on a snowy expiration friday, our guys are picking up their hottest trades behind me. while they're getting ready. take a look at water what's coming up. >> that pretty much explains what biotech's done. there is a glitch in the charts. it could mean the breakout is over. plus -- okay. that's a little cheesy even by our standards, but it does tell you what bonds, currencies and commodities are doing. will stocks go wild next? and it was the big question on wall street today, they want to know why traders are so big on

ford? we got the answer. the action starts right now. ♪ here's a question to you at the desk. if you missed the rallies so far, what is the best sector to play catch-up with? mikes, carter, you guys are looking at banks. why? >> one of the ones we talk about are net interest margin. but let's look at a couple places where these have been hurt. first of all, it's a keep sector relative to the rest of the market t. s&p is trading under 19 times, trailing 12-month earnings, which is two turns more expensive than historically. meanwhile, you got the trading at or below book value. you got them trading ten or 11 times earnings. a lot of sectors have been weak, equity volumes and income have been weak and interest income has been weak and rising rates could potentially help all of else to. why is that? because rising rates could

fuel increases in volatilities and improve margins. >> carter. >> the sector, itself, has paced the market over the last year, but big money banks and big dragged. there is breakup potential and catch-up potential and certain individual parts of the financial sector. so what i wanted to look at here is actually one stock. it's goldman sachs. what is important here, interestingly, it's waiting in the dow jones. its wait is equal to the bottom stocks. it is the number one component that visa has split and apple came in at a lower price. goldman relative to the financial sector relative to the s&p. so we have a fairly substantial lager over this period. i mean really substantial. take a look at a few charts that matter here. we have well defined tops going back for about five years. and we are toying with the prospect office a breakout out of this sort of consolidation

or wedge. hold that thought and look at this daily period right here. this is the daily chart, right here. one year, you can call it whatever you want. people like the phrase, head and shoulder. you have a well defined line here. the presumption is a breakout. so we're looking at a move to about 210 back to the long-term chart. here's your head and shoulders bottom right in here. it projects up and out. it would complete this formation and the daily form and, of course, goldman lacked the groups the financials and the market. we like it a lot. >> cohen carter are a dynamic duo. before we do that, brian, i'm curious what your thoughts are on golds -- goldman. we did get data on what the bank's quarters could look leak when jeffrey's results were tepid when it came to fixed income as well as citing weak issues in the bond market. >> definitely, already some issues there, the bank monies and banks, when you look at

goldman sachs is each of the last three years, we've seen profit margins increase in there. they're definitely growing organically. they're doing a nice job of that. can you talking a stock trail trading earnings, analyst estimates at 8% earnings growth. i think that's not very difficult for them to beet. 8% growth here, like mike talked about, we get interest rates higher. not near term the ten year and 30 term, higher here, it's easy to beat those analysts estimates. certainly the stock is poised to make a jump. >> you step back to what they were making in fixed income trading, equity trading and interest income, of a few years ago, you're talking about an increase of $6 billion in net income. so there is a lot of potential if volatility and rising rates kick in. i think volatility is one of the things you want to take advantage of. here's a stock just over $175 bucks in october and february up to 200. it moves around a bit. you can still go out and buy the

july 195 call for just $7 bucks. which is a relatively small amount. you talk about stock price that moved shorter in much shorter period of time. >> so what does this mean for the dow? >> it's an interesting thing. the dow is a peculiar thing. it's price weighted. the market cap of goldman is roughly $90 billion. the bottom five stocks are 900 billion, yet, goldman has more influence leak cisco and coke combined. if judgment is right, this helps the dow. >> so it's bullish the markets? >> i don't know if it's bullish for the markets, it's bullish the dow and for goldman sachs. >> bear in mind, it's tough to chase on the bull side right now because valuations have gotten stretched. not in every sector. financials are one of the areas. fear not, hitting the lowest levels of the year, stocks are calm, other assets are selling. taking a look at what? >> if you look at volatility across the board. look at all of the asset

classes. to me when you look at that, it's quite a conundrum on what stock versus done, versus a commodity space and treasury. oil volatility up 170% plus. bond volatility up 20%, gold volatility up 2%. and yet stock volatility is down 3%. it gets pummeled. stock volatility is down. what does that mean? what it's telling me is money is being funneled into the equity market. that's where the liquidity is at. all other places, there is a ton of uncertainty, the oil market. where interest rates are going to go. that uncertainty is driving volatility up there. i think, however, this is becoming a very one-sided trade. right? all the money funneled into the stocks. i think you get one hiccup in the stockmarket here. boom that sort of snaps back. you can get volatility in the equity market. >> one thing we talk about the global investor. his thesis is extreme volatility and asset classes have to come to the place or the asset class.

that doesn't have that volatility n. this case, that would be stocks. >> that makes sense, one of the reasons we haven't seen it in the broader market. you look at the s&p or the triple qs, you are looking at a big baskets of stocks. oil stocks have been volatile. they have been declining precipitously. we have seen movement in the gold and miners and real positives like in the biotech space. those offsetting factors have helped the index go up at a 45 degree angle. stocks are going in the option direction. that's an issue of correlation, when rates rise, correlation will also rise. >> volatility is creeping into the market. we have more 1% moves up or down in the last two or three months than in about a year-and-a-half. so it's starting. >> if it is starting. it's low now, it's a good time to put on protection. >> absolutely. when you look at this here, the vic is trading at 13. you look at that and say, hey,

maybe people are getting complacent about the market. so i'm looking at a trade not necessarily to lay out cash here but to put a zero cost collar on, basically, if you are long stocks and you got 20 grand in the market or 100 shares, you put on and get the protection, right? we are looking at the april, 214 call. i'd be a seller of those for around a buck. at the same time looking to buy the 20 is 5 put. net, net, this doesn't cost me anything. if i'm long, i'd be called away at 214. my break even is 205. so anywhere below there, i'm break even. it feels like the market is due for a 1 or 2% or 3 or 4 pull back here. this is a trade when the vics is low. this is a trade you want to be protected in case the sell-off is a lot harder than you expect. >> number one, why do i want to

sell any options if i think vol is going to pop. the other is, why aren't we going further out in time? we are looking at june, april is not going to catch that. what are we going to catch? >> i think on this trade is a couple percent pullback. we had a huge run off the 50 levels all the way up to here. so certainly a pullback here is not out of the question. this is a play for a pullback, maybe add some protection. >> that at least gives you some cushion. few want to buy into the market at that point you can. if you are looking longer term over the course of the year, maybe volatility is going to creep back in the stocks, you probably want to go longer dated on this collar, a little wider. >> 2 to 3% by april expiration, do you see that in the cards? >> i hope to see that on mon. could see it on wednesday. it's all sort of mini micro. >> got a question out there, sends us a tweet to "options action." check out our "options action"s@cnbc. while you're there sign up for the newsletter. it's what all the cool kids are

doing. here's what's coming up next. it's the question that brought you here. >> how high can biotech stocks actually go? we have a chart you must see. plus. >> what is more exciting, having sex or stealing cars? >> for options traders, the answer is cars. they made a big bet on ford. we'll tell you how high they think it can go when "options action" returns. for you and your brother?house ♪

♪ woooooah you're not just looking for a house. you're looking for a place for your life to happen.

another day another record another day another record for biotech. the sector is up 20% year-to-date. not just a little too much for our resident chart master. carter, we should know you have been bullish on the sector. so what do you see now? >> this is the epicenter of the entire bull market. we have a market that never seems to stop and yet this is the most aggressive part of the s&p, the part of the equity market. take a look. here we have the green line. all equities, s&p. then we have health care which is, of course, beating s&p 50% since the five-year mark and we have biotech five times, literally the market. so here's the only thing that's kept up to biotech, apple. you've got to be that good. you've got to be the number one equity to have performed in line with biotech as an aggregate as a theme. by our work, this is too much. one we spend a lot of time with trend. we measure that. the smoothing mechanism.

we are now higher above trend, about 25% above the average in about six, seven years. also, we had a very bad close, it almost closed in the red, having been up substantially higher. all in a day when biogen apparently was moving towards a cure for alzheimer's, if you will. in any event, take a look at this. this is important. this is the long-term basically a lot of no activity. we get stuck, we get stuck, and then this epic run, and now we are coming out of the top of the channel, which marks, of course, this very important period for biotech. we would fade, take profits, do something. >> all right. so mike, how are you trading? >> you know, this is an interesting case, because, what a lot of people are talking about is the search for growth. the biotechs have provided. take a look at the biggest constituent of the biotech index, for example, what you will find are names like celgene, gilead, biogen, which he mentioned.

these are names that have been seeing double digit top line growth and we're not trading at ludicrous multiples a year ago. at least one of the stocks have doubled. the others were up 60-70% off their one-year lows. that issue gets them to the same place the s&p is. while they were once cheap, they were pretty much fully valued if you look at their multiple to growth. i'm kind of in this camp with carter here, thinking it's a good story, in most cases, it makes it tough the trade here. >> what's the trade here? >> i think we're looking for an opportunity to buy a put spread. because biotechs tends to be more volatile in some instances, you can finance the put. specifically i'm looking at the june 16th put. sell the 320s for 5-and-a-half dollars in this instance, you are spending just over ten bucks or that magic ratio with these put spreads about 25% of the distance between the strikes to

make a bearish bet here. >> i was talking to a couple analysts and their concern is that now we've got all these generalists moving into the sector. we were discussing before that this is a technical sector. you have to understand these drugs and what clinical data are what phase 1 and phase 3 mean. >> listen, you have a masters, they were biotech stocks. they're hard to analyze. listen. i think it is difficult. pe is trading at 25 times. earnings trailing on the ibb. we certainly seemed lofty. i think trading gilead is a great buy. it's in my top 13. i hold that myself, personally. i think there are some unique plays that you can go ahead and buy. you have to be right about some of the timing, when the drug releases come out. you have to get to know these companies to know when this will hit for you to play this. certainly, buying a put spread here, something up so tremendously like ibb over the

last 12 months here, it makes sense. you weren't the only guy on the street, by the way. there was a huge put spread buyer in the ibb in april we saw in the options contract. that's gone up. it makes a lot of sense here. >> going back to that chart, carter, at what level would ibb be a buy? >> it's above that channel. it's called the overbought condition. if you fall back to the middle point. moved to a 330. from where we closed at 360. we'd be interested there. >> we were looking to sell the 320 puts. we're giving ourselves a 9, 10% move to the downside saying we are comfortable with this. >> there are other etss which track the smaller cap, which actually had hotter runs over the year-to-date basis. >> but not liquid. so there is 150 stocks that make up the ibb, but the top ten names are more than half as with so many of the ets. this is the best way to play it.

>> the final thing is, when you're dealing with those small cases, you have the opportunity to have a blowout result. so making that bearish bet will be a little more challenging. this is a broad sector bet that it could have a pullback. speaking of biotech, moments from now, cramer has the exclusive with the ceo of prothena. up more than 30% today. plus a recent jump higher and nike, all that and much more, top of the hour on "mad money." coming up next, the massive bet ford is about to kick into high gear. how much higher, though? we'll tell you when we come back.

lots of activity in ford today. mike, what did you see? >> we saw more than three times the average daily call volume on ford. almost all of that unusual activity could be attributed to a single institutional trade we saw in june. somebody traded the june 17, 18, 19 call butterfly, sounds like a mouthful, almost 14,000 times. what does that mean? they put the june calls and sold

the eight teams almost 28,000 times and bought the 19 strike calls about about 14,000 times. the interesting thing about this trade is you can put the whole pack only on for less than a time at current market prices. while we refer to it as threading the needle. this is a case where you will go to the june 18th strike by june expiration. >> i think it was a crazy trade. one that makes sense. i think if you look at the technical, it probably goes another dollar. that's where they are picking that strike. on top of that, it plays into an extreme decline once you get above that 17 strike. that will probably be the case for ford if it can bust through there. we saw so many volatile moves and they get back up.

it settles down, you are laying out 10 cents. it's a cheap way to play. probably the only way. >> the biotech master every year is getting tread on your territory. >> beating up stocks that have come back nicely, it is a well defined series of lower highs. it's worked to a place where a little pop, 17% as you cite, brian, gets you right to 18 to the 52-week high. makes a lot of sense. >> fundamentally, do you like ford? >> this is another looking at a stock trading ten times earnings. it's cyclical. they should trade at a discount to the best owner. still, if you are looking at places that are cheap, this is trading less than ten times next 12 months earnings. you have an opportunity to use options because the payoff is 10-to-one. it lands at 18 bucks. coming up, your tweets, not the nasty ones though. plenty of those, but not them. and the final call when we come back.

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♪ it's time for some tweets. william ask, are facebook ♪ it's time for some tweets. william ask, are facebook options cheap? mike, what do you think? >> you know, actually for a while i thought they were fairly expensive until the stock had this most recent breakout. so it's interesting. facebook is a situation where it trades at a high multiple. but it's justified by the growth they had. it looks it may be rangebound, actually now you are thinking of making a directional bit. i don't think it's a bad way to do it. now that we've gotten well above 80 -- i should refer to the chart master, it's a way to do it better. >> it's lagged. i would say this is a good bet. >> talking to some of the people

in the mobile advertising business i've had conversations with, it seems like you talk about facebook, twitter, the revenue generating game, they do well in this next quarter and the quarter a. i think it's a nice keep point. >> i think when you have newly >> i think when you have newly issued stock, volatilities are high, options are expensive at first. it continues to drop down. when options stabilize, i think that's what's happening. it's not a bad play. >> let's take another tweet from brett. he asks, the dax seems extended. stay wit or look for a new entry point? carter, what do you say? >> it doesn't account for the currency. the october low is almost 50%. 95% is euro so ewg while it tries to reflect. it's awj the wizardry for currency.

anyway, if i had some of this, despite the currency, i would export it. >> is it a fool's game to even be in the ewg at this point with the dollar trend being what it is? >> obviously the dollar will present a head wind. if you look at the europe index like the dac, we have higher growth rates here when everything is going on all cylinders. so you are not going to see the same kind of growth in their index overall. >> listen, i put a zero cost on the s&p, i think when we get a sell-off, which i believe is coming in the next several weeks, certainly, that's going to bleed into other certain equity classes. i think that happens in europe, too, given how much it's run up. i think you get a nice jel sell-off and a break. >> quickly on the u.s. dollar, what do you see now? >> this is the kind of market we are in. whether biotech or the dollar, an extreme move, it's a reflection of volatility.

the dollar is the same thing. it's starting to get choppier. we would save that. that will be a big issue. >> all right. time now for the final call. carter. >> well, if you have profits at biotech, we take some and put it into goldman sacks. >> i'm with carter on this one, i think the july 195 call is a way. >> i think it's time to add protection to the portfolio, especially if you have been long in the market here. certainly the runup, i like the zero cost calendar. >> it looks like our time is expired. check out the website optionsaction.cnbc.com. "mad money" starts right 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. you start by doing what these