site, i'm melissa lee. here is where the action is tonight. >> up in the 36 chambers, it's -- >> shocked the world today and may have also spelled doom for one well-known dow stock. we'll tell you which one and how you can profit. plus, do you like tech? well, then, you're in luck. next week it's make or break for apple, google, microsoft and maybe even your money. and talk about change. well, not that strange. but the vix has been doing some funky stuff.

we'll tell you what it means for stocks. "options action" starts right now. all the traders are here in time square and it's make-or-break time for technology. next week we got earnings. what will it mean for the rally? what is the set up particularly the run into the reports. >> i think the first week -- -- two weeks ago when we got into earnings week, a lot of the news wasn't too fantastic. earnings were fine. a down trend, profit taking mowed. we've rallied out of this ecb meeting here and things feel a little bit better. those tech tops you mentioned, $2 electrical in market cap we'll get one a night next week. i do believe if we can get some sort of trend out of that, that's probably going to be reflective of the next 5% in the market over the next few weeks.

>> it's interesting, ups, best of brede, wasn't like evaluation compared to peers off the charts high. i think the downdraft we saw in the stock was kind of telling. you figure if this is how they feel about the leaders, what will they feel about the weaker hands. obviously there is some danger if you are trading at the higher end of the multiple range in your space. >> in terms of nasdaq and technology's resilience. >> the issue, microsoft, apple, big names, only about 6% of the s&p, 26% of the nasdaq. it's not so much about their percentage in the s&p, it's going to break the confidence in the market. >> some will be stock specific stories. microsoft announcing windows 10. i thought it was interesting because the direction they need to go with their products they are going. i think it's going to be symptom specific. >> i want to add one thing. the top ten holding make up

50% of the weight of the qqq. equal to $2.5 trillion. that's more than the rest of the 90 in that index. a lot of those stocks have been doing a lot of the heavy lifting for the last year or sochl it's really going to be important what sort of guidance we get out of these stocks going forward and that will be the trend for q 1. >> you've got a trade specifically on ba ba. >> i want to look at aly baba, it's not the largest, the 4th largest. here is a company pretty new to us, publicly tradedentity, public in september. did report one quarter in early november. for the most part results were good. there were negatives. margin pressure, a company growing fast. on singles day in december $9.3 in gross merchandise sales hear. the quarter they are going to report is probably going to be a big, big quarter. very few large cap that don't give guidance, google is one. google has had a tough run over

the last year, too. investors generally like more information than less. one of the things i wanted to look at, i'm not so focused on the earnings report as much as the fact that this company did $368 million share ipo in september 18th, ipo lockup coming march 18th of 429 million shares. then in september, are you ready for this number? 1.6 billion. i think that there's going to be overhang. the trade, really looking to take advantage of the heightened option prices around february expiration that's going to catch their earnings report next week. i want to sell an option there and i want toe buy a longer in march that's going to capture that lockup and hoping to kind of basically get in. the trade really simply was february, march 95 put spread, a put calendar. when the stock was 104, cost $1, my max risk, i bought $1.

march 95 put for $2. what i want to do is have the stocks move back to 95 and february expiration and then i own march put for that lockup. that's the event i'm playing for. >> i think this makes a lot of sense for a couple of reasons. for one thing when you have a stock, recent ipo, particularly what happens a lot of volatility that comes out of the stocks. options premiums decline over time. if you want to own them, the best way to do that is selling near dated options against it. that's the first thing. the other thing, you would want to short this stock even though there's that huge overhang of supply that's going to pressure it. the reason is actually on a fundamental basis the stock is not immensely expensive, growing 50%. actually for a growth stock that's not off the charts expensive. if you're depending to take a look at making a short break, against longer term puts. >> speaking of charts. >> not a lot to interpret. it's a fairly new issue. no one is quite sure what it's worth, where it's headed. i would just say this is the

kind of thing lend itself to real analysis to study past prices to determine future prices. >> as we go into the big slate of tech earnings you're negative. that's what it sounds like. there was one negative cap, intel. it guided down. you know what the stock has done? it's done nothing. in that space disappointments out of microsoft. >> ibm. >> ibm. they traded poorly. intel, this the one reason why when you're looking at microsoft monday this is not one you want to short either. for whatever reason they like that medium yield, seems like the new ceo is saying and doing a lot of things they want took hear. >> let's move on. oil slide won't quit. crude fell another 2% closing lowest since 2009. the prince made news when he said $100 crude is in the rearview mirror. take a listen. >> a point between supply and

demand the price may fluctuate. however, immediate to long-term, inevitable the price may go up a little more. as i said, i think we'll never see the price for oil again at $100. >> in our chart master says that could be bad news for one dow component set for next week. carter, what do you think about that? >> take a look at caterpillar. it's not a good look. let's look at the chart. by my word what's coming is not good. show you correlations. this is a three-year chart of caterpillar versus crude oil. a lot of correlation. then plunge in crude, and while caterpillar has been weak and not -- the commodity crude over shoots on the upside. this is going back 15 years. commodity has a lot of data and knoll evaluation to hold it up. commodity overshoots on the upside and, indeed, overshooting

on the down sued. principle, caterpillar cannot withstand this kind of pressure from crude. so here is the bet we're making. caterpillar, crude, and then reverse. so you have a% 30% and a perfect 30% decline. the risk is we're hovering right at these well-defined lows. put this in the context of a long-term chart. triple top, well-defined level and the bet is that caterpillar is going to break. and a bad break here implies something along the order of 75 or the lows of 2007. sell caterpillar if you have it, looks to us like there's downside risk. >> what do you think? >> a lot of people make commodities super cycle argument about caterpillar, been bearish, jim's argument for quite a while. part of what you're seeing is a correlation to commodities more

generally. they have a lot of exposure to things like materials and mining. however, it's hard to figure out how this will impressive us on the 27th when they announce earnings. the other nice things about this as an options trader not ridiculous that catalyst, 4% move. this is a situation we can take a short punter by buying short data options. that's exactly what i was looking to do today. earlier when the market was higher you could find february '86 puts, those were costing $2.10. that's going to give us a little time onmake the bearish bet. it will capture those earnings. that's one way you can risk a small amount of stock price. >> the other thing working against the stock, management has had credibility issues. >> what they have had a handle on buying every share they can get a hand on. in the last year they have done

4 billion dollar in accelerated when you look at the rally, that was the company aggressive buying their own stock. to me i think it's a tough press as we get closer to 80. what carter shows on that chart is massive support at 80. i'd rather take a look at deer rallied 10% off its recent lows, and that's where i'd want to make the bet. >> this is like copper. copper is not doing anybody any favors either. it just keeps getting weaker. as that dicontinues, it tough f caterpillar. >> falling currency in europe. strengthening dollar, multi-nationals, caterpillar has more multinational exposure than deer does which favors the bearish bet on cat. i hear what you're saying. >> send us a tweet @opposition optionsaction. one word, hot. check it out. here is what's coming up next.

>> riddle me this, riddle me that. >> why in the world is the vix tumbling. what could that mean for stocks? the fear merchant will break it down. plus -- >> it's a bird, a plane. >> actually it's just the dollar. you won't believe just how high some traders see it going. options action

♪ have no fear, the vix and stocks are down for the year. particularly the vix rises when stocks fall. what does this mean for the market's next move. bring in fear merchants brian stutland. what happened in the vix? what could it mean for stocks? >> a lot of interesting action today. we saw puts trade three times that of the calls. that's huge. february 14 put, over 230,000 contracts were purchased. certainly, vix traders betting that the draghi ecb will drive the vix lower. that's why we have seen the vix drop. it starts to get really interesting here. i think when the vix starts to trade below 16 in this year of 2015, i think that's an indication that the market is reaching a top. it is time to look for hedges and buy puts on your portfolio. i think the low end of the range

on the vix likely is 13 or 14, given all the volatility here in the oil markets, given the high valuations in the stock market, i'd be looking to hedge when the vix gets below 16. when you see above 16, 22 level, put cash to work, get into the stock market. this range 13 to 22 is how i would play vix even huge vix volume. saying vix goes lower. >> a lot of folks at home don't deal in volatility or trade vix at all. in terms of implementing strategy, what would you choose to buy protection on, s&p 500, nasdaq. >> the simplest way would certainly be buy puts on broad-based etf that mimics portfolio. for most people something like spy. i would issue one bit of caution, which is it would be a huge mistake to try to hedge too much when the fed was a busy buyer in the u.s. if ecb buying, central banks create a put in

the market by themselves. when they are buying financial assets, it tends to support their prices across asset classes. one of the things you have to be careful here, i'd wait for it to go well below 16 before i became an aggressive. >> expand dramatically, multiple expand, rates lower? what drives it from here? >> what drives it from here is what happened next month. 60 billion next month. >> price that in? >> it has done so for the past five years. let's just remember. they can always ratchet it up. they have given us a backstop of how much they are going to buy. they could always ratchet it up. >> let's pretend i'm an investor in european stocks and i am thinking the ecb are going to inflate stocks, assets, prices in general. would you hold on to that and buy protection against those positions. >> i think it's interesting what brian is saying. with the vix at 16, it's a little different. last year, it would be at 12.

this is when zurich was still -- we have a much-higher level. it's interesting today, there's like 200,000 of the february 14 puts that were bought for 15 cents. let me tell you what people were doing all last year, big institution, big money, selling downside puts to buy upside calls. that was the trade, a risk reversal. now, it is kind of interesting. >> we saw one other big trade this week. we saw big call buying in ewg. a weakening euro could be good for german multinationals. you've got ecb action maybe taking advantage of low volatility might mean buying calls in something like ewg to make a bullish bet. >> european investor, you are still taking tail wind of the currency. so while the tax is up 600% in ivax, it is not the games it would appear on the surface. >> in terms of positioning, ahead of a very big week of earnings, what is are you seeing out there? >> certainly with the greeks elections next week, that may provide -- we saw the vix reverse. there is still a little bit of fear out there. earnings have to hit on all cylinders.

basically, valuations are above history cal mean, trailing 12 months. we need follow-through. volatility in the oil markets may bleed into volatility in the stock market here. that's why i think the vix getting below 15, hey, let's look for hedges. stimulus packages can suppress that. put the put in the market like mike mentioned. certainly you've got to be careful here. we need some solid earnings in the next couple of weeks. we'll see how that goes. >> all right. brian stutland, thank you so much. last word, dan? >> i would say this, really importantly. when you think about what's going on here in the u.s., at least its earnings and we had it with ups. we just talked about. i think investors are shooting first and asking questions later. the one name that was up massively this week, netflix, is an outlier. we've seen very few strong bounces after earnings. it may make sense not to buy protection. you think about stock replacement strategies to give you that long economic exposure. you are not wasting money on the

puts on the downside. >> coming up next, treasury yields continue to plunge. how can you profit now? we'll give you one way when "options action" returns.

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♪ ♪ time for total recall. we take a look back at old trades and find a way to make them better. last week dan bet the bond rally was about to end. take a listen. >> i think that the markets are going to start pricing higher rates quicker than people think. i bought march 130, 120 put spread. i paid $2 for that. if we get better wage inflation and ecb qe, i think bonds go lower. >> we did get ecb qe. rates continue to fall. what is the move now? >> i've got to tell you, we were talking about volatility before. the volatility in tlt, morning draghi introduced, the tld was trading at 131 and today 135. that's a massive move for a bond etf.

this trade is down 50 cents. i specifically look to march, because i want some other things to play out here, jobs data and a fed meeting next week. to me, i think you stay put here. i think the strikes are the right strikes here. i like owning this march 130 put. >> what do you think? >> we made record lows this week in the 30 year treasury. ten years bouncing around at 18. i think it is a money flow issue, an issue spread versus blends. it is tough for u.s. rates to move higher when the rest of the world is so much below. >> i think that's the biggest point we need to -- we look at low rates and assume, they can only go higher from here. don't forget, the ten year was lower than it is right now. there is room for those yields to drop further. when you keep pushing money into the system, pushing the long end of the curve down, that will keep the yield suppressed. >> last week carter and i got into starbucks. take a listen. >> it just today put its head up above the top of the line and closed at 83. the implications are here to

camp up, if you will, you're talking about a 10 to 15%. we like it a lot. it is a big name, a liquid name and would be aggressively long. >> simply i'm looking for teb, looking at the 85, 90 call spread. you can spend about $1.50 for that. >> actually hit a new high. carter, what do you? does it have more of a run? >> if the objective is to play for the breakout and you have gotten the breakout, the question is, do you exit or let it run? >> in principle, i would let it run. what are you thinking? >> that's my inclination too. we got the breakout. i don't see that this is the reason to try to go short the thing right here. the thing about our call spread is that it is now well in the money. originally we were risking $1.50 to make $3.50, now $2. take your profits, use some proceeds and buy some upside calls. >> beautiful breakout. the input was the technical setup. when you thought about this, this is a stock that underperformed the market for most of last year. >> and most restaurant stocks. this was lagging. >> it was beautiful. listen, the call was a work of art. it sounds like things are hitting on all cylinders. don't chase things on runaway

breakouts, it's just not my deal. coming up on "mad money" jim has a triple threat of exclusives tonight. he'll talk to ceos of av net, citi national. all that and much more ahead on "mad money," top of the hour. coming up next, your tweets and the final call from the options pits.

nathan asks us, what do you you nathan asks us, what do you you think about a straddle for google's earnings this upcoming week? >> dan. >> all right, my brother, let's talk about this. they have the money straddle for next week is about $24. that's a really tough way to make a living, buying that and hoping for a 4.5% move. to me, that's not how i want to play it. i think if you have a a

directional bias you look to it. i think at 560, you take profits and maybe consider a short trade at that level. >> it has not been a performing stock for the past year. can you get a netflix type pop on its earnings. it's possible. >> recently, it has been pretty good. >> up the last week. major asset s&p, i would stay away. >> frank asks, what makes options cheap or expensive? that's perfect for mike. >> the simple way to think about this is take a look at how far out the options are and then take a look at how much that straddle and option costs you and compare it to how much that stock has moved over a comparable period of time. stocks like johnson&johnson don't move around, 7% in three months' time. other stocks are more volatile. that's how you figure it out. does it seem like it makes sense? other more complicated ways to think about it but we're not going to bother with that. >> final call. >> if you have some caterpillar, one has reason to be cautious and careful. do something. get out. >> mike? >> you take advantage of cheap options prices and maybe buy

calls actually on ewg on ecbi. the ali baba put calendar could be cheap protection against long stock. >> our time has expired. i'm melissa lee. we'll see you back here next friday. for more options action. see you monday. in the meantime, "mad money" starts now. ouncer: the following is a paid presentation for p90x3 brought to you by beachbody. [ bell tolls ] [ clock ticking ] [ dramatic music plays ] >> announcer: do you wonder what it would be like to be in amazing shape? [ pulsing ] do you look in the mirror and wish you had a six-pack? don't you want a body that can perform like this and look like this at least once in your life? [ air rushing ] well, now, you can get that body... faster than ever before. you don't need a gym membership or fancy equipment, and you don't need a lot of time. yost