matters when it comes to your money, and it is this. people first, then money, then things. now, you stay safe. now, you stay safe. bye-bye. ? "options action." ♪ why do you want to fight all the time ♪ >> so are retail stocks on a tear. plus, miss the rally an alibaba? relax, we have a way to get the tech giant for ten bucks. talk about strange. maybe not that strange, but wait until you hear about the unusual bet that commodities with about

to soar. >> i'm hungry! "the action" starts now. live from the nasdaq market, i'm melissa lee, and retailers are rising. an incredible 17 session winning streak. holiday season for gains or retailers going on sale? dan, seems like investors have high hopes for the holiday subpoena and beyond. >> no doubt about it. the retail talk about the broad based retail stocks are a laggard, underperformed for most of the year, concern about the u.s. consumer when you think about it, but we've seen it outside of retail, in autos and there's a massive rally. it's only up 6% of the year,

lagging the s&p. i think when you look at the names right there, they just reported, a lot broke out the 52 week or all time highs. when you talk about what are they discounting, right, next week, black friday, cybermonday, and here's the thing, it's the most promotional holiday season we've known. i think the retailers know the consumer here in the u.s. is kind of tap here, and i don't think that's great for sales, but not great for profits. >> you know, i have not been that skeptical about the u.s. consumer, i have to say. we got data about people voluntarily leaving jobs in september. people only leave their jobs voluntarily when they have a better option and that suggests they feel optimistic. there's another thing is suggests. that existing employers have to raise salaries. that's the one thing we lacked as we've seen this economic recovery was we were not seeing rising wages. that significanted there are rising wages, and if consumers feel optimistic enough to leave their jobs, they feel optimistic

to go shopping. >> sure. >> one for point. not matter what you think of apple as a stock, it's going to dominate the holiday. the big ticket items, ipads, to beats, a huge thing this year. i have to assume this company that has, you know, 40% margins steal from the other retailers. throw apple in the product cycles, now, that's a dangerous situation. >> even besides that, factor in the historical seasonality. basically history shows the time to buy retail for holiday is before black friday, not between black friday and christmas. >> are we on the same page here? >> shockingly yes, maybe we are. . >> how will the market do from now to new year's. if you believe flat to higher, you can't be skeptical of the

sector. the way the market's behaving now, markets are cheap. ample time to hedge. i would not be a huge seller. >> i'm incorporating a little bit of both of what you said. the xrt. i think today they are discounting a lot of good news which is worse as we get into q1. there's a disappointing first half of 20156789 to me, when i looked at the rxt at 92, 93, i could buy the december march 90 put calendar. that was priced up at a $1.70. sell at 70 cents and buy for 2.40. i'm financing longer dated puts. through the holiday period, e agree, sideway to up actions over the next few weeks with the ba that points, but after that, it is worse. it makes sense financing the longer dated puts. get through the december exper

rigs with the rtx at 90, there's other ways to finance the march puts. risking 170, on a percentage basis, that's not horrible unless there's a crash down downside. we can inch higher, but there's not a greater move of a few percent. >> two reasons you want calendars in a time like thisment one, obviously, the fact you believe that equities are flat to higher. the other reason is because equities are not trading. why? holidays coming up. stocks are not volatile when they are not trading at all. being short a near dated put when we know there's half days and no days of trading next week, this is a good time. >> that's actually the main point i think, really, think about between really monday and christmas and new year's, there's a lot of stale price action. your options you own will decay. feels horrible. you can get the direction right, but options decay, especially on a short dated basis.

these are strategies to employ in slow trading days. >> hot to not. one is badly lagging the market, but charts say it can play catch up. chart master, carter, what do you see? >> boeing, just as you said, a big laggard, s&p up 12, 1500 points a spread. that will narrow. let's figure this out together. so here we have three individual entities, the s&p of course, a subset of that, of course, the entire industrial sector, and subset of that is the aerospace and defense group, boeing, honeywell, and so forth. the s&p out performed the sector, and the sector outperforming the sub industry group. here's the opportunity by my work. here's the s&p 500, aerospace and defense. there's a lot of names. this kind of tension does not resolve without a break out. the presumption is we break out.

what causes it? we think it's boeing. here's the chart of boeing year to date. what i see with my eye is a well-defined triple bottom. close at 132. make it back to the high of january at 14 5. that implies a 10% move. in perspective, the longer term chart, here's the triple bottom, and we think, again, we're going to make a run for the january high up 10%, only putting it back where it was. the market is even higher. it's a good bet relative s&p and good bet absolute. >> fundamentally, what supports a 10% rise from here? >> trading at 15% discount to the historical multiples on an enterprise value basis and price to earnings base. boeing is a great company with great secular tail winds. the reason for that is because

5,000 single aisle aircraft for asia over the course of the next seven years. that, you know, that plus a completely full order book tells you everything you need to know about boeing. there's not loot of places in the market place now where you can buy a decent company with a long horizon of great sales were less than the market multiple and trading 15 and a half times the market earns. >> looks like a simple trade and looks, on the surface, expensive. >> the reason it looks expensive, what i look at is the may 135 call, buy for five and 5 quarter. that looks expensive because the stock is 131. that pushes up the dollar price of the options anyway. the other reason is because i'm out to may, a half a year. the reason i do that is because i don't think they decay that much. sort of to dan's point, if anything's going to happen, it's going to happen in january. this is a hedged way to be long.

there's a lot of things to do with a trade like this, depending on the stock. if it rallies, we sell higher strike calls, lock in what we spent essentially and play to the upside. on the other hand, if it fell back to 110, we take that opportunity to go into the risk, by funding the call purchase selling puts. this is the way i'd like to do is because options are not expensive now. >> like you said, trading at a discount to the historical, growing earnings, low single digits, trading a market multiple, been a laggard. talk about an order book full up. this is a company, you know, six years into a massive bull market that can't get out of its own way. think of the stock ter specktive, i don't like looking to may with a chunky premium. if i play this for the stock 2.5% down, i look shorter dated and look to do a spread and really kind of take advantage of some of the things we're talking about because over the next few

weeks, you are going to have dec decay. those are may options, but look to february, call spreads targeting on the upper end, his level, $10 to $15 higher. >> carter, if we are concerned about the trade like dan is, obviously, are there levels boeing needs to preserve for the trade to remain in tact? >> to hold or drop a bit is fine. boeing is a massive outperformer. look where it came from. after a great assent, this is a normal consolidation. this is what home depot and walmart did before it broke out. after you go quiet, reassert yourself again. >> going long is not a bad play if you have a long view on the stock, which i have. to carter's credit, he called it well as a bullish play at 82 bucks and same at a hundred bucks, and now it's 135 bucks,

i'm with him, going out to may to make a bullish bet. >> got a questions, tweet us, and check us out at optionsacti optionsaction.cnbc.com. here's what's coming up next. yep, that pretty much sums up commodities this year, but we'll tell you why savvy traders bet the floor's in. plus, how much will you pay to own alibaba share? >> $60,000. >> that's high. what about $10? we'll show you how to do that when we come back. here's some news you may find surprising.

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alibaba shares up 63% from the ipo price, and resident voice of skepticism, dan, says there's time to get in. what are you looking at, dan? >> skepticism? i lay it out so you can play it out. when you look at it, it's a one-way freight train. it's up 60%. the stock traded particularly well as of late since reporting that first quarter of earnings as a publicly traded company. it's really important to note that, you know, lock up. there's going to be a lot of overhang coming. there's a short one, a small one coming next month, a few million shares, which is not -- that's not substantial. think about the ipo of 368 million shares, but when you look out further, when you get

in march and the new year, you know, they will do -- they are going to unlock 420 million shares, much greater when you think about the ipo they did. there's going to be overhang there. this is not skepticism. this is cold hard fact. i believe the stock is trading well because there's huge mutual fund complexes out there who think they will own the stock for years and years to come, and there's a supply and demand issue here. they keep buying it. there's not a ton of supply. that's coming to a theater near you in the new year. september 20, there's going to be 1.6 billion shares unlocking. there's a potential in 2015 for a sentiment shift. this is the move we are talking about. there was a nice consolidation after the ip organize. this was the earnings period here. people liked what they saw. they had a move into singles day. they did 9.5 billion dollars in gross merchandise sales here. here's the implied volatility, the price of alibaba coming down

nicely in the last couple weeks. this is 275 billion market cap company with a volatility of 70%. that's expensive when you think about it. what you're going to consider long plays here, i think it makes sense to use options despite the high prices of volatility because i think there's a potential for sentiment shifts with that overhang. i have to make a clear point here, okay. if you had gains in the stock, you know, and the thing is working, i get it. you don't want to sell. you may want to consider a stock replacement strategy or bullish in the new yeesh despite the overhang, look at call spreads. when i looked at the stock at 111 and made a high of 120 a week and a half ago, look out to march. this the expiration capping the first lockoff of 130 million shares. you can buy the 110, 150 call spread, pay about $9.50, that's the max loss there, and when you think about it, you know, you have protection on the downside all the way to a hundred, which

i think is an interesting near term support level despite the fact we don't have a lot of trading history. there's potential gains from 119 where the stock topped out last week all the way to 150. that's a hundred billion dollars in market cap between 111 and 1506789 that makes this a 375 billion market cap, incorporating a lot of good news here, but i'm not skeptical, just prudent in front of the overhang. it makes sense to define risk to stay bullish on alibaba. >> we've seen posts trade badly post lock up. twitter the most recent example of this. carpal tunneler, in terms of the technician' play book, anything in the play to say whether or not -- >> there are reference points here. the high from which it started is the level which the stock broke out in november, going up 20% to 120, that's the width of

the range. previsit that point, 110, that's where it's going. >> you know, from a fundamental stand point, what bob had going for it is the fact is traded at a material discount to names like facebook. now it's not. with the astonishing rally, both trade about 40 times next 12 month earnings. amazingly, compare to amazon, everyone looks at amazon's earnings, but take a look at this, one crude member of free cash flow, baba is 60% pricier than amazon is on that basis. of course, they did do the announcement about the debt. that's good news for the company. that was a wise choice. still, on a valuation basis, it's not compelling relative to other comps in the space. >> next, is the commodity crush over? we'll explain why a trader bets big on a commodities comeback when "options action" returns.

well, china surprised easing announcement this morning causing a boost in commodity stock, and that runs in the

market as well. mike, what did you see, and do you think the bottom line is flat bottom is in for the commodities with oil and gold? >> we've seen quite a lot of activity in a lot the commodity space. we saw three times average daily call volume, the result of a substantial buy, 10,000 of the january 30 calls, someone paid a dollar for those. that was making million dollar bullish bet to the upside. i will say it's. awfully hard to catch the falling knife in energy. we addressed this is couple times on this desk. i actually completely understand when you start seeing people making bullish bets in the options markets, this is a volatile space. seems like it could be the catalyst sending things higher, but there's a good thing for options because every effort to catch this on the way down has failed many times over, so from my perspective, this is the way to make a bullish bet.

i go with this. >> how do the charts look? >> two times in principle when you go long, take advantage of something going strong that it gets stronger or it's so bummed out it ricochets. buy at phenomenon cx, buy a single synergy stock in aggregate. picking up all commodities, play for a bounce. >> dan, what do you think? >> we talked about it in the week. we saw huge long dated call spreads. someone sold puts to buy a spread in gdx, risking $5 million in premium with substantial more downside if the thing got nailed and playing for upside. you know, really kind of up 5 to 10%. to me, i think these trades make sense, trying to catch a falling knife, especially in something as sensitive as this is a dangerous game. find the risk, have a good sense for what you pay and what the risk-reward is, it makes sense. >> speaking to whether it's broad or not, going out and buying the junior gold miners or gdx is not the way to play it.

every one of the stocks is a dog and con ten traited, freeport is more diversifieied with copper d gold. you get more with that diversity. >> and all right. let's take a tweet here. jack dad asked, 180 puts, smart hedge or silly with no volatility, mike? >> first of all, hedging right now makes a heck of a lot of sense because options are so cheap. think about this. if you could risk 1% or 2% for 60 days to continue to press bullish bets, do you think the market was either 2% higher, breaking even, or down 2% or more in the next 60 days? that happens easily. this is one of the few chances you get to have option protection and continue to press after we see the epic rally. up 13% since the last expiration on the show. i mean, in is almost unprecedented. >> what's your favorite hedge right now? >> it's not the way out of the money puts. you have to think about it from

a probability stand point. unless you look for disaster protection, a crash, that's a low probability bet. i don't like buying out of the ones you think are dollar cheap. look to -- if you are worried about a 5 to 10% pullback, look at the portfolio, where the concentration in the portfolio is, and if it is in the spy, large cap u.s. stuff, looked too a kind of near the money put spread. use a certain amount of premium to -- >> the at the money puts, 203s and 4s are less than four bucks, less than 2% out to january. >> the spx comes off the fifth straight week of gains. we're up 10% in the time period. >> you have a remarkably smet try call plunge, down 10, market's over bought, extreme, and any word you want to use, the risk-reward is ase met try

call. long only and pull cash. >> all right. final call up next, stay tuned. here's some news you may find surprising.

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>> well, it may not be a toga party, but we have a challenge for you. if you're a college student in the new york area, we want your best trade idea. e-mail or tweet us. if your trade makes the cut, you get a chance to appear live on air and ask traders a question. we hope to hear from you. good luck to you all, and, please, please, write us.

last word, carder? >> boeing, long side. >> dan? >> baba, calm spreads, long stock here. >> mike? >> looking to hedge, use at the moneys in january. >> time expired, i'm melissa lee, thank you so much for watching, see you here at 5:30 next week for more "options action" have a great weekend. >> 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