this is options action. tonight. >> i'm going to kill the bear. >> after a huge bounce, some traders are calling the correction over. but we've got a stunning chart that could get the bears roaring again. we'll show it to you. >> plus, i protection. way to protect apple shares ahead of monday's earnings and costs less than $2. we'll break it down. and down for the count.

live from the market site, i'm scott wapner in for melissa lee. the show is so big tonight, the traders are coming to you from all over the country. good to see you as well. we start with a massive bet, in heavy volume, a trader made a huge bet in the options market that the run in utilities, the best performing sector of the year will soon come to an end. let's find out why and dan, let's begin with you. with was this a bet in the new year and just how large was this trade? is it was really interesting because in an otherwise quiet trading session, this was the largest block of etf options.

this could easily be a hedge against a portfolio of stocks. you have to take notice because it was massive and i would just make this one point. when you think about utilities. they're up just 30% on the year. you could definitely make the argument that this was a chase for yield. that's not the case number and especially as we head into 2015 when we start to see rates go higher. there's a circumstances that's come and dpoen gone in a sense that the utility sector has well defined for about 15 years and the breakout has now if you

will, taken place. it makes a lot of sense. >> mike, what do you think? >> this is one of those situations where we've seen a lot of spaces in the equity market where we've seen things to rally. even well past their his ttoric rallies. with things -- >> if that's the case, how do you trade it? >> just lead it this way. obviously, oil is a big input, but it can be deemed as a defensive sector, but also because of the little dollar exposure that they have because we know that a lot of u.s. multinationals have this potential earnings head wind from a strong dollar. so, to me, the way i think about

it is valuation, too. when you look at the top five holdings in the xlu, they're trading at about 18.5 times. next year's expected earnings with a dividend yield expected to be about 3.5%. that's versus the s&p with an expected growth of 10% with an earnings, or dividend yield of maybe two, two and a quarter percent. so, to me, at 14.5 times ea earnings, the s&p is a wetter bet. if i was playing would you rather, i'd probably follow that big trade. i bought the march 4748 put spread for a dollar. i paid a dollar 35 and sold one of the march 44 puts at 34 sents. i could lose up to that dollar, i lose the full dollar, but with this etf up the way it is with

the i like making contrary yan bearish bet. >> what do you think of the trade? >> it puts put spreads the way you do it. you probably want to sell those, he's giving himself some time to play out. we get into the new year and you have rates low, people are just going to stick with what's working. >> or with equities in general. too far, too fast. >> give you the last word. >> if we were playing would you rather, i'd probably rather own the s&p 500 than the xlu because

i don't think that is that exciting here and i think the xlu is a very narrow trade that's a little bit crowded right here. >> the gains are capped, but you've also defined your risk and that's the real story. >> correct. moving on from what's hot to what's not. while utilities have been on fire, housing stocks have lagged the market, but our resident chart master seized the opportunity in the charts for 2015. must mean we're going to carter on the telestrator. carter? >> so, here we go. something that has lagged and we think that's the opportunity. let's look at charts and try to figure out it together. year to date, we know s&p and of course, a very important part of the economy. housing starts have made a part of the progress. in fact, take a look at the same chart going over the last year and a half. basically, nothing's happened. we've been stalled even as stocks have gone higher and higher. so, we think that's the opportunity. take a look at this set up. you have a well defined range

here and this is key. you have lows at 28. and you have highs at 34. when you break out range, what's called a measured move, that's a $6 range. you add $6 on to the top. 6 on to 34. you get 40. well, if you break out here, you go exactly to 40, which is the '07 high for the s&p. you can draw the lines this way as a pop and handle. but either way, we think 40's a good bet based on charts, based on the break outbased on here and now and we like it here and now. >> you want to give me your thought, your trade is this. >> this is an interesting. the housing day that we've been seeing hasn't been bullish. >> the interesting thing is as

the market has rallied, options have also continued to remain low and so, for anybody intended -- options are really the only way to play it. without risking a lot and i'm looking specifically at the market. to buy those and that's the way that you can try -- it's a little bit stressed. options are about one and a half cheap to their means, so this is one of those situations where we have to have an opportunity to make a bullish bet. even with questionable housing data and not risk a great deal to do it. >> dan, you ready to make a bullish bet alongside him? >> i think because the prices are so cheap, it makes sense that $34 range, the breakout level makes a lot of sense, but i would just make one point. it's not just homebuilders. we talk about it a lot.

there's also a lot of home related retailers and a lot of materials guys, too, and you know what? i think that the retailers have done a lot of the heavy lifting this year given the underperformance. i don't think this is an area you want to go. i think it gets rejected at 34 and i think housing has put this cycle's top in. >> carter. >> so, the pure play is of course i.t., but they're correlated about 95% of hp. 35 stocks here and they're equal weight. no more stock in 303-%, so you have housing, carpets, whirlpool, mattresses. the aggregate looks like it's going higher and the key here, it's going nowhere. up 1% on the year and over 18 months. s&p 30, it's up four. >> people are starting to ask, when is housing going to catch up and maybe if the overall economy continues to gain some steam into '15, that's going to be it. valuation in the homebuilders themselves are approaching, they're not that far off. names like restoration hardware

might not be the first thing you'd think about with a homebuilder, but if you're trying to make a bullish bet on homebuilders, it's correlated to those names, so it's an easy way to buy cheap options. >> got a question, send us a tweet. for everything options action, check out our website. we've got the hottest options news, videos from throughout the week. exclusive trades and new ground breaking tutorials starring the one and only mike cove and here's what's coming up next. >> do you smoke? >> maybe you should because cigarette stocks are on fire. >> we'll tell you why it might be time to put them out. plus, some are calling it the best christmas ever. but that can be your sign to sell retail stocks and we'll explain why when options action returns.

dan nathan bet against this sector last month and although he hasn't lost much money, here's why. on options action, it's how we shop for great deals. risk less so we can make more and that's just what dan tried to do with his bearish bet on the retail etf. dan thought felt that retail stocks were in trouble ahead of the holidays, but just going short. >> great bouncing ice bear. >> so, to define his risk, he instead bought the march 90 put for $2.40.

now, to make money, dan needs the xrt to fall below $90 for more than the cost of the trade or below 87.60, by march expiration. but hold on. you're shelling out 240? you said we were trying to risk less. >> you sit on the throne of lies. >> so, to reduce his cost, dan then sold the december 90 strike put for 70 cents and created his put calendar, but he did something even better. he made making money even easier and here's how. between the $2.40 and 70 cents he collected, he's cutting his total cost down to 1.70 and get this. the short dated put dan sold will lose value faster than the longer dated put he bought, allowing him to do something even santa struggles with. turn time into money. so, instead of leave needing

shares to fall below 87.60, dan just needs the xrt to fall below $90 by more than 1.70 he spent on the trade or below 88.30 by march expiration. but there's a trade off. and if the xrt falls too far, too fast, dan's trade structure could work against him. luckily, that december put has expired worthless. meaning dan now owns the longer dated put at a fraction of the cost. leaving options actions biggest fans with one burning question. >> isn't there anyone who knows what christmas is all about? >> actually, what they want to know is what will dan do with his xrt trade now? >> well, before we answer that, you might be wondering why am i watching a show about options the day after christmas. well, here's the answer. have you simply shorted 100

share of the xrt, you'd be looking at a $200 loss, but if you bought dan's put calendar, you'd only be looking at a loss of 20 bucks. dan, in order to make money, you need the xrt to fall short by expiration. so, what do you do here? >> i just want ed to make one point very clear. this trade wasn't targeting the pre christmas. this was targeting the post christmas. i kind of believe while it may be dollarwise, the most plentiful retail holiday season ever, it's probably going to be the worst as far as profits are concerned. at least profit margins. i think that's going to come out when we start to get q4 results in january and february from a lot of retailers, so what i wanted to do is finance the purchase of march puts, so here we are at 95.5 and i own that 90 put in march. that's one of the things we wanted to do. so, we did that.

so, right now, we have the opportunity. it's not down a lot. you've got to think about selling something else or rolling up. about a week ago when the market was lower, before that fed meeting, i sold, i covered the december put and i sold a march 85 put. now, i own the march 9085 put spread, so i've reduced my cost spaces and my break even, but now, i'm kind of far out of the money and at some point, i'm going to consider rolling this bet higher, increasing my odds of success. >> carter, what do you think here? >> get a best sales growth in three years, got discretionary stocks among the best performers. the economy starting to ramp. >> the the question the question is, has this been priced in to some extent and just in terms of tan's approach, he's adamant about this. he does not like the big tops. he's done that here and i think he's going to be vindicated. >> mike, you want to take the other side?

you agree with dan and carter? >> the reason the consumer stocks have done so well is because they have more money in their pockets and anybody who's been to a gas pump recently has got to refill this. i can't spend $40 and i can remember when it was about 90 bucks every single time i went. so there's been a huge increase in the amount of spending money that's available. the malls certainly looked full to me. but valuations are the things i keep coming back to. folks, if you're going to look at equities, you have to concern yourself with valuations. right now, all of these names are looking at or above their historical averages. that makes it reasonable. >> you are factoring in where gas prices are, dan? >> i kind of have a different sort of view on this. i think in the near term, because of the oil decline and the price at the pump dropped so dramatically, i think there's too much emphasis laid on how much the consumer now has in their pockets. i think as we get into the new

year, a lot of these oil companies, we could see the whole shale business in the u.s. decimated. that would mean a lot of job cuts, a lot of defaults, credit issues. i'm not convinced this is a 2015 boom the way it has been. >> up next, 15,000%. that's how much altria has returned since 1980, but we'll tell you why our chart master says it might be time to cut the stock. more when we come back.

make a product for a penny, sell it for a dollar and to addicts. that's what warren buffett said about cigarettes and that might explain why altria's stock is up 15,000% since 1980. you say the stock's too high. why? >> it's the long-term charts are

what they are. very long-term and they're not the here and now, but the here and now is stretched. s&p up 1700%. i've written in proctor and gamble here, which is double that, up about 4,000. colgate has doubled that, about 8,000 and philip morris has doubled that, about 15,000. one of the great winners of all time, no debate about it. now, r valuation. when this stock was going to get put out of business by the federal government, it was not, you could have bought it at a pe of 1-3. now, you pay 21. and back here in 2000, the dividend yield was about 30%. it's incredible. one of the greatest trades of all time. and you're buying it at a pe of three now, of course, we have the resip row cal. the pe and yield. here's the yield. 4%. but you can say that's still pretty good. on a relative basis, it's quite poor compared to treasuries, it's the lowest ever. take a look at trend. we closed at 50, 60.

we like to measure trend, when you're too far above, you check back. playing for a check back to 45 and the 45 level is where the moving average comes into play and it can put you back into the channel. this chart and this chart are the same distance, same time frame. >> i'm sorry. i am a seller. it's pretty simple. and right now, interestingly, although the stock is to expensive, usually options get cheaper. >> they're not in this case. they're a bit above their average. here, you want to use a spread and i'm just looking at the march 49, 45 put spread. you can spend about 80 cents for that. you're going to spend 1.20, make it bearish bet. but thing could drop back about 10%. i've been trading this thing since it was single listed. this makes the secular head

winds. there aren't more smokers coming up. >> dan, you agree? you want to also fade what has been one of the most resilient of stocks? >> listen, it's really hard to find reasons other than that c secular trend against smoking why they kind of put a stop right here and fade it, but to me, i think the way mike's doing it makes a lot of sense and not being too greedy and looking for too large of a pullback. i like the pullback, the range it is looking for. i think it makes sense right here. >> carter, last word to you. >> i mean, all good things come to an end. >> i just wonder, if it hasn't to this point, what makes you think it will now? >> we have a day-to-day relative strength is quite poor. the stock's not keeping up with the market. it might just be the forshadowing of weakness. >> up next, the final call from the options pits.

let's take a tweet for you now. carter writes at options action, long the coca-cola 4350 calls. stick with it even with the job cuts. >> they aren't necessarily going to hurt this stock and these omgs op options are cheap. if you're still making a bullish bet in coke, that's probably the best way to do it. >> time now for a final call. dan, start us off. >> got to give best wishes to a huge fan of the show and a friend, don from baltimore. he's watching the show from the hospital right now. get better, don. >> mikey. >> calls are still cheap, so if

you're going to continue to make bullish bets, that's the way to do it. >> yield start, we think people are overpaying. >> looks like our time has expired. for more options action, go to our website, have a great weekend and stay tuned for mad money begins right after this. ? 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. i'm trying to make you some money. my job is to not just entertain you but educate and teach you so call me at 1-800-743-cnbc. or tweet me at jim cramer. anybody who has a high school diploma has taken a course in