we are live from the nasdaq marketsite in new york city. dan nathan is back. did you miss us? >> yes. >> of course he did. here's what else is coming up. >> let's make a deal. >> that's what some traders think gm is about to say and we'll explain how you can cash in. and is it time to get out of oil stocks? >> stay away from the cans! >> one energy name could see serious downside ahead. we'll tell you which one and how far it could be primed to fall? plus, what do biotech stock versus in common? >> now give it to me. >> that's what we thought, too, until we saw the crazy chart. we'll tell you what it means for

your money. the action begins right now. here's something you may have missed today. cummins. honeywell and joy global falk all falling sharply today. as they have an industrial size problem. what does that tell you? >> the s&p has very few problems. when you think about it, it is down one and a quarter percent in the last few weeks. when you look under the hood, there are some sectors that act very poorly. you mention the industrials on a day like today, those stocks, a couple of them, were headed to 52-week lows. when you have cummins, navastar, joy global, honeywell, ge down 1%, you would think the s&p is reflecting a better economic environment going forward this close to the highs. you have an economic sector that doesn't act very well. that can be troubling. >> you know, this was a space first of all fueled by a huge commodity run that had gone on a better part of a decade.

now you add to that the fact that you had a strengthening dollar. these two things combined. one could argue that these stocks haven't come off anywhere near enough. obviously, the commodity bubble, caterpillar gets a lot of revenues from overseas. that's a real problem. of course, if we are going to see a rate hike later in the year, that will strengthen as a result. >> in the sector, there are two types. one crude have never come to life, they're digging down, then there are high fliers, like united technology, honeywell and the transport is under pressure, six months, making few relative lows compared to the stock market. >> you guys are so down on this entire space. there's no sign of life here? >> something very interesting, let's talk about caterpillar, caterpillar was a company that literally bought accelerated buybacks in late 2013 to 2014, over $4 billion in stock.

and that fueled a massive rally and i think we have a chart since the start of january, 2014. what has happened? as you have seen, commodity prices come in, the stock created 55% of their sales come from overseas here. so, to me, i think you have a situation. that is a nasty-looking downtrend when you think about it. if rates do go higher, companies are less inclined to buy back their stock with debt then you could sigh this thing make lower low, especially if commodity prices don't rebound. >> was that a fair reassessment? >> we know the crude hit about 78, 79, we retraced about a third of that move. typically we chase half down to the lows. it's a bad situation. >> yeah, so, what's the trace? >> here's the thing, i don't think that this is the thing you want to presses a 85 which is near-term support level.

weak guidance. i am looking to august, it will catch the q2 sales and gains and i want to buy the august 85, 77.5 put spread. 250 is my max risk. that is my break even. that's down about 9 .. that would represent a pretty meaningful breakdown below this 85-80 range. the stock found a lot of support the last year-and-a-half. >> this thing will capitalize on the first 10% down. actually that lower put strike he's selling is a premium to collect especially during the summer when we expect nothing huge to break. maybe you wait until after labor day and look for an opportunity to roll. i think using a put spread in this situation makes a lot of sense. >> is there any uptick in minors that it moves to the outside, maybe that ag trade is terrible

and that's a headwind? >> if you look at the latest tracks, the correlations are so high. >> first of all, a lot of construction and mining revenues come from overseas. >> that will mitigate any boost there. take a look at the home builder sentiment. >> that reflects construction spending in the united states. finally oil, caterpillar does a lot of the repowers for the refk. you need to see the rig power rise. they will not be reconfiguring the rigs. >> i want to make one quick point, it's not all dire in the space. deere get 35% of sales from overseas, much more lever annual in the u.s., and that makes a lot of sense. it looks like a lot of the s&p charts. >> the reason it outperforms, the earnings came out. they managed to trim expenses somewhat. it's not a great top line story. >> shares of bristol meyer hit hard after the company released

results of a new cancer drug. how many at stake as the conference kicks off in chicago? the biggest cancer research meeting gets under way. >> reporter: the news has started to come out this around. bristol-myers reporting some results of the its immunotherapy drug showing it improved overall survival with the chemotherapy attacks. the companies that move the most are the smaller ones. analysts are looking at clovis and puma. we talked about these before. we should see some updates at the meeting. could be a potential mover on monday. puma, of course, was one that fell when the official data sets were released as potentially disappointing data on its breast cancer drug. capital markets says that monday could actually see a turn around for puma as the company explains the data and the full data set is presented. those are the ones to watch.

bristol-myers, merck, astrazeneca will be the big ones there. >> thank you, and carter is looking at a similarity between biotech stocks and apple. explain. >> yes, these are the leaders. we know the health care sector is great. we know also that within the sector biotech is particularly good. let's take a look at some of the charts and let's try to figure this out together. so what i have is a few comparative charts just for fun. our thought here apple is going to break out. so look at this correlation year-to-date, remarkably similar the king and the queen, let's call it that. the king being apple. two best areas of the market. it's not just year-to-date. here's over the past 12 months, virtually identical. here it is over two years. meaning relative strength is an important thing. it's not as though it's so ahead of itself which we'll see on the daily chart. here now is the same picture without, with the s&p. it's a blowout.

so one could say, well, it's ahead of itself. but it really isn't if you look at the day-to-day, and we'll get to that. long-term chart over the last several years. what my eye sees is this a well-defined channel. we know typically you respond to the top and bottom, et cetera, so forth. we think we will make it to the top of the channel. perfectly normal. here's the daily set up. the presumption is that we are going to break out here. we like this long. if you go to the top of the channel, you can project for a 10% move. we would buy it. >> mike, what do you think? >> i'm looking at the names in here. what is interesting is while we sit here with the s&p trended around all-time highs, a lot of those companies are looking expensive. one of the things this space has in common with apple is it isn't all that expensive.

i'm liking at gilead, this is a company that has more than doubled its revenues in the last two years. it's trading 11 times next 12 month anticipated earnings. so what you actually have here is a growth story trading cheap. so when i look at this space, i think there aren't a lot of places you can kick around value and find growth at the same time in the market right now. this is one of them. >> what is your trade? >> the simple trade is to go to july, look at the 115 call data. sell the 120s for 89 cents. this is a way that you can do like dan with the put spread on cat, make a bullish bet and risk a small percentage of what the stock costs. >> that's exactly it. you are risking a small percentage, it's already up 19% on the year. this is a $100 billion market cap. they did say they've doubled their sales in the last two years. but, you know, when you look at that chart and carter failed to mention one quick thing.

stocks sold off in late december 20% and 10% in february. i think this is a very crowded stock. i do believe it's obviously pepsi is going to be a massive, massive market. but, when you look at sales expectations going forward, if the pricing issues come back in here, i think it's a crowded trade. i think the way they're playing it for the breakout makes a lot of 16. >> it's not overbought here in the sense that it's the same price it was in early march. it's allowed itself to rest. and that's what breakouts come from. >> and if growth is flat, we are talking a 10% earnings shield. you are right, you can only collect a small percentage. we're talking 6.5%. >> i like your stock for a breakout. but i don't think you go and buy gilead right here. >> would you prefer a trade on ibb? >> a few are the ib right here. those are the names i want to be in. i wouldn't want to be these

small cap stuff. >> it's all driven by the names you mentioned, a few others short. >> absolutely. got a question out there. send us a tweet at "options action." for everything "options action" only one place to go. optionsaction@cnbc.com. sign up for the newsletter. some have likened it to "war and peace." it's simply called a great read. here's what's coming up next. coming up, are gm investors about to get a few prize? >> a new car! >> actually, we're talking about something even more exciting, a potential deal. we've got a special report. and are goggle shares about to soar? no need to ask jeeves. because we got the trade right here. stick around for more "options action." . ahh... steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information

for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this.

here at td ameritrade, they work wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday.

this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this. welcome back to "options action." continuing chatter in the auto industry about the possibility of one of the large automakers hooking up with one of the other automakers. at this point only one of the automakers is talking. there have been comments all week about the need for consolidation in the industry. well, today in italy, more comments from chrysler, this time the chairman john elkann, saying, it was not the only e-mail. he says it was not the only conversation. in fact, he said there have been

many conversations. so, when it comes to sergio marchione, and his feelings about potential mergers in the auto industry, he said yesterday he expects a merger by 2018. he didn't get into specifics about whether it would be his company or two other automakers. he did, however, e-mail gmc, ceo, mary barra in march, let's talk about possibilities here. however, barra and gm are not interested in the deal. the big concern for sergio, the cost of capital. for the auto industry. take a look at shares of fiat chrysler. they have been moving higher as more of this talk has been swirling around the industry. again, melissa, at this point it's sergio talking, and not a whole lot of people listening in the other board rooms. >> and fiat is much smaller than the other two automakers. fiat is saying i volunteer to be taken out. >> i don't know that they're volunteering to be completely taken out. but they are saying something has to change here. they're in the weakest position.

although they have ram and jeep, they also have a lot of debt on their balance sheet and some of their big markets like brazil, they're hurting right now. >> all right, phil, thank you. certainly a lot of chatter around this. we had morgan stanley yesterday, adam jones saying gm could do a deal? >> i think this is not out of a position of strength either. i think the auto industry realizes the ground is moving below their feet right now. they have to move. so when you talk about 2018, yes, something has to happen. there's a massive secular shift going only in this space. it's likely to manifest itself over the next few years. >> there is no question that that's a cry for help. few take a look at some of the good things volkswagen has done, building common platforms across lines, there is no question that scale work. i actually wonder whether eventually you will get into a regulatory issue if you have going from the big three to the big two to the big one, well, come on, it seems a little farfetched. >> the chart speaks for itself.

gm is almost as bad. but even the big moves we have seen in daimler, bmw, nissan, other europeans, it's all currency. if you take the chart and put it in dollars, there is no move at all. there is nothing here. this is a dead space. i think gm looks as good as ever. >> with that said. >> i would say the range in gm this year has been 33 to 39. it's trading at 36, right in the middle probably of the range. i don't find it compelling here. >> this is pretty much the ipo price. >> it's basically flatlined since 2010. so if you believe gm, maybe there is a joint venture, maybe there are some cost-cutting things, and you want to be involved, i much prefer looking at volatility, applied volatility options action is very low. look out this september with the stock at 36. you can pay $1.50 at the money september 36 calls, they break even up about 4%.

37.5%. it's stopping you below what would be that break down level that stocks are hovering above. >> for all the pessimism we were just articulating, it is fair to say a lot of automakers are trading quite cheap. if anything should basically get people thinking they could reverse, it would be for a sharp move to the upside. which is why an outright call would be the right choice. >> we also know we are at or near peak sales. the quality of sales are very poor in the sense that if you look at how much of it is subprime, it's at a record. and then the duration of the loan is at a maximum. people are lending lower at lower quality at near peak, i wouldn't touch it. >> we've been talking about the trends affecting the entire industry, is ford in a better position than gm? >> we are talking debt loads, gm had it wiped out. that's an important point. companies were wardens of the state six years ago, these companies could be thinking about when is the next down turn globally. then we also have this strong

secular shift technologically. so, if anything, the moves that are going to be made will be defensive. i think they are not all in a great scenario if you think pit what could be the worst case scenarios in the couple years. up next, oil surged, but energy stocks can't rally. what's up with that? we'll explain when we come back. e ahh... steve, other than making me move stuff, ces. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data e you visualize that infor e series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this.

visit tripadvisor orlandondo tripadvisor not only has millions of real travelers reviews and opinions but checks hundreds of websites so people can get the best hotel prices to plan, compare and book the perfect trip visit tripadvisor.com today here at td ameritrade, they work wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this.

ahh... steve, other than making me move stuff, ces. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this.

it's time for the upside call. three weeks ago, mike said the oil rally was due for a breather. take a listen. >> i'm not sure i really feel like crude has a whole lot of legs right here. i think it will be above 60 next year. i'm looking at exxon mobil to the july 87.5 puts. you can spend $2.75 cents. >> trade looks good, mike, you look spiffy also in that tie. >> i got all dressed up to talk about oil. well, this, obviously, it's been pretty weak. i don't know if goldman sachs $25 price for oil is going to hold up or fought. but i will say this. there is a situation where long these puts are in the money. i think the best play at this point is to probably roll down and out. you can either go to the august 85s or as far as out to october.

that is approximately what those july 87.5s are worth. you can swap with those. >> why the oil? >> in general, they do. today we have this big ricochet in crude as gas is going the other way. but the energy stocks have had their bounce, if you will. >> meaning it is done. >> after a long precipitous decline and then you get a violent ricochet, up some 16% off the low, essentially that's what's happened with the official sector. now it's backing and filling. stay away from all that. >> the other point also is that oil is off a lot from it's all-time highs. and these integrated names are probably off 15% or so, which isn't that much when you consider that basically what they are is they're reserves. >> also three weeks ago, dan made a bullish call on google. take a listen. >> i think investor focus will shift a bit. i think they will focus on the potential for cash returns. for me what i want to do is set

up owning calls for that july q2 report and the stock was 550 today. i sold the may 29th weekly 570 call at 2 bucks. i used that proceeds to help pay for the july 75 call. >> so far the stock hasn't moved that much. what do you do? >> it's down a percent. that's today. we sold today action expiration, the longer data one has worked out okay here. really if you are just buying, it moved up a bit. yesterday we checked it out. it actually sold a june 570 call. now, i own the july 570 call spread. i reduced the cost of the spread. what i want to do is chip away and in a few weeks, i will possibly look to turn it into a vertical. >> what do you think will happen between now and then? >> i don't think a whole heck of a lot. google under performed. when you think about it, apple told us last month they spent $80 billion in the last couple years buying back their own stock.

and you know, google had $70 billion worth of cash on their balance sheet, burning a hole. they have not bought a share back here. look at the under performance if google. i think with the new cfo, investors will get focused. they have no voting right. it doesn't matter, we know what the sector can put on management. >> people have been literally on the job for two months or so. >> not expect anything, i just want a sentiment shift. >> how can financial engineering make sense where she is concerned. the batters of this company, they're entrepreneurs, they seem like venture capitalists almost. it doesn't surprise me they like to have that forward as they think of their different enterprises. that could be self-driving cars for all we know. >> i mean, something has to happen. this is an analysis market. this stock is a big name obviously, it's just stock. so you cannot stay in a period of equilibrium much longer. it las to do something.

>> break out -- >> what we do anyway, we meaning who respects price action nothing else, we need to go in the direction that it's going. up next, your tweets and the final call from the "options action" pits. here at td ameritrade, they work hard. wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this.

ahh... steve, other than making me move stuff, ces. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information

for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this. it's time for our tweets. steve says love the show, guys, i'm long june 135 apple calls, should i lick my wounds or wait for a probable breakout? >> i still like apple on the long side. i think the play, though, you want to go a little further out, look to july call spreads, maybe 135 call spreads. time now for the final call. >> we like biotech. and we would be long ibb. >> a vertical way to make a play in the summer months, gilead. >> there is one i want to press ashore. wait for a little bit of a bounce. you target august. that's the earnings event. >> it looks like our time has expired.

thanks so much for watching. i'm melissa lee. check out optionsaction@cnbc.com. check out our segment inside "fast money." meantime, "mad money" with jim cramer starts right now. >> announcer: the following is a paid advertisement for omax3, brought to you by prevention pharmaceuticals. today on "medical discoveries," you'll find out why you should stop taking your store-bought fish oil. doctors everywhere are recommending americans take fish oils daily because over 8,000 clinical trials support what have been called miraculous health benefits. so, why aren't you seeing the benefits from your store-bought fish oil? coming up, you'll discover the truth about potency, purity, and the missing-link ratio between epa and dha that researchers affiliated with yale university have discovered, which is the key to unlocking all of the health benefits of omega-3 fish oil. you'll also be introduced to a specific formula called omax3 ultra-pure, used by pro