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>> live from nasdaq we have carter on the charts and mike and dan on the desk on our team. what happened? stocks are nearly back to all time highs. the question is who is making money in this market and what is your best strategy right now. let's get in the money and find out. dan it's a tough market to short. >> it is but when you think about the set up, really this was a domestic thing and everything was causing the volatilities in our markets. the set up was pretty treacherous. when you think about what the fed just said they have done what they have been doing the last two years. talking risk assets higher and the explosion we saw has a lot more to do with a performance chase when you think about a lot of underperformance they're trying to mark their books. they know it's a dull market right now. pull in a little bottom. >> saying they're going to drift

higher to the end of the year. >> the performance chase a lot of people i know were not really setting up to try to chase stocks into the end of the year. if you were talking to people at the end of the year. i gave up 375 basis points by reducing my personal ones and that was not it. it was telling us the world was coming to the end. that's the first time it set us up. it was totally wrong yesterday. >> let's talk about the areas that moved in in particular energy for instance. it is up sharply from lows earlier this week 52 week lows. >> they got really oversold. a lot of people haven't been able to put their finger on where the commodity starts going down. where is the value of the equities they hold relative to the commodity. that's a smart paererson's game. when you see the sort of volatility in the mid to high

50s this is not great volatility. the ranges we had after a 50% drop over 5 months so i think you have to be careful with energy stocks right here. >> we saw energy move and materials move sharply but then also some of the higher beta areas like technology when we saw the markets rip they ripped even more. >> probably because that was the only place people figured if you were going to get high beta you could go. that was the place to go. as far as energy is concerned it's interesting because 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 think we have seen the rate counts drop and a lot of things that suggest the energy space is starting to contract but i don't know that it's necessarily contracted enough. if crude doesn't rally significantly from here that's not a spot with any earnings at all. >> we have the chart master at the smart board. let's go to you because technically this seems insane to

think that we were down so sharply and then erased all of the month losses. >> sure. but first just something that you were talking about earlier is how hard it's been to outperform the market for active managers. these are the statistics that are the meaning why. here's the broadest, the nasdaq composite, 2500 and then the difference between the two columns is what's so selling. nasdaq 14% and 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 with it. it's all a function. same thing with the russell. almost 11% versus average stock of this and that is really provided the backdrop for the problem for active management this year. in terms of the motion machine, here sit this uninterrupted and yet again a dip.

day-to-day when you do dip, let's look at all the dips the last two years you dip from a high and you stall a little bit. you dip from a high and you stall a little bit. you dip, you stall. you dip, you stall. now we're back to a little bit of a prior high. at a minimum you should stall and or give back more but not break out in a big way. >> all right. so that's different. >> i think it's interesting a qqq is the nasdaq 100 and they're even more pronounced in the 100 group because it's much heavily weighted to the top five names. apple included they make up almost 40% of the entire index. to me i think there's a really good chance for the strong dollar and emerging exposure and what i want to do is go back to selling a dull market right here i want to sell premium on a

short data basis but buy longer dated premium to catch what i think is a q-1. we'll get a correction at some point 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 $1.70 for the fed 101 put and sold it december 31st at 25 cents. that's what i'd like to do. if the index moved slightly lower down toward the 101 strike that's my ideal scenario. i have two months left almost until february expiration. i own that february 101 put and then i basically have my event trade on. >> options traders are skeptics. they bid up the price for options significantly and in a lot of place including wm and

names like mcdonald's what we actually saw is there's a curve for prices. near dated options are more expensive than longer dated one which is unusual in any circumstance but particularly unusual when you're going into a holiday period. stocks usually trade up until the end of the year. there's not that much activity. these trades can make particularly good sense this year because actually 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 kept pricely barely elevated to these trades make sense. >> i'll make one more point. i'm doing this on a directional basis. this is one way to finance the purchase of down size puts. >> names like amazon, twitter and go pro fell. what names look vulnerable at this point. carter, what do you see? >> some of these very high

flying thing versus stalled down on the year. it is worst to come. so google, big up trend, a break in trend. priceline, big up trend, a break in trend. tesla, big up trend, a break in trend. let's talk about netflix. here's the trend. just like the others a clear break in trend. that's how it starts. you can draw the line this way if you want. a little bit of head and shoulders top. a little bit of a neckline. put it all together you have a break in trend and head and shoulders top. we have our neckline and 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 mess up. subscriber growth unacceptable big miss, kills the stock. we're going to break these lows and break these lows hard. short through 40 last. it goes to about 290, 15% lower.

>> pretty convincing charts. how do you play for a break lower in netflix. >> we were talking about in some of the things breaking down and the market getting a little bit more volatile options prices ticked up. you wouldn't want to short the stock and the other thing is you wouldn't want to go out and simply outright buy options. to keep it simple going to buy the 3275 put spread. 13.5 for the 300s. i'm spending less than a quarter of a distance between the strikes and it gives us a little bit of time for this thing to play out. 57 times earnings. content costs are high. marco polo not the blockbuster some of the efforts have been. this is the way to make a bet on the short side. >> not happening marco polo. >> here's the thing. i'm just going to say the charts are what they are. it looks horrible but in this market it's been really a

travesty trying to press stocks that have high short interests that are beta names. remember when the stock was down on that gap and then mark cuban comes out and he thinks it's this and the stock rallies 10% so i don't think you want to press a stock like this down so much in such a short period of time. if you get a move up to the down trend that's where you lay into it and you may want to do it closer to the q-4 earnings. i don't know if you want to rush out and do it right now. >> at $6, i don't think the bet is a bad risk-reward relationship and this would be the only way to do it. we've seen what happened to people that decided to get short. >> they get ripped off. >> exactly. >> send a tweet cnbc options action is our handle and check out options actions.cnbc.com and now ground breaking tutorials.

so check it out. that's coming up next. >> they're in the dow. we'll tell you why this classic theory could make you money. plus something john chambers has been no friend of the stock. we'll explain what the company needs to do when options actions returns. >> options action is sponsored by think or swim by t td ameritrade.

>> dan is going to break it down for us. >> yeah it was oracles results this week that got me thinking about it down almost 10% after the better than expected results. look at the chart, the stock basically is just a few% away now from the all time highs made in the internet bubble back in 2000. so it got me thinking about some of the other guys at the time. it was microsoft and intel and cisco. they were the largest market cap company in the world in 1999 and 200. and cisco to me has been a big lager. now it's up a lot. up 23% this year. that sounds great. but it's only up 100% off the lows. the s&p 500 is up 200%.

look at microsoft here. this monster year here. it's also up 25%. it's getting back up toward those prior highs and then the other one is intel. it's up 40% this year. they're still well off the 2000 highs but all three of the companies i just mentioned, oracle, the ceo, larry ellison is still there as the chairman and inobstetrical had a ceo a year ago and obviously he has stepped down. but there's new blood telling new stories and the stocks have been working. that brings me to cisco. this is a disaster if you look back over the last ten years it's been 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. something is not resinating here. the story isn't being told

correctly. when you think about this this looks like a coiled spring to me. if there was ever a reason for investors to buy this stock you can have this thing up at 40 in a heart beat. here's the thing. i don't know what john chambers is doing or not doing. the quarter they just reported was perceived to be better than expected. somebody else needs to tell the story and do a new restructuring and get this thing going and if that happens in 2015 this could be a moon shot. >> there's two issues here. first i want to handle the technicals because he was pointing to this area and said it was coiled springs. is that something you see in those charts. >> there's a lot of tension if you have a great run up and then you base like that. that's essentially what caused the break up of microsoft recently. they the same set up so the presumption is that the value stocks, that's what they are, 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 und under performance, does that make it less likely that they'll move forward. >> you are highlighting some of the things we've seen outperforming and this has not been a top lying growth story. that said this is a stock that does have real potential because carrying more than $30 billion in net cash and not only is it cheap but they have ammunition if they decide to get aggressive and give some of that money back to shareholders. that's promising and the other thing is we are actually looking at a potential year on year revenue increase. i'm with dan on this. it's hard to figure out why it would trade much lower but there's a lot of potential for it to two higher. it's trading for less than a quarter of its peak value in the tech bubble and they have 2.5 times the revenues today that they did then. this is when a company that was expensive is looking cheap. >> let's just say a bunch of

improving fundamentals for the company. let's say there's no ceo change would you still say it's higher based on the business. >> it could work. analysts right now are only expecting 3% earnings in 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 but here's the one thing i'll say. this options actions here. if you don't want to buy a stock at 52 week highs this is where you can look at the options market. i was looking at cisco at the july 30 calls. or the january 16. more than a year from now 30 calls. they were $1.20. that seems like a good bet to have in place if you're of this mind set and when you think about it that green line that i went back to all the way back to basically 2,000 that's $30. if you wanted to find your risk and make a longer term bet this

is one way to do it. >> coming up next are dow underperformers your best bet for next year. it could make you money in 2015. we'll explain why when we come back. >> options actions is sponsored by think or swim by t td ameritrade. we needed 30 new hires for our call center.

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let's start off with michael carter. last month they got in on boeing. take a listen. >> we think again we're going to make a run up 10%. it's a real good bet relative to the s&p and we think it's a real good bet. >> what i'm looking at are the may 135 calls and you can buy those for about 5 and a quarter. >> let's kick it off with carter. >> what's interest as good there are three reasons to exit a bet. one is a price stop. it's gone against you too much. then there's a time stop. it's been stuck for months. neither are in effect here or it's a winner and you harvest it for gains. it's a few weeks old. not much have happened. stay. >> this is a situation where you could have taken some gains. they open the next trading day

at 545 and traded up to almost $7. when boeing got down to the 120 level which i'm going to defer to the chart master but there's things you can do here. when they rally you want to sell calls against it to keep your bullish bet on and if it comes down to the 120 level you can think about some puts traded close to $5. now you're in that trade premium wise at least for free and you're able to buy that stock at a bit of a discount. that's another way to potentially play it. >> a couple of weeks ago dan bet on general electric. >> with ge you look out to the new year changing. i think you look out to their first quarter, their q-4 earnings report which is going to be on january 23rd. you can buy the february 26 calls for 65 cents. that's 2.5% of the underlying stock price. >> so 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 and the stock really didn't react well to their guidance and to me i was a little early on this one. i got to about half of the premium i paid. that's like a stop limit in my mind for long premium directional trades and i cut it with the stock closed at $25.62 they're worth about 55 cents for a 10 krcent loss. i don't have the same conviction i did two weeks ago. >> let's talk about the theory behind the trades that's called the dogs of the dow theory. does it have a technical basis. >> not so much as a sentiment basis. these things are so bottomed out they're so expensive let me take the road less travelled. it's a spotty record. periods it's worked consistently and then it goes flat for several years in a row so you take a chance with this kind of thing. buying weakness in principal is wrong. you get what you pay for in life. >> are there any dogs in the dow

you take a look at in this point. >> one of the reasons that someone that looks at things from a fundamental standpoint would like the dog of the dow is the theory is you're getting to buy some value. some of the stocks look like reasonable value. boeing is a reasonable value but it isn't one of the stocks, ge is another situation where it demonstrates this is really hard to pick the right ones but if you stick with value bets you probably have a good trade idea. >> here's the name of the dow that's acted very poorly is mcdonald's but we've seen a lot of call activity. we've been talking about it on fast and the options action 7 and there's rumors that bill ackman is going to get in and cause them to take the real estate holdings. it's acted poorly. there's a yield. there is a good brand. >> that's a dog you would like. >> there's a potential catalyst. >> if that were to ever happen the call activity suggested

something big is getting in there. >> coming up on mad money, could e harmony fall in love with wall street and the people behind your paychecks. coming up next final call from the options pit. >> options action is sponsored by think or swim by tdameritrade.

thoughts on doing a vertical on gld as the gold volatility has come in. >> it has come in. that's the way to do it. i think with gld at 115 probably trade 100 before 130 but heres the thing you can define your risk. the 115, the 125 call spread would cost you about $3. that's a third of the spread. >> time now for the final call. >> netflix been a great winner over the last four or five years. >> yeah a lot of them look into

some protection looking out to february. >> boeing calls put them in your stocking. >> time has expired. thanks for watching. check out the website options action.cnbc.com. don't go anywhere. mad money starts right now. >> announcer: the following is a paid program for the t-fal optigrill, brought to you by groupe seb usa, innovative ideas you can't live without. how do you like your steaks -- rare, medium, or well-done, but juicy? whether you love tender, juicy grilled chicken or mouthwatering grilled salmon, there's nothing quite like the taste of perfectly grilled food. but grilling it right is never easy, undercooking your meat can be dangerous, and overcooking makes it dry and rubbery. you never get it just the way you like it -- until now. introducing the t-fal optigrill, the world's first and only patented indoor grill with built-in technology that