this is "options action." tonight -- ♪ party all the time >> we'll tell you why a hangover could be in store. miss the rally of alibaba? relax, we have a way to get long the tech giant for just ten bucks. we'll show you how. and talk about strange. well, maybe not that strange. but wait until you hear about the unusual bet the commodities are about to soar.

>> i'm hungry! >> the action starts now. >> live from the nasdaq market site, i'm melissa lee. these are the traders in times square. our top stories tonight, retailers rising. an incredible 17-session winning streak. so will the holiday shopping season bring even more gains, or are retailers about the go on sale? let's find out. it does seem like investors have high hopes for black friday and beyond, which seems a little counterintuitive when you think of sell the news sort of thing. >> when you think about retail, that was the rth. it's an etf on broad base of retail stocks. they've really underperformed most of the year. there's been a lot of concern about the u.s. consumer when you think about it. we've seen it outside of retail. we've seen it in autos. we've seen it in housing stocks. so all the sudden, they have this massive rally. i think the xrt at one point broke out to highs. it was up 16% from october 15th. but it's only up 6% on the year.

so i think when you look at those names right there, they just reported a lot of them have broken out to 52-week or all-time highs. when you talk about what are they discounting, right? next week, a week from today, we have black friday, cyber monday, and here's the thing. i think it's going to be the most promotional holiday season that we've ever known. i think the retailers know that the consumer here in the u.s. is kind of tapped here. and that may be great for sales. it's not going to be great for profits. >> i haven't been that skeptical about the u.s. consumer, i have to say. and then we got some data about people voluntarily leaving jobs in september. people only leave their jobs voluntarily when they have a better option. and that suggests that they're actually feeling optimistic. there's one other thing it suggests, that existing employers are going to have to raise salaries. that's the one thing that we really lacked, as we've seen this economic recovery, was we were not seeing rising wages. that suggests that there are rising wages. if consumers are feeling optimistic enough to leave their jobs, they're also going to feel optimistic enough to go

shopping. >> i just want to make one more point. no matter what you think about apple as a stock, apple as a company is beginning to dominate the holiday season. when you think about the big ticket items that they have from new ipads to new iphones to beats, it's going to be a huge thing this year. i have to assume that this company that has 40% margins or something like that, they're going to steal a ton of profitable from all these other guys. i actually think when you throw apple and the product cycles that they have right now, i think it's a dangerous situation. >> besides all of that, when we talked to paul, basically history shows that the time to buy retailers for holiday is before black friday. it's not between black friday and christmas. >> are we on the same page here? >> shockingly, yes. maybe we are. >> one question you also have to ask yourself is how you think the market's going to do between now and new year's. if you believe that the market is going to be flat to higher, then you can't be that skeptical about this sector. full stop. the way the market's behaving

right now, options are cheap, so it's certainly ample time to hedge, but i would not necessarily be a huge seller. >> i'm actually incorporating a little bit of both of what you said. so i want to look at the xrt. like i just said, i think they're discounting a lot of good news right here. i think the news flow gets incrementally worse. i think we're going to have a pretty disappointing first half in 2015. so to me, when i was looking at the xrt, when the etf was about 92, 93, i could buy the december, march, 90 put calendar. that was priced at $1.70. what i'm trying to do here is actually finance longer dated puts, because i believe once we get to this holiday period, i agree with mike. i think we could see sideways to up action over the next few weeks, as we get through some of these data points. but i think after that, it gets worse. the calendar gets worse. if the etf is about 90, then i

can do a whole host of other things. a percentage basis that's not horrible, except if i get a blowout to the upside or a crash to the downside, which i don't think is going to happen. i do think we could inch a little higher, but i'm not planning for a much greater move. >> there's two reasons why you might be interested in doing calendars at a time like this. one is the fact that you believe the equities are going to be flat to higher. the other reason is equities aren't going to be trading as much. why is that? we've got holidays coming up. stocks aren't volatile when they aren't trading at all. so being short a near data put when we know that we're going to have half days and no days of trading next week, i think this is actually a good time. >> that's actually the main point. if you think about between really monday and then christmas and new year's, you're going to have a lot of stale price action. your options that you own are going to decay. you can even get the direction right, but the options are going to decay. so these are the sort of

strategies you want to employ in slow trading days. >> all right. let's go from hot to not. one dow component is baggily lagging, but the charts say they could play some catch-up. tell us what you see. >> we're going to take a look at boeing. a big lagger down on the year. let's try to figure it out together. so here we have three individual entities. the s&p, of course, a subset of that is the entire industrial sector, which a subset of that is the aerospace and defense group. things like united technologies, bogey, and so forth. the sector in turn outperforming the sub industry group. here's the opportunity by my work. this is the s&p 500 aerospace and defense. lots of names. raytheon, honeywell, boeing. but this more often than not resolves with some sort of breakout. so we're at the top of the range, as all can see. the presumption is we're going

to break out. we think it's the biggest component in this industry group. here's the chart of boeing year to date. what i see with my eye is a well-defined triple bottom. we closed here at 132. and we think we make it back to the high of january at 145. that implies a 10% move. so put it into perspective. here's a longer term chart. here's our triple bottom. and we think again, we're going to make a run for the january high, up 10%. that would only put it back to where it was. the marnket is even higher. >> so fundamentally, what would support his thesis of a 10% rise from here? >> for one thing, it's actually trading a probably 15% discount to its multiples on a price-to-earnings basis. the other thing is boeing's a great company and they have great secular tail winds. actually, we're talking about an aerospace company. and the reason for that is

because 5,000 single aisle aircraft for asia over the course of the next seven years. that plus a completely full order book tells you i think everything you need to know about boeing. and there are not a lot of places in the market right now where you can actually buy a decent company that has a long horizon of potentially great sales for less than the market multiple. and it's trading at a 15.5 times the next month earnings. >> it's a pretty simple trade and it looks on the surface at least a little bit expensive. >> i think the reason this trade looks expensive, what i'm looking at are the may 135 calls. the reason those probably look expensive is because the stock itself is about $130, so that's going to push up the dollar price of these options anyway. but the other reason is because i'm going all the way out to may. that's a half a year. the reason i want to do that is because actually i don't think these are going to decay that much. sort of to dan's point. if anything's going to happen, it's probably going to happen in january. so this is a hedged way. there's a lot of things you can

do with a trade like this depending on what happens with the stock. if it rallies, we can spread out of it. we can sell some higher strike calls. lock in what we've already spent essentially and still continue to play for the upside. on the other hand, if it declines, if it fell back to say $110, we can take that opportunity by funding our upside car purchase by selling puts. i don't think options are all that expensive right now. >> it's trading at a discount that's historical, but here's a company that's supposed to grow earnings. trading about a market multiple for all intents and purposes. so you talk about an order book that's full up. i'm looking at a company that's six years into a massive bull market that can't get out of its own way. so to me, i don't like looking out to may and having that sort of chunky premium. if i was going to play this, i'd look to do like a dogs of the dow sort of play. i'd look to do a spread and really kind of take advantage of some of the things that we're talking about, because over the

next few weeks, you are going to have some decay. i would look to maybe february, call spreads targeting on the upper end his level. >> so i want to go back to carter. if we are concerned about this trade, such as dan is concerned obviously, are there certain support levels that boeing needs to preserve in order for this trade to remain intact? >> just to hold the current level would be fine. but here's the thing about this. talking about the bull market. boeing's a massive outperformer. as you can see, look where it's coming from. so after great ascent, this is normal consolidation. this is what home depot did before it broke out. this is what wal-mart did before it broke out. after you go quiet, you reassert yourself again. >> the final thing i would say, going long on the options is not a bad play, if you also have a long view on the stock, which i have. and actually, to carter's credit, he called this stock well as a bullish play when it was 82 bucks. he did the same thing when it was 100 bucks. now it's 135 bucks. i'm inclined to go with him and

say i'm willing to go out to may to make my bullish bet. >> send us a twe tweet @optionsaction. check out the website, optionsaction.cnbc.com. we have the hottest videos from out the week and exclusive trades, so check it out. here's what's coming up next. that pretty much sums up commodities this year. we'll tell you why some savvy traders are betting the floor is in. how much will you pay to own alibaba shares? >> 60,000. >> that seems a bit high. how about $10? we'll show you how to do that when we come back.

alibaba shares are up 63%. our resident voice of skepticism, dan, says there's still time to get in. what are you looking at, dan? >> i'm just laying it out. you think about it, this has been a one-way freight train since their september 19th ipo. it's up 67%. the stock has traded particularly well of late, since they reported that first quarter of earnings as a publicly traded company. but i think it's really important to note that lock-up -- there's going to be a lot of overhang coming. there's a short one, a small one coming next month. i think a few million shares, which really isn't -- it's not substantial when you think about it. they just did an ipo of 368 million shares. i think when you're looking out a little bit further, they're going to do they're going to actually unlock 420 million shares. that's much greater when you think about the ipo that they did. so there's going to be overhang here. this is not skepticism. this is just cold hard facts. i believe the stock is trading

very well because there's a lot of huge mutual fund complexes that think they're going to own this company or this stock for years and years to come, and there is a supply-demand issue here. they keep buying it and there's not a ton of supply. and then september 20th, there's going to be 1.6 billion shares coming unlocked, so i think there's a potential at some point in 2015 for a sentiment shift. when you think about it, this is that move that we're talking about. really had a very nice consolidation after its ipo. this was the earnings period here. people like what they saw. they had this move in the singles day. i think they did $9.5 billion in gross merchandise sales here. here's the volatility, the price of options of alibaba. they've come down pretty nicely in the last couple weeks here. but here's one of the main points. this is a $275 billion market cap company that's got an implied volatility of about 40%. that's pretty expensive when you think about it, so i think when you're going to actually consider long plays here, i

think it makes sense to actually use options despite the high prices of volatility because i think there's a potential for sentiment shifts with that overhang. i just want to make one clear point. if you've had gains in the stock and the thing is working, i get it. you don't want to sell. but you may want to consider a stock replacement strategy. or if you're bullish into the new year despite the overhang, you look at call spreads. today when i looked at the stock at 111, and just remember, it did have a high of 120 about a week and a half ago, you can look out to march. going to cap the first lock-up of about 430 million shares. you can buy the 110, 150 call spread. that's your max loss there. when you think about it, you have protection on the downside all the way to 100, which i think is a pretty interesting near-term support level. you have potential gains from basically 119.50, right where the stock popped out last week, all the way to 150. that's about $100 billion in market cap between 111 and 150.

that would make this a $375 billion market cap. i think that's obviously incorporating a lot of good news here. but i guess -- i'm not being skeptical. i'm just being prudent in front of all of this overhang. i think it makes sense to define your risk. >> we've certainly seen stocks trading badly. i mean, twitter is probably the most recent example of this. i'm just wondering in terms of a technician's playbook, is there anything they can tell you? >> i think there are some reference points here. we know that the high from which this whole thing started, the september 19th high of 100, is the level from which the stock broke out in november. after you go up 20% to 120, that's exactly the width of the range that preceded the breakout. you revisit that privet point. so 110, we think that's where it's going. >> from a fundamental standpoint, one of the things baba had going for it was the fact that it was trading at a material discount to names like facebook. but now it isn't. with this astonishing rally,

both of them are trading about 40 times next 12 month earnings. amazingly, if you compare it to a name like amazon, everybody looks at amazon's earnings. one free measure of cash flow, baba is significantly more expensive, about 60% pricier than amazon is. of course, they did do the announcement about the debt. i think that's good news for the company. i think that was a wise choice. but still on a valuation basis, it's not that compelling to me relative to other comps. coming up next, is the commodity crush finally over? we'll explain about a commodities comeback when "options action" returns. [ male announcer ] eligible for medicare?

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chanoschanos. big boost or see the enthusiasm run at the market as well.

what did you see and do you think the bottom line is in the quantities like oil and god? >> we've seen a lot of activity and a lot of commodity space. what we saw was three times the average daily call volume. that was the result of a substantial buy. 10,000 of the calls. somebody paid a $1 for those. that was a making million dollar bullish bet to the upside. i will say it had been hard to catch the falling knife in energy. we addressed this a couple of times on the desk. so i can completely understand when you start seeing people making bullish bets in the options market, this has been a volatile space. this seems like it could potentially be catalyst that sends things higher. there's a good reason to use options because every effort to try to catch this on the way down has failed many times over. so from my perspective, i think this is probably the best way to try to make a bullish bet. i would go along with this. >> how do the charts look?

>> there's two two times of stunts. you take advantage of something strong likely to get stronger. or something so bombed out that you can catch a ricochet. the key not to take aid owe sin karatic risk. there's good shares that pick up all commodities. it's over sold. we plan for a balance. >> it's interesting. we talked about it earlier in the week. we saw huge long dated call spread. risking almost $5 million in premium with substantial more downside if the thing got nailed and playing for upside, you know, really kind of up about 5 to 10%. to me, i think these trades make sense like they said trying to catch a falling knife, especially in economic sector as this can be a dangerous game. if you define your risk and have a good sense for what you're paying and what the risk reward is i think it makes sense. >> yes. going out and something buying something at the gdx is not the way to play it.

they're concentrated. free port slightly more diversified. so i think you're getting a little bit of that diversity. >> and id owe sin karatic. >> it is. >> let's take a tweet here. jack daddy-o asks. mike? >> you know, first of all, i think hedging right now makes a heck of a lot of sense. options are so cheap. think about this, if you can risk one or two 2% for the next 60 days to be able to continue to press your bullish bets do you think the market could be 2% higher or down 2% or more in the next 60 days. thing can happen easily. this is one of the chances you'll get to have option protection. up 13% essentially since the last expiration on this show. it's almost unprecedented. >> what would be your favorite hedge now? >> the way out of the money points. i think you have to look from a

probably standpoint. unless you're looking for disaster protection. a crash is in that. that's a low probably. i don't like buying the ones out of dollar cheap. if you are worried about a 5 to 10% pull back i would look at something like the spy. see where most of your concentration. your portfolio is. if it is in the spy a large cap u.s. stuff. i would look to do a near the money spread. i decide i want to use a certain amount of premium. >> you add the must bes. 203 and 4 will be less than $4. that's less than 2% to january. >> carter, it's coming off the fifth straight week of gains. we're up 10%. >> sure. you have remarkably symmetrical plunge down 10. gain up 12. the markets overbought. the market extreme. any word you want to use. the risk reward is asubmit call. first thing, harvest gains. take money off the table. >> all right.

coming up next the final from the options pit. stay tuned.

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it may not be a toga party. if you're a college student in the new york area we want to hear your best trade idea. e-mail us. or tweet us. if your trade makes the cut, you'll get a chance to appear live on-air. hope to hear from you. good luck! please write us. time for the final call.

carter? i prefer call spread to long stock. >> those looking ahead can use at the money in january. >> looks like our time is expired. see you back here next week at 5:30 for more "options action." have a great weekend! my mission is simple. to make you money. i'm here to level the playing feel for all investors. i prompts to help you find it. mad munn starts now. hey i'm cramer. welcome to mad money. i'm trying to make you a little money. my job is not just to entertain but teach and coach. so call me. or of course, tweet me. all right. this is a tough cay for me. i lost my dad earlier this week. i'm here because that's what pop