this is "options action." tonight -- >> usa, usa, usa! >> you said it, homer. today's jobs report shows that america is back.ed the rally, relax, we have the catch-up trade. >> how would you like to make money if the weather goes up, down or nowhere at all. >> you can't be serious. >> we'll show you how to do it. >> tonight, we make money in oil. >> it's impossible. it can't be done. >> well, we have got a way and

we'll teach you how you can make money too. the action begins right now. >> live from the nasdaq market, i'm melissa lee. today's theme is very simple, america is back with a vengeance. this morning's massive jobs number showing economic growth is strong. dan, you're looking at an oldie but a goody, the dogs of the dow theory. >> it is december 5th. we're looking at the back end of this year, the very end of this year. i think i've been in the camp to stick with what has been working up until this point. when you think about the calendar shift, think about portfolio managers and what they're looking to do, they're trying to find the diamonds in the rough or things that haven't been appreciated the way they should. the dogs of the dow strategy is something that works when you get something that is a little bit underappreciated. you look at the dow 30, ge is one of the worst performing

stocks. >> you take the worst performing stocks in the dow and -- >> you think about two of the worst acting of all of them is chevron and exxon. we know what is going on there. ibm, a lot of stock specific stuff here. ge, this is a company that faces some risks. you think about the strong dollar, think about the emerging market exposure, these are hot spots thinking about u.s. multinationals here. this caught my eye. it acts so badly, down 7% on the year. yields 3.5% or so. and to me i feel like maybe i have a setup in the new year. >> payroll data was positive today. one take away could be if we look at the stocks that have done exceptionally well this year, everybody has been trying to focus on growth stocks because you couldn't make a bet on the broader economy. if the broader economy is actually strong, then some of the more conventional plays might actually be appropriate. i think the names that have been strong so far will remain so until the end of the year. but it does make sense that people will start to rotate into things that haven't been extending their gains for so long and where the valuations

might be getting stretched. this, to me, is a strategy that makes sense. >> you've been noticing there has been increase activity in the xli recently, which may lend to this -- >> the xli, the industrial etf, three of the top names in that, ge maybes up 9.5% of it. it is up 11% on the year. if you think about it, the top gainer, if you see some of the names and i think united technology, boeing was another one, also down on the year, if you see them join the party, industrials could be the next leg. so with ge, very simply, i think you look out to the new year changing, you look out to first quarter -- q4 earnings report, on january 23rd and look at implied volatility, it is cheap in ge. and really, you know, the trade is very simple. i was looking at february when the stock was 26 today. you could buy the february 26 calls for 55 cents. 2.5% of the underlying stock price. you think about it that way, you have two months, a catalyst, you have the change of the new year

this is a pretty simple strategy but i think it makes sense when you think about where i think the u.s. market could be going early in the new year. >> this is a short-term bet. usually it plays out over a longer period of time. >> he's looking at an option that is pretty inexpensive. make this bet without taking a lot of risk. the vix below 12, this is a situation where you think about maybe i'm going to do relatively simple trades. you get a lot of leverage and not take significant risk. generally speaking, going into the end of the year, though, calendar spreads can set up in a fairly attractive way because you're not going to have a lot of activity with the holidays going on. maybe this isn't the place to play it because the option premiums aren't so high. i think that's another strategy that people can look to and look as you pointed out to extending that call purchase out. >> give us a context with which you view this trade. this is for january to capture the specific event. longer term, more cautious on

the markets overall. longer term, do you believe this could be a winner next year? >> i looked at february, but to me, really i think this is a one and a half month trade. you get a pop toward 28. i don't like u.s. multinationals here. they buy back a lot of stock. they have a lot of dollar exposure. i think we're going to have just like this year, i think we'll have a little global growth scare in q-1. >> let me ask you a question, on a day where we hit 18,000 on the dow, we're at records every single day, for a one-month trade, would you rather -- would you prefer to bet on directionally that a winner of the dow so far this year is going to be a loser in january? as opposed to betting on this for a month. >> from now to the end of the year, you would be foolish to fight momentum with this kind of strength. if every single day we're making new highs, why then do you say i'm going to randomly choose today to be the day that i pick something that hasn't been

working. within the industrial names, and there is a lot of things in xli i wouldn't touch because of the multinational exposure, that's why you want to pick a single stock and the other stocks like boeing is probably another good one. >> here is an interesting question for you fobs at home. what do you do when gas is cheap and jobs are plentiful? go to red lobster, chow down on shrimp scampi. casual diners are doing well except for two names. what are you looking at? >> starbucks, but it is just that. group moves are powerful. you can find the stock in a powerful group that has yet to play out, it is a good opportunity in principle. quickly, moving through. texas roadhouse, range bound and then look at what happened. a breakout. up 15% or more in the last month. denneys, range bound. quite clearly. abreakout, up 20%. out of its range. another one, nathan's famous hot dogs, range bound. and then a breakout, all symmetrical, all being resolved the same way.

dine equity, they own ihop and appleby's. range bound. up and out. domino's, up and out. can they make an inference that popeye's, one more, yes, now to the trades, we think cheesecake is one of the last to go, we like it a lot, we're buyers. and then the stock for this particular same, starbucks. big name, just today put its head up above the top of the line, closed at 83. implications are here that just to catch up if you will, you're talk about a 10% to 15% move. it is a big name, liquid name, aggressively long here. >> starbucks was a new 52 week high in today's session. where would you go? >> i'll have to go with starbucks. it is understandable to see why something like cheesecake factory can falling gas prices might seem more attractive. not that much money left in -- for discretionary spending in the consumer's wallet. starbucks is the one place, they

had news coming out also, starbucks reserve, that's one of the things, one other thing he talked about was specifically addressed the fact you go to starbucks and a line a mile long, talking about the mobile order and pay system. to me, anything that can resolve and get better productivity out of the stores, that actually is probably a good thing. here is something else. surprisingly, despite all of this, starbucks is trading below its historical multiple, 26 times, next 12 month earnings for something growing at like 30% rate that actually is fairly reasonable. for me, look at this space, that's the one i would move to. >> what is your trade? >> i'm looking out to february, looking at the 85/90 call spread. spend a dollar and a half for that. one important thing when you look at a call spread, take a look at the relationship between the difference between the strikes, and how much you're spending. when it gets to be more than 40%, i don't like it that much. you need the stock to move so you want to make sure the payoff

will justify the fact that it is a little bit less than 50/50 shot. >> interesting this trade. we talk about the breakout here. starbucks was down on the year three weeks ago. you think about what we're talking about in ge, down 7%, but also down a couple dollars now from its 52-week highs, a similar trade. i think in a month from now we could be thinking about the trades similarly, but as far as it relates to starbucks, it made its move now. has to hold above these highs. i was very disappointed in the stock a couple of months ago because it had not kept pace with the market. you see a quick move like this, there is news. >> you sound skeptical. >> i'm a little skeptical. here is a company expected to grow high teens are for the next few years, trades at 27 times earnings. to me, they have a lot of their future growth come from overseas. this is not like a fortress america trade. >> at the chart, you seat stock bounced off that 70 level. 70 is a good deal down from 83 bucks and change where it closed today, the reason if you mack a

bullish bet on a breakout that options will be the way you want to -- >> carter, you see 70s as well? >> this is not about support. it is about a follow asset that is likely to come to life. >> that's a good way of putting it. good way of putting it. interesting because today, we had a note as well, jenny montgomery saying by 2025, starbucks is going to exceed mcdonald's market cap, which would be a big move. >> i put this in a teflon portfolio for life. >> buy it and forget it. >> nike and some of these things. i don't mean you chase it right here. if you were smart enough to buy it at $70 because you didn't care what would happen in the next few weeks, this is one way to do it. >> if your choices are between starbucks, still a grower and mcdonald's, you go with starbucks. >> you're skeptical the fundamental thesis. you were to go along with what carter said, do you like -- >> i think the call spread makes sense here. i'm not a buyer of breakouts in stock. i think to define your risk and

define a range over a period of time, it makes sense. >> have a question, send us a tweet. check out our website. in addition to the great stuff we nrmally have, we now have a new cutting edge options tutorials. one right there with mike. these are state of the art videos that break down the basics of options if you're fuzzy on the whole put and call thing, watch the videos. they'll change your life. no word on whether mike will receive an oscar nomination. we'll keep you posted. check it out. here's what's coming up next. up, down or sideways, we know how to make money in apple. >> oh, no, i cannot do that. >> yes, you can. we'll show you how. plus, the question on every trader's mind. >> what is the problem with michael jackson? >> no, not that. it is how can anyone make money in oil? we have got a way and we'll explain it when options action returns.

last month mike and carter made a bullish bet on oil. let's say they were a little early on the trade. take a look. on options action, it is how we trade like oil tycoons. risk less so we can make more and that's just what they tried to do with their bullish bet on oil. >> we would start to play for a bounce in crude here. >> all right, my thought. i'm in. but just trying to buy into the oil etf, the uso. >> don't make it hard on yourself. >> mike, j.r. is right. 100 shares of the uso would set you back almost $3,000. so to spend less, mike bought

the january 32 strike call for 60 cents. now to make money, mike needs shares of the etf to rise above the strike price by more than the cost of that call. or above 32.60 by january expiration. that's 60 cents. >> just not good enough. >> so to spend less, mike then sold the january 28 strike put for 70 cents, and created what is called a risk reversal. now between the 60 cents he's paying for the 32 strike call and the 70 cents he's collecting by selling the 28 strike put, mike is collecting ten cents on the trade. that means mike can make money if uso shares go up, stay flat or decline slightly. >> i don't believe it. >> but don't get too giddy yet because there is a trade-off. if uso shares are below the $28 level of january expiration, mike will be forced to buy them for $28 a piece, even if they're trading well below that level. and in fact, with uso down sharply, that's just what could

wind up happening. and now the entire oil community has just one burning question. what will they do with their trade now. this is an interesting problem. let's call up that trade here. if it were to expire today, mike would buy the uso for $28, $3 loss. if it rallies above that $28 mark, they are off the hook. where is oil going and what are we going to do with the trade? carter, let's start off with you in terms of directionals. >> this is bad stuff. the question is, of course, what to do now. in principle, there is a certain certitude that entered the market that crude is going to 60. you're hearing 40. it smacks to me of the reciprocal we saw in '07. $140 a barrel, all of a sudden, people are starting to talk about $200. we're getting extreme now. we would think as bad that is is, that looking forward three to six months that crude will

not be lower and if one has the fortitude, you stick in. we characterize this as so bad, it is good, if you will. and try to work through a bad situation. >> are you willing to do that, mike? what do you do with the trade? >> i'm willing to do it partially because i suspect if there is any more of a floor to it, it will be found around the $60 level. let's remember everybody figured that owe passenger the sa that opec and the saudis said that 40 would be the floor. they did not do that. sometimes you get stuck. that's what happened to us here. one thing you can do, though, there is a lot of volatility in oil, reduce the cost basis if you have the put to you. what is going to happen. when january expiration rolls around, we'll be forced to own it, if it remains at the below 28 level. we start looking at opportunities to write calls against t we're floundering around here. we continue to reduce our cost basis over time. i was taking a look for an example, you know, the 28 calls of february are about 40 cents. if you continue to do that, over

time, you reduce your cost basis, and this is a commodity. they tend to be mean reverting over time. we reached out and got hurt on this one. >> what would you do -- this week, we had a barrage of wall street firms, but at the same time, they're not saying 40 necessarily. they're saying for the next two years, $60 to $70. we could see this longer oil scenario just for a longer amount of time. >> i actually -- i agree with that. i think you think about the u.s. data today, it is not -- we might have thought that oil might rally off it. oil is not trading on that. i don't believe it is a supply thing either, given all the news we had about opec and everything. i think that it is focused on global growth. right now we don't have the answers like we did in the jobs data from the u.s. here today about what is going on overseas. to me, i do think it probably stays down here. if you think these guys are loser, i'm a much bigger loser in august. i put in a similar trade on uso when the stock was -- or the etf was up at 33. the moral of the story is be

careful about trying to peckick falling knife. sometimes it makes stoe s sense define your risk. you should be thinking like you're long the stock here. that's how you make the decisions. not a lot of optionality left in the trade. >> is the corollary higher in the next three or four months, higher trade, because it looked like we might have hit a bottom on monday. >> that is part of what the -- the energy stocks are not continuing lower with the continued plunge in crude. that's a tell. we think that's a hopeful thing for this very bad trade. >> coming up next, something rare happened this week. apple fell. but a simple option strategy could have saved you money. we'll explain right after this.

what is cooler than an

iphone 6? a trade that makes money whether apple goes up, down or nowhere at all. in fact, so excited about this particular strategy. i came over to the plasma so dan could break it down. we're talking about overwriting. >> call sales and long stock. this is like the starter drug strategy for option trader. add yield to something you already own. when we think about, you know, the market that we're in now, we're in this holiday market here, we'll have a lot of slow trading, days off that sort of thing, stocks aren't going to move a whole heck of a lot. this could be a good opportunity to sell some premiums, sell some calls against the stock you own and add some yield to your position. there is a couple of rules you want to live by. to me, if your strategy is to add yield, you want to do it on a shorter database is here so your stock is not going to be called away. if you're long stock and short of call and the call -- or the stock goes through the call strike on expiration, your stock will go away. the idea here is to add yield. when you think about that, you also want to do something where

you have the opportunity to kind of capture some of the premium. look to 3% to 5% of the money if you're doing on a one to two-month basis. don't want to sell a call that is less than 1% of the stock price. it is not worth it. to me, i mean, i think you have to think about volatility levels, don't sell cheap options either. this is a good opportunity to look at your portfolio over the next few weeks, add some yield. >> in terms of apple, we mentioned apple specifically because it fell. >> people were calling this a flash crash. in about two minutes, it lost $40 billion of market value. >> this is a 6% drop here. >> that was a 6% drop in two minutes here. look at this. this is the next four trading days. that was on monday. the stock flat lined. recovered half of the losses. it closed down 3.5% on the week. let me tell you what that did to option prices. it jacked them a little bit. apple was a low volume name. it raised the prices of options a little bit. they have come in a little bit

because the stock has gone sideways here. but this is the one month chart. this is why i'm thinking about overwrite if you're long apple and have fantastic gains here to date and looking over the next few weeks here, to me, we have a range, it was basically over the last month, of 109 to 119.5. here is the stock at the midpoint of it, i think you could see a scenario where apple stays within that range of 110 to 120ish or so. >> i hear about a stock that has done so well, i think more not necessarily overriding strategy but stock replacement at this point, what would you do? >> well, first of all, i think one of the things important to remember is that a lot of times people hold core positions and might view apple as a core position. and while stock replacement is probably an attractive alternative just on a stand alone basis, some people won't plan to sell their stock. if you're not going to, which many people won't, one thing you ask yourself is how you can collect a little bit of yield off of it. in those types of instances, it

can make a lot of sense. >> let's do it. >> stock was 115. if i was going to look out to 3% to 4% to the upside, that gets me to the 119 strike. i want to look at january 2nd weekly options. why am i doing that? it will catch christmas and will catch new year's eve. those are two days that we're off, just adding to the potential decay of the option. with the stock 115 today, you can sell the 119 call, at 1.15%. that's 1%. what it is doing is if the stock is basically above 119, you would get called away. you could cover that call, okay, but add 1% and on the downside, you have a small buffer to 113.85. >> up next, the final call from the options pits.

final call time.

carter? >> starbucks, pumpkin latte and buy some stock. >> dan? >> ge, long calls. >> mike? >> stocks taking a breather like epply, the one that dan recommended. >> our time expired. thanks for watching. see you back here next week at my mission is simple. to 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. other people make friends, i'm just trying to make you a little money. my job is to educate and teach you. call me at 1-800-743-cnbc, or tweet me @jimcramer. this market, this market doesn't know the meaning of the word