things. now you stay safe. now you stay safe. bye-bye. this is "options action." >> tonight -- >> you won't believe the dream i just had. >> neither do we. because a week after stocks tanked they're back to where they were before. confused, relaxed. we have a strategy to make you money whether stocks go up, down, or nowhere at all. plus, growing pains. as stocks surge, high-growth names like netflix and amazon have been left in the dust. are they set to rally? >> up from the 36 chambers. >> is this man keeping shares of cisco down? we tell you why a new face can revive an old tech name. the action starts right now. lurch from the nasdaq market site, i'm melissa lee.

we've got carter on the charts, mike and dan on the desk. our theme on exploration friday. what the heck just happened? one week ago, the world was ending and now stocks are back to all-time highs. the question is who is making money in the market and what's your best strategy. let's get into money and it seems like a tough market to short. >> it is, but when you think about the set-up into the fed meeting, really this was a domestic thing. everything was causing the volatility in our markets was off our shores. the set-up was treacherous. if you were trying to press shorts into that meeting. if you think about what the fed just said, they've done what they've been doing the last few years. talk risk assets higher and the explosion we saw has a lot to do with performance by a lot of professional money managers. they try to mark the books. it's a dull market. there's no scheduled events. crude apparently put in a little bit of a bottom, intermediate term bottom here and they just rip. >> looks like we'll just drift

higher to the end of the year, that's the bias. >> that's probably the case. performance chase, a lot of people i know were not setting up to try to chase stocks into the end of the year. if you were talking to people at the beginning of the year. i myself probably gave up 375 basis points by reducing my personal net longs. obviously that was not the right move at all. you know, the other thing i would say is the vics. let's pay attention to what the viks said last week, the world coming to an end. it's the first time to set it up and then this time, it was totally wrong basically. >> let talk about some of the areas that have moved. in particular energy, for instance. it's up sharply from lows, earlier this week, 52 week lows. >> listen, they've got oversold and people have not been able to put their finger on where the commodity stops going down. they try to figure out what is the value of some of the equities they hold relative to the commodity? that's a smart person's game. i'm not smart enough to do it. i'm just going to tell you this. when you see the sort of volatili volatility, even in crude, in the mid to high 50s, this is not

great volatility. the range after a 50% drop over five months. to me, i think you actually have been very careful with energy stocks right here. >> we saw energy moves, we saw materials move sharply. the beaten-down areas. then also some of the the higher beta areas like technology. when we saw the markets rip, they ripped even more. >> i think that's probably because that was the only thing people figured if you were going to try to get high beta, you could go. you basically called it wrong, want to get leverage when it swings the other way and that's the place to go. as far as energy is concerned, it's interesting because obviously, a lot of the equities have been very hard hit but some of the fixed income side may not have been hit hard enough yet. i mean, i think we've seen the rig counts drop. we see a lot of things that the energy space is starting to contract but i don't know if it's necessarily contracted enough. if crude doesn't rally enough from here, that's not a spot there's going to be any earnings at all. >> we've got the chart master there. carter, let's go to you. technically, it seems sort of

insane to think we're down so sharply and then erased all the month's losses. >> almost a perpetual motion machine. but first, just something that you were talking about earlier. how hard it's been to outperform the market for active managers. these are the statistics that are the reasons why. here are two of the broadest indices in the world. the nasdaq composite, the russell 3000, all the s&p. the difference is what's so telling. the nasdaq composite at 14%. the average stock in that index up only 1.3%. that's very hard for an active manager to keep up with the bench when the portfolio to choose from individually is not keeping up. it's a function of super names. same thing business the russell. almost 11% versus average stock of this. that really has provided the backdrop for the problem of active management this year. in terms of the perpetual motion machine. soer so here it is. it's uninterrupted and again, a dip in a day-to-day what to expect is this, when you do dip.

let's look at all the dips in the last two years. you dip from a high, when you get back, you stall a little bit. you dip from a high, you stall a little bit. you dip, you stall. you dip, you stall. we're back to a little bit of a prior high. at a minimum, you should stall and/or give back more. but not truly break out in a big kind of way, at least when you first approach a prior top. >> that's different. >> keying off the nasdaq stats. that's yes want to look at the qqq. the qqq is the nasdaq 100. those stats are even more pronounced in the 100 group, because it's much heavily weighted to the top five names. i think top five names, apple included, make up almost 40% of the entire index. to me i actually think there's a really good chance that the strong dollar, emerging market exposure, all this stuff is going to come back to roost in q1. what i was to do is selling a dull market, i want to sell premium in a dull market on a

short database sister. i want to buy longer data premium to catch what i think is going to be a q1 -- i won't say meltdown but a correction between now and mid-february. today when the qqq was 104.40 i bought the december 31st quarterly. expires on the last day of this year. february 101 put spread. i paid $1.40 for that spread. i paid $170 for the fed 101 put. i sold the december 1st 101 put at 25 cents. that is my max risk. what i want to do is if the index moved slightly lower, down towards that 101 strike, that's my ideal scenario. how that short put roll-off. then i have a lot of options. i have two months until february expiration. i own that february 101 put. then i basically have my event trade on. >> options traders are natural skeptics. because of the volatility they bid up the options.

including ibm, for example. including names like mcdonald's. we saw there's a curve for prices near dated options, more expensive than longer data ones. that's unusual in any circumstance, but particular unusual when you're going into a holiday period, stocks usually trade up into the end of the year. you have a lot of days off and there's not that much activity. so these type of trades can make particularly good sense this year because actually with the vix at 16.5, it could even be lower believe it or not with the market right here. and really it's this wild week that has kept prices fairly elevated. i think these type of trades make sense. >> one more point, i do this on a directional basis. this could be a good way to leg into a hedge. if you own a lot of these stocks, it's a way to finance the purchase of downside puts, 1% of the underlying stock price. a huge week for stocks, names like gopro and amazon and twitter fell. why are investors shunning growth, what names look particularly vulnerable at this point? let's get back to carter. what do you see? >> some of these high flying

growth names stalled down on the year and it portends worse to come. google, big uptrend, a break in trend. priceline, big uptrend, break in trend. tesla, big uptrend, break in trend. let's talk about netflix. here's the trend. just like the others, clear break in trend. that's how it starts. you can draw the lines this way, if you want. a head and shoulders top. a bit of a neckline. put it all together, you've got a break in trend, head and shoulders top. we've got our neckline. here's the important thing. these gaps, that's a quarterly beat, that's a quarterly beat, that's a quarterly beat. guess what this gap is right here. your first quarterly messup. subscriber growth, unacceptable. big miss. street kills the stock. the presumption is to break these lows and break these lows hard. short 340 last and think it goes to 290, 15% lower. >> pretty convincing charts,

mike. how do you break lower in netflix? >> right now -- we were just talking about the fact that in some of these things that have been breaking down and also the market getting a little more volatile options, prices have ticked up. so i don't think the way to play this, don't short the stock and don't just simply go outright buy options because they are a little more expensive. to keep it simple, going to march and buy the 3275, and spend about $6 for that, $13.5 for the 300s, $7.5 for the 275s, spending less than a quarter of distance between the strikes. that's the kind of risk reward relationship we like and it's not going to decay that. gives a little time to play out. trading 57 times earnings. content costs are high. marco polo, not the blockbusters some of their efforts have been. >> marco polo. not happening. >> i guess not. >> be watching that one. >> i'm not. but others are. >> here's the thing. i'm just going to say, the charts are what they are. >> the charts are what they are. the thing looks horrible but in this market, it's been a

travesty to press stocks with high short interest, beta names where there's tape bombs left and right. you remember when the stock was down on the gap and mark cuban comes out and he thinks it's this and the stock rallies 10%. i don't think you want to press a stock like this down so much in a short period of time. i will tell you this though, if you get a move back up to the down trend, that's where you lay into it and you may want to do it closer to the q4 earnings. if that's what the event is. i don't know if you have to rush out and do it now. >> here's one of the things. at six bucks, that's what you pay to put this spread on, that's risking less than 2% of the current stock price to make a bet out for a quarter i don't think that's a bad risk reward relationship, and this would be the way to do it. we've seen what happened to people decided to get short. >> get ripped off. >> exactly. >> all right. got a question, send a tweet. cbsoptionsaction is our handle. check out the website. optionsactions.cnbc.com and the hottest news, videos throughout the week, and exclusive trade and now ground breaking tutorials starring

mike co. check it out. ♪ >> they're in the dow, dmx. why this classic theory could make you money in 2015. plus -- ♪ cisco kid was a friend of mine ♪ >> something john chambers has been no friend of the stock. we'll explain what the company needs to do when "options action" returns.

is there a problem at cisco? shares of the networking company have had a nice year but cisco is still underperforming similar old tech names like hp and microsoft. dan nathan there and breaking it down. >> it was oracle's results that got me thinking. the stock broke out, it was up 10% after the better than expected results and if you look over here at the chart, i mean, the stock basically, this is a 15 year chart, a few percent away now from the all-time highs made in the internet bubble in 2000. it got me thinking about the other guys at the time were considered the horsemen, microsoft, intel, cisco. cisco at one point was the largest market cap company in the world back in 1999 or 2000. so cisco, to me, it's been a big lagger. and now up a lot, 23% this year. and that sounds great but 100% off the 2009 lows. you know how much the s&p 500's up off those lows? 200%. when you think about it, some of

its peers, look at microsoft, monster year here, up about 25%. but it's getting back up towards those prior highs. and then the other one is intel. it's up 40% this year. one of the things that's interesting is intel is well off those 2000 highs. but all three of those companies i just mentioned, oracle, the ceo larry ellison just replaced himself with two other people. he's still there as the chairman. intel had the new ceo a year ago. obviously microsoft bomber stepped down and dell has taken over. new blood telling new stories and the stocks have been working. that brings me to cisco, okay? here, this thing is really a disaster for all intents and purposes if you look back over the past ten years in a tight range. i want to say this. the three prior names i talked about, they all traded about a market multiple about 15 or 16 times next year's earnings. cisco, 13 times. why is that? something's not resonating here. the story is not being told

correctly. when you think about that, this looks like a coiled spring to me. if there was ever a reason for investors to get back in here and buy this stock, i think you could have this thing up at 40 in a heartbeat. so here's the thing. i don't know what john chambers is doing or not doing. the quarter they reported was pier -- perceived to be better than expected. but it seems to my that somebody else needs to tell the story. somebody else needs to do a new restructuring and get this going. if that happens, this could be a moon shot. >> there's two things here. i want to handle the technicals because he was pointing, do you see that in those same charts? >> there's a lot of tension with a great run-up, a great collapse, the bull bear and then base like that. that's essentially what caused the breakout in microsoft, intel, meaning they had the same setup. the presumption is that these value stocks, that's what they are, the gross stocks we just saw, google, price line, all rolling over. a better bet here than the high flyers rolling. >> on a fundamental basis we've

seen a long period of underperform for cisco. this year hasn't been that bad. does that alleviate the pressure so therefore make it less likely that they're actually going to move forward if they didn't do that before? >> you're highlighting one of the things of the stocks into the end of the year. they were all the big growth stories. this has not been a top line growth story. that said, this is a stock that does have real potential because they're carrying more than $30 billion in net cash. and not only is it cheap, but they have ammunition if they decide to get really aggressive and try to give some of that money back to shareholders. that obviously is promising. the other thing is that we are actually looking now at a potential year on year revenue increase. when i look at this thing, i'm with dan on this. it's hard to figure out why it would trade much lower but a lot of potential for it to go higher. this is trading right now less than a quarter of its peak value back in the tech bubble. and they have two and a halftimes the revenues today they did then. this is a situation where a company that once was ludicrously expensive is actually right now looking ludicrously cheap. >> let's just say mike highlighted a bunch of improving fundamentals for the company.

let's say there is no ceo change, would you say it's a coiled spring and it moves higher just based on the business? >> it could work. really, analysts right now are expecting 3% earnings and sales growth next year. if you saw a material bump to that, you could get a rerating of the stock. which is what we just saw in oracle which has gone from 13 times to 15 times. here's the one thing i'll say. this is "options action" here. if you're looking out and if you don't want a buy a stock with 52-week highs and the market at all-time highs, i was looking in cisco at the july 30 calls. they're about 70 cents. the jan '16, 30 calls. they were about $1.20. when you think about it, on the percentage of the underlying, that seems like a good bet to have in place if you're of this mindset. when you think about it, the green line all the way back to basically 2000, that's $30. to me, if you wanted to find your risk and basically make a contrarian longer term bet, this is one way to do it. >> coming up next, are dow

underperformers like g.e. and boeing your best bet for next year? a classic wall street theory could make you money in 2015. we'll explain why when we come back. we needed 30 new hires for our call center.

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we take a look back at losing trades and find a way to make them better. mike and carter, last month, they got in on boeing. let's take a listen. >> we think again we'll make a run for the january high up 10%. we think it's a real good bet relative to the s&p and think it's a real good bet absolute. >> what i'm looking at are the may 135 calls and you can buy those for about 5.25. >> carter, do you like it? >> there's three reasons to exit a bet. one is a price stop, it's gone against you too much. a time stop, it's been stuck for months. neither are in effect here. or it's a win customer you harvest it for gains. this is just a few weeks old, not much happened. like it still, stay. >> this is a situation to take some gains, they open the next trading day at 545 and traded up

to almost $7 in two days. actually, what i thought was interesting is when boeing got down around the 120 level, which i'm going to defer to the chart master on whether or not there's support there. but actually some things you could do in this. when they rally, sell some calls against it to spread out of it and keep your bullish bet on. and the other is if you come back down to the 120 level and get the ball pop like we just did, think about selling this cash cover puts. now you're in that trade, premium wise, for tree and able to buy that stock at a bit of a discount. that's a way to play it on the long side. >> a couple of weeks ago, dan bet on a different dow component, general electric. take a listen. >> g.e., simply, i think you look out to the new year changing, look out to the first quarter, their q4 earnings report which is on january 23rd. you could buy the february 26 calls for 65 cents. that's 2.5% of the underlying stock price. >> g.e. shares have fallen a bit since, dan, do you hang on to this? >> you don't. i closed them out yesterday. we tweeted it out. here's the deal.

the stock went from 26 straight to 24. one of the catalysts, the stock did not react well to the analyst day guidance. to me, i was a little early, i got to about half the premium i paid. that's like a stop limit. in my mind for long premium directional trades. i cut it right now with the stock closed at $25.62. these calls are worth about 55 cents for a ten-cent loss. i don't think this one has it. i took a trade and i was wrong, i'm out. i don't have the same conviction i did two weeks ago. >> let's talk about the theory. the theory behind some of these trades. the dogs of the dow theory. going into 2015. carter, does it have a technical basis? >> it's not so much. it's a sentiment basis, people said these things soar bombed out, expensive, let me take the road less traveled. it's a spotty record. there's periods where the dogs of the dow has worked consistently several years in a row, then flat for several years in a row. so you take a chance with this kind of thing. buying in principle is wrong. you get what you pay for in life. >> are there any dogs in the dow that you would take a look at at

this point? [ one of the things -- i think one of the reasons that someone who looks at things from a fundamental standpoint would like the dogs of the dow is the theory is you're getting to buy some value. >> sure. >> some of the values we talk about look like reasonable value. i think boeing is a reasonable value. that's not a dogs at the dow but isn't one of the stocks. g.e. is another situation where it demonstrates that if this is a stock picker's market, it's really hard to pick the right ones. but if you stick with value bets i think you probably have a good trade idea. >> here's a name of the dow that's acted very poorly, been a lot of bad headlines, is mcdonald's. but we've seen a lot of call activity of late. we've been talking about it fast and options action segment. and rumors like bill acman will get in. it acted poorly, good yield and brand. if there is an activist to push it -- >> the dog you would like. >> maybe the potential catalyst. we don't trade off rumors. but if that were to ever happen, the call activity is suggesting somebody big is getting in there, that's all i've got to

say. coming up on "mad money" cramer dives into the sony shock wave. and plus, could eharmony fall in love with wall street and the people behind your paychecks? that's all ahead on "mad." coming up, final call from the options pit.

good time for a treat. sean asks spots about doing a vertical on gld as the gold volatility has come in. >> yeah, it has come in. i think if you want to be long on it that's the way to do it. i think gold dies a death next year. gld at 115. here's the thing. with options you can define your risk. after march if you're listening, the 115, at the money 125 call spread cost you about three bucks, a third with this spread. >> time now for the "final call," carter. >> province and netflix, good the last four or five years. looks to be rolling over. >> danny? >> if you own large cap stocks

look to leg into some protection, february qqq. >> mike? >> boeing calls, put them in your stocking. >> our time has expired. i'm melissa lee, thanks for watching. for more "options action," check out the website. in the meantime, don't go anywhere. "mad money "with jim kramer starts right now. presentation brought to you by mypillow incorporated, creators of the world's most comfortable pillow, mypillow. >> hello, i'm mike lindell. i've invented the world's most comfortable pillow. i make them right here in the united states. do not change that channel because the next half-hour is gonna change your life. >> millions of people have fallen in love with the world's most comfortable pillow, mypillow. stay tuned for mike's amazing new buy one, get one free offer and discover why people just like you are getting the most restful, comfortable, deep healing sleep of their lives on the official pillow of the national sleep fou