basically, they tell anybody to take a walk if they want. >> here's the other thing, okay, it's not a particularly expensive stock, market multiple, not a lot of growth, decent dividend. >> you believe this could be true. >> what if it's an investment you believe in you think is a low risk investment, and then you maybe have potential to have a family see the light and say, he's, you guys own 50% of the thing, let's unlock this together and make money together. >> yeah, i mean, certainly, the way this would work is if he's in conversations with them and

saying, okay, let's talk about how we can get more value out of the company that you own. >> right. >> that's the only thing that makes sense to me. >> does this have broader implications for the retail sector? the stock has nice performances, but what do you make of the snoir. >> obviously, we'll talk about oil here, but the rth, xrt, they go up. obviously, i think people think, you know, cheaper oil's better for consumer, heading into a seasonally strong period. it's important to remember the u.s. consumer is strapped here. if you look at autos, home buildings, they are not acting well here. we've seen a number of disappointments. imentioned walmart. look at the last couple weeks, coach, kors, you know, a few others here that i'm forgetting here, and so, to me, i don't think this is the thing you want to chase at this stage in the game, especially it could be as good as we get as we head into

the holidays. >> you say coach, kors, and for them, there's kate spade. depends on the retailer, right? >> perfect point. there's brand specific, coach, kors, abercrombie, are the names falling out of favor? consumer confidence is rising, going into the holiday season, and my expectation actually is we'll have a good season for generic retailers like macy's. >> yesterday, we celebrated our 25th anniversary at cnbc, and the director of j. crew said he did not want to be a retailer that sold other people's stuff. to that point, you looked at macy's. >> why wouldn't i? that guy's a genius -- oh, kohl's disappointed, but it's the same concept. m macy's reports next week. early in january, announced a big restructure, brought the

costs down dramatically, when they recorded fiscal q2 in august, it was a disappointed year, and the stocks rallied from $56 to $60 in four trading days, move 4.5%, moving on average about 5. it's not a great setup to chase the stock. the stock is fine, trading between 55 and 60 for six months now, but, to me, it looked like a good entry for a near term trade on the short side. i'll tell you why. if i was the management of this company going into a potentially difficult holiday season and the stock was just back up to the highs, i'm not certain i give overly ambitious guidance. to me, the trade is simple. at 6 o bucks here, look at a november put spread, two weeks out, november 6 o-55 put spread, cost $1.50, buy the put at 1.65, 55 put at 35 cents, and,

basically, this breaks even at 58.70 and down to 55, i make 3.70, and traded at 58.70 this morning. it's headed into a potentially volatile event next week. >> trading 12 times is not like the stock is incredibly expensive. shorting it here, especially coming into the season with consumer confidence high, that's something i would not do. the the other thing is the spread makes sense. premiums, in anticipation of the volatility, it's gone up. the spread makes sense. if i make a bearish bet on macy's, this is the way i would do it, but i'm not so sure there's a lot of downside with the stock trading at this multiple here. >> to be clear, this is a trade to the event, but longer term, do you like macy's. >> what i thought about doing is consolidation trade. it's the same sort of thing. poor guidance and sell back to

55, it's a buy. why? it's cheap. >> at 55? >> yeah. that's where i would do it, it's an event trade. one of the biggest stories, the incredible drop in oil, it's $30 cheaper than five months ago, but there's a sign the bottom is in. let's go to carter to see what those are, carter? >> sure. importantly as crude is lower, energy is not. that's a tell to the end for the sell off in crude. so a few comparative chart, energy stocks against commodity itself. on october 15 when the market bottom, shares have rebounded even as crude has gone lower. look at a few other comparative charts. he's the five year. this, given, is the shares market versus the commodity. this spread is extreme. at this point, he's a better one. this is -- crude over shoots,

under shoots. this looks like an under shoots so play the bounce in crude going back 20 years. this is as wide a spread as you did. play crude for the bounce. look at it. two things we know. we found the 2012 bottom, and today we reversed nicely 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 it forward, seem to be stuck, so here's the play for uso. looking for a 10% move, back up to this trend line where we -- yikes, excuse me -- 10% uso to reflect an over sold condition in crude to catch up with the energy shares. >> all right, carter, technical difficulties, of course. we have an opec meeting that could provide juice to the trade. >> to the exend that opec is as

relevant as u.s. north american crude production is. you know, i think it is going to have an impact. i'm wondering whether we're seeing basically a lot of, you know, basically the effort to just scare everybody out of it. i personally look at the longer term shark in crude. go back to early 2009 in the depths of the credit crisis, grim as could be, we got down to 70 bucks, a 10% decline where it is currently trading. it is a technical trade. if you try to catch the falling knife on weakness, i wouldn't reach out and buy it at these levels, but inclined to think it's better set up for a bounce than a much sharper decline. >> trade is on uso? >> using uso for those who can't trade the commodity directly, but look out to the january 2 3 28-32 risk ri ver sal. sell puts for 70 cents, buy the call for 60 cents, collect the

dime to do the trade. the point i make is that targets that lower level. about 70 bucks if crude is where you effectively get long. that's the longer term support i see going back, you know, more than five years. >> dan, set it up too? >> mike's doing me a solid here. viewers remember in august, i looked rat a similar structure in uso, and at the time, i looked at the 33-37. think about it in january, mike is doing the 28-3 2 right now. that timing is better. i tell you, the thing washed out here. the trade looks like a good one. consider the move that xle had from the bottom, 13% 14%, if you catch it right, it's to the upside. >> the xle, the move in crude, does the xle predict the move or coincide? >> i guess the principle's this. the crude market is thin. sounds ridiculous, but it is. a few big players in the middle east and few wealthy people in texas whereas the equity market and specifically the shares

market reflects all the judgments made by the biggest pension plans and neutral fund managers in the world. the presumption is that shares lead a commodity, happens in gold mining stocks versus gold, and we think the non follow through in energy stocks is a tell that crude is at or near ending in terms of decline. >> okay. got a question? tweet us at option actions, for options action, go to optionsactions.cnbc.com. check it out.

want to double your money in a week? dan did with a bullish trade with alibaba. here's how he did it. on "options action" we trade like trade titans, risk less to

make more. that's what he did. he thought shares were worth a play ahead of earnings, but just buying the stock, what would forest gump say? >> stupid is as stupid does. >> buying this means risking 0 $10,000, so to spend less, dan bought the 100 november strike call for 100.20. to make money, shares have to rise above a hundred bucks by more than the cost of the call. or above 104.20 by november expiration. something's wrong. >> what's the matter, mama? >> the matter is we're spending more than four bucks to bet on alibaba so he sold not one, but two of the november one strike calls for a total of 250. rather than needing shares to move above 104.20, he makes money if they rise above $100 by more than the 101 .70 by

november expiration. >> it's the most beautiful thing i've seen. >> well, slow down, forest. there's a downside. selling more calls that he's buying, he's short the stock at 110, and if it rises above that level by more than the money he makes, dan has losses stretching up to infinity. >> and beyond. >> to defie the risk, dan bought the risk for 30 cents. what he spent on the call, 250 collected on middle strike calls and 30 cents on the higher strike call, dan laid out a total of $2. that means dan makes money as long as alibaba rises by more than 100 by more than the two bucks he's spending, and at 210, profits trail off, but will not see losses until shares hit 118 and losses will be capped at the 120 strike call he bought. since the time of the trade, shares rose sharply off of

earnings, making this trade a quick winner, and now "options actions"' fans want to know one more thing. >> you have a daddy named forest too? >> actually, what will dan do now? so, dan, what do you do know? >> stupid is as stupid does. i should have sold every put, but this is a problem here. two weeks expiration. the stock goes in the direction you want it to. the magnitude of the move is healthier than expected. it's about timing. keep a close eye on this. you want it to settle in. we know on november 11, it's singles day, biggest day of the year. we have a chart. last year in 2013, they did, like, 6 point something billion in sales. look what we did on black friday and cyber monday. it's going to be massive for them. the stock could rally ahead of

that and sells off and really you want it to settle in at 110 and get the maximum. >> hindsight's 20/20, but there's reasons to do a trade like this. the fact is that the options premiums were actually very high, and you're not really putting the odds in your favor when you go out and just outright buy calls. that was not the play. the fact that it went up sharply as it did, obviously, would have worked out in that case, but i think the trade was the smarter one. >> is there a corollary trade, dan, with yahoo!? >> they moved up nicely, but yahoo! has to stand on its own. >> no pop on yahoo! on singles day? >> continues to move with alibaba, but alibaba is a better trading vehicle. i would rather trade alibaba than deal with the mess of the yahoo! core. >> carter? >> back to the high, consolidated, 50% move, harvest gains here. >> harvest gains.

what's it mean for technology, carter? i'm curious? what's the charts? >> the nasdaq composite is driven by names like this, microsoft, of course, apple. statistics show that. here they are. nasdaq, 11% on the year. the nasdaq 100 is up 16%, but the average stock is down 1 %. you have very much of a skewing. look at it in terms of a decline line, but either way, big names doing all the lifting, than, at some point, runs its course. >> look at the nasdaq 100, top ten names have $2 trillion with a t, okay, in market value. the rest of the 90 have the same. think about it. top ten on average about up 25%, doing all the heavy lifting and could be in bear markets if you want to drill down. >> it's hard to imagine how baba sells off hard going into the end of the year from my perspective. there's a lot of institutional

interest in the name, people have it on their sheets at the end of the year, and now retail is looking at it. as long as people have faith, have confidence in the structure of the business, biggest question i have about it, it looks good at 50% with year on year revenue growth. >> extrapolating it to the rest of the nasdaq from september 19, 182 billion dollars out of the nasdaq. think about it. that's the cap right there. >> that's the bigger concern that if institutions love baba and want that on their sheets at the end of the year, that draws away from the losers going into year end. >> right. google is one of the biggest names. down on the year. can't get out of its own way and topped out in march. >> it's a case of haves and have nots. ending in lower prices for the aggregate. >> why some traders are betting on even more pain. come right back. stay tuned.

>> abercrombie shares out of fashion dropping 17% after missing third quarter estimates, but, mike, seems some traders think that the retailer could be cheaper at this point? >> that's right. trading more than four times the actions volume today, and see if i struggle with the board as well. what they were buying was the november 28, paying 35 cents for that, and as you can see, the stock traded over 30 at the time. that means it's going to have to break down below 28 for trade to be profitable two weeks from

today. the one year chart, this is vehicle tim. what's interesting to me is this marks the fifth con sextive quarterly revenue decline. i don't wear abercrombie & fitch, but i don't need to to know others don't want to either when i see numbers like that in what otherwise seems to be a good economy. >> yeah, and i would mention it's not just abercrombie, but gap going from a 52 week high to a 5 2 week retailer. it's another teen retailer. >> it's not a teen retailers. >> but more that disappoint than your kate spade -- just because you like their shoes. i know that about you. >> all right. you called me out on that, but anyway, carter, mike looked at the charts, what do you see in the chart? >> it's a testament to resisting any temptation to buy weakness means that's what value traps are about, and today, down 17%, it did not get cheaper, but more expensive. after a drop in gap, typically, it's not well priced in, and

there's authority to the 30 level, we think it breaks to 20 bucks is where it's going. >> mike, your thesis this is representative to the retail sector in general? >> i think it's taste specific. abercrombie & fitch had a certain look, their name all over their shirts, clear that people are not interested in purchasing that. the company's discussed that fact, and said they would try to overhaul their fashion. that's a tough thing to do. when you were defining a fashion trend one minute and the next figuring outs what everybody likes, that's a dangerous game. i don't see how that gets fixed any time soon. >> grab a popcorn, properties in a 60% yield in a theater, and cramer has an appointment with henry shine, one of the top performing stocks to see if it makes you smile. stay tuned for that top at the hour on "mad money," and coming up next, the final call for the actions pits.

time for a tweet. how are you trading ibm, carter? how are you trading ibm, carter? >> i wouldn't. if you're long, get out, resist temptation. that's what value traps are about. think it's going lower, stay away. >> what do you think? >> it's another situation, see flat to declining revenues, there's a business problem there. the valuations do not matter at that point. when things look cheap, it's because they get cheaper. >> is it a short? >> no, i'll tell you why, end of the year, lower than it is here, there's restructuring early in the new year, that could be a catalyst. that's my crystal ball for you. >> carter? >> well, be contraryian and play crude for a bounce. >> macy's, giving back gains of the week, look at the november put spread. >> mike in. >> if you play crude, a risk reversal j uso, 28-32 is the way to play it. >> time expired.

thank you so much for watching, i'm melissa, for more go to optionsaction.cnbc.com. check out our daily segment every day. back here friday at 5:00 p.m. for more, and in the meantime "mad money" with cramer starts right now. >> 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