hey there. we're live at the nasdaq market site and guess who decided to join us? carder and dan. they are back. welcome back. we're getting ready. let's take a look at what's coming up. >> we're out of gas. that's what some trade remembers saying about markets and why that signals some problems for stocks? plus, pretty much sums up biotech today, and you know what? it could be why the nasdaq is not getting any respect. and what do these three men have in common? >> these three people have never been quite in my kitchen. >> not quite, cliff, all made a boat load on google and the

opportunity to make even more. the action starts right now. two key sectors are in trouble. transports selling off hard today and the industrials making a 52-week as low. the rally just hit a major speed bump and how can you protect yourself? let's get in the money and find out. dan, what do you say? >> as we've been flagging the transports and industrials, two economically sensitive sectors and should have been performing better all year long as sentiment was improving about the u.s. recovery or the health of global growth in general and they haven't -- the stocks here in the u.s. have not been confirming it. today was an interesting day because we had one of the horsemen. i mean, biotech had a real bad day. that is sector deemed to be defensive, cheap, buoyed by consolidation, all this sort of stuff and one of the largest components in the sector biogen was down 0% in one day. if you lose biotech, you lose everything. one of the big anchors. market, at least the bull market.

>> transports in the commodity trade impacts a big swath of the transports like rail when you see coal with low prices and volumes are down for rail. >> it's definitely true that there's a whole segment of transportation that's going to be hurt by falling energy prices but a whole other segment that would normally assume be helped out by it because it's a big input or operating cost. when i take a look at names like ups, fedex, these are companies that should theoretically have a secular tailwind and should benefit from lower energy and a lot of weakness. some of these are trading at historically low valuations and that definitely is a little bit worrisome. a lot more bulled up last year than this one. >> is that important? ? transports and now industrials, and to me i think all of this really speaks to the fact that you have a surging dollar and commodities, industrial commodities that rim pleading right now. they are absolutely imploding and you have large parts of the u.s. equity market that just don't seem very bothered. >> before we send carter off to

the charts we want to note that you actually called the top of the transports back in november 2014, and now you're looking at a name, one particular name. >> yeah. obviously it's traded true meek it's been weak and stayed down. zenith of the transports was the day opec said they weren't going to cut. let's look at some charts and try to figure it out. the issue here is some of the big names that really haven't fallen apart look as though they are going to succumb as well. just sort of a preamble here. this is a long-term chart since the ronald reagan bull market began. you have basically such epic outperformance. even now the transports down, as much as they are. this spread presumetively is not sustainable. that's the long-term setup that's still in effect, at least what i see. ups, a big name. obviously some. rails have been quite weak, but this looks like it's going to finally join some of the real weakness. my eye, plain chart. sees this, right? so you can no lines.

can you draw list lines and each to his own you can draw them any way you want. let's take those away and put these in. again, you can see nothing or you can see something that looks as though it's going to hover at these lows and break. that's my guess, yes, or head and shoulders top. here's our same line and the presumption is the break. you can leave our head and shoulders top. look at trim line in effect for the last four, five years, just as a minor objective for this formation. that gets us down to around 89, 90 and that's nice about that level it's also exactly where you draw this trim line where we come into play here for our '07 peak. so a completion of this minor head and shoulders top to the trend line of the last four or five years which is also the trend line since the '09 bull market began which is also the top of '07. we would be short ups here at a minimum 89, 90 or lower than

that. >> the fundamental story, mike, doesn't make sense to me in that energy prices are lower so that should be good for ups and you get a data point like amazon's prime day. >> that's exactly right so there's a big disconnect somewhere in the marketplace because obviously one of the biggest things that should be helping out, ups and fedex would obviously be names like amazon, people getting home deliveries and, of course, their lower operating costs and interestingly enough ups is trading at a 10% discount to historic valuation. not a lot of places where you would see bargains like that necessarily in this market which has obviously been in quite a bull market for quite some time. i look at this and we see many instances where the tail of the tape has actually told us the tale -- we actually got the news after. ups has had a couple of operating hiccups, christmas season a couple years in a row and made those mistakes both ways so the way to play this is look at a put spread. looking out to october looking

to the 92.5 put spread, pay 2.25 for the 92.5, the put spread not hugely volatile and we're giving ourselves time to play this out. >> going to the holiday season or even black friday for that matter for this trip. >> i think interchange fed kwleks here. both missed recently in the last month and going into a seasonally weak period and with energy prices the way they are, you don't get them, want to press a short, especially ups is down so much, do it the way mike it doing it. >> carter, i want to button this up. are you a dow theorist and that the trouble in the transports signals more trouble ahead in the market. >> that was a different era, late 1880s. we'll have drones in the dow jones industrial average at some point, of course, but what's so important about this it's not random where the transports stop going up. it was the day, again, opec said

we're not going to cut so a lot of this weakness has to do with the rails but what's interesting even as oil has come down the airlines which tried to benefit really aren't benefiting so you've got no part of this aggregate that's working, not the trucker, not the rail and not the package haulers, and when dan is true. fedex looks like a nick em. >> biotech stocks sold off falling more than 4%. more from the knowledge on what drove this lower. >> reporter: what really drove the index lower this week and today was biogen. look at the overall biotech index boy jen was down and only one other stock performed worse and that was zoma that lost 70% of its valuing on a failed trial of a new drug. biotech, reaction to its alzheimer's data and lowering

reports for its mismisdrug that got people really, really worried. if that drug is growing more slowly and we're not sure about the alzheimer's drug where are we going to get growth? one bright spot in biotech and that was positive clinical trial going up 43%, the best performer in the biotech nasdaq index for a week. looking ahead to next week, we have a biotech and earnings bonanza, pfizer,men and gilad, kind of the same theme as pfizer wondering who they are going to buy. questions investors are starting to buy now. big biotechs are continuing to ask where earnings will come from. >> what about gilad? >> gilad is the preferred name, a drug that people like very better. estimates are very high and folks did worry about some of the comments you and i discussed earlier about a slowdown in

hepatitis "c" and that's why the m & a talk is so loud right now. >> meg terrell, thanks a lot. >> thanks. >> dan, what does this mean for the nasdaq? >> we often think tech and largest tech names, google, apple, microsoft make up a disproportionate, but you also have sell jean and biogen and amgen and we have one down 20%. it's round trip, the entire move of the last 52 weeks, and now it's down 37% from the 52% high in march and that's horrible reaction. what i'm saying, a lot of other stocks are cheap and defensive and technically look and feel okay but if you lose this part of the bull market you're losing a massive group of leadership, okay, so when you think about technology on flip side, okay, we know that apple has been range-bound and may remain range-bound. i don't think the gamins in aal

and google are very constructive. facebook is coming and let's see how that responds. that stock up 15% speaks to narrow is breadth and speaks to people really trying to concentrate and figuring out where they can high. >> meg mentioned exeli exelisis people are having a hard time figuring out where these are valuinged and if people decide to go the other way it can move down just as quickly as it moved up, maybe even more so. >> i want to ask more about the qs. >> the qqq, up 50% of the weight, 2.75 trillion in market sum and some have performed real, really well and the trade i'm looking at, look at it as a hedge. own apple and large cap biotechs. option prices are real cheap in the qqq, the nasdaq 100. very simply the etf probing out

to a new 15-year high this week and it fail what. i'm looking for is a retest of the 200-day moving average down towards 105 so today when the etf was about 112 i bought the september 110 put, paying $2 from that. my maximum risk is that $2 between 108 and 110 and below that i have potentially a lot of profits what. i would do with this trade is this. implied volatility, options prices picks up as the stock starts going lower. i will look to spread this by selling a lower strike put of the same expiration and, therefore, you know, kind of minimizing my risk here and defining a range. i think 100 on the the downside over the next couple of months looks like a target. >> what do the qs look like. the launching point in the ibb and a third of the market cap for stock. >> amazon and google and about a week ago we did elk and the point was weakness and almost

spot stopped out, hit 7% and 8 to 10 being the point at which you have to walk away. i'm with dan on this. the presumption is let's just say that upside is nill, right, because we've lost apple. google can't help from here, amon can't help and if we get draw downs in the biib, its sideways and i think you've got a good thing and dove tails what we're trying to do. >> you should be looking to do one of these situations buying a put on the index and then looking for a spread. even though they saw a spreaded in vix, qqq and others remain too much to ignore. >> google won't help from here, oracle, intel, microsoft won't help, the fundamentals are really bad. >> have a question send us a tweet to "options action." if it's nice we might read it

later hon in the show. >> check out our website optionsaction.cbsnent come. we have the hottest options action. here's what's coming up next. ♪ a double pleasure is waiting for you ♪ >> doubling money on google and a way to make even more. plus, the one stock that's signaling big trouble for the rally. what it is and how you can protect yourself when "options action" returns. 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.

plus, the one stock that's i'm here at the td ameritrade trader offices.

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.

welcome back to "options action." breaking news about the s&p 500, signet replacing seg and the swap will happen after the close, after the bell, of course, shares of sig, let's see how they are trading after hours. a nice pop of 2.5%. take a look at directv, of course, the acquisition by at&t being approved up just about two cents. melissa, back to you. >> mary thompson, thank you. it is make or break time for social stocks next week. facebook, yelp, twitter and linkedin all reporting earnings but carter is sensing trouble for one of those names. do tell, carter. >> well, this is as wild west as it gets and in many ways you can call this just a coin toss or outright gambling but let's try to figure out. let me draw some lines here to sort of clean this up. these are quart earl periods, of course, the last six, and what's

important here is the following. every single quarter twitter has beaten except for one which was in line but no misses. regardless of what the results have been compared to expectations, look at the volatility. this moved down 22%, down 7. this time up 22, down 14, up 20, down 24. i mean, literally almost a coin toss, so you can -- you can make your bets here any which way and plenty of people win in the long side. let's see if we can figure anything out from the chart. here, of course, are all the gaps meaning it's unanalyzable fundamentally and technically and people have gotten it wrong or right or been over/under. that wasn't the gap but the last big drop, that 24%. so my guess is that we're -- because of the way the market is acting, because how we're hovering right at these lows, because the last one, most recent one was a bad one, that we will get one to the downside,

so in literally a 50-50 kind of thing, i'll take the 50-50 downside on this. >> only carter braxton can work a situation as unanalyzable and give us his analysis of that unanalyzable situation. mike, what's your guess? >> you know, i'll go along with carter on this but i find it really hard to press the short with a stock essentially trading at its post-ipo lows right here. seen a couple of situations. dan has pained them out where we've been better off thinking about getting along the stock here, but typically after earnings this is a stock that has, as he pointed out, moved extremely sharply so there is a way that we can make a bet on a move of about that magnitude, 15% to the downside without spending a whole lot of premium and the way i'm inclined to do that is looking at the august 34, 30, 2.10 on the 30 spread and you're only outlaying 50 cents. obviously the downside if it blows through the lower strike you could be forced to buy the

stock but your downside break even will be down just above 26 buck and i have a hard time believing we'll get much more below that. >> is there a wrench in that situation that there's an interim ceo and could be a headline away from a special situation. >> they could be given a pass. i don't think anyone has any expectations this will be a great quarter. when they announce it's announced with pre-metrix and things are not going in their direction. dubai twitt to buy 2008er, you have to own it and i still believe there's very strategic important value in the near term whether it's carter's 30 to the downside or in the high 30s before we get real material information and i want to add one more point. i know a lot of bulls were thinking, including myself, that google really needs twitter for a whole host of reason. i think google's rally shows the investment communities that they will need a lot more outside of what they are already doing so that could be something put off for a bit.

>> let's bear in mind if you start getting below that $30 level or even down around 25 bucks, that company is trading $13 billion, 14 billion valuation. there is value for somebody. shareholders might not be interested at selling at that price but there might be interested buyers which does create a field. >> dan, co and carter, the trio, made a killing on google rally, and we'll tell you how they are going to make even more cash, right after this. hey 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.

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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.

time now for the double upside call. xoogle shares up more than 20% in the past two week, and that's great news for everybody here on desk. take a listen. >> we're playing for a move out of this range up to just where we were at 580. the way to play this is to buy a call spread which will mitigate some of the higher prices. i was looking out to september, 566 call spread. >> what i want to do is set up owning call for that july q2 report. when the stock was 550 today, i sold the may 29th weekly 570 call at 2 buck and used the

proceeds to help pay for the july 570 call. >> okay. so both of these guys, mike and dan, got the direction right but used different strategies, so we start with mike here. what do you do with your call spread? >> we want to take profits for sure on this call spread. the stock had that rip roaring day and then reversed almost immediately. that doesn't look so great so me besides which this can only be worth $40. it's worth 37 right now so you're basically going to -- if you don't take it off, you're risking 37 to try to make an additional three. if anything, i might even be inclined to sell some upside call spreads here. i don't think the stock is going to rip through that high that it hit >> you use the call spread and fares khallafalla-. put it on back in may and it expired last week. >> we talk about these strategies a lot. the idea of observing premium and stock like google basically flat lined at 550 for a long time. that's a waive expressing the bullish few so in the calendar

situation we sold a shorter dated call to finance the longer one and was targeting the earnings event. that's a great use of it. oftentimes people think you're trying to thread the needle a little bit especially when it works out real well n.hindsight you are and it's a tough way to make money and at least you're reducing your risk. >> a lot of time when we talk about calendar spreads you're trying to take advantage of the fact that the options right around the catalyst will decay sharply afterwards and dan correctly, by the way, identified this as a catalyst and that's why he was selling that near dated option and got to sell that outright and got all of the bang out of it that you could and a better trade we endedp putting on. >> now what for google? >> that's it. giving them $75 in the last three days and we're at risk of filling in the entire gap. >> really. >> the gap starts at, what, 605 and we close today at 654. that's down from 715. it's -- it's an excessive move presumptively and there has to be some giveback.

>> coming up next, your tweets and your final call from the options pit. 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.

giving them $75 in the last and your final call from the

time for one tweet. tom asks us i own a rejenneron 540 call spread. and should i spread a 515-565-610 butterfly if i can do it at no cost? make? >> the stock is essentially trading right at your short strike so you can try to wait for time to go on your side or try for a trade that would give you a little more upside which is what that butterfly would do. if you can do that at cost, i think that's an okay swap. >> time for final call. last word. braxton? >> stocks to be wary of ups is one, twitter is one, among others. >> believe it or not, i think what you should be looking at is calls in spy because they remain

cheap and can take off some of your equity portfolio and use this as a substitute, use 2% to 3% of your portfolio to buy if december. >> stock replacement. >> look at qqq. >> our time has expired. thanks for watching. for more "options action" and meanwhile "mad money" with jim cramer starts right now. 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 athletes aop