we're live at the nasdaq markets on a stunning day for stocks. so shocking, even mike is at a loss for words. while the guys are getting ready behind me, here is what is coming up. that is how some big traders are planning to beat the market. and we'll tell you the long-shot bets they see paying off. plus not sure what to do with your portfolio, we have a stock that could do well in up markets and down ones too. and here is a hint. >> here's johnny. >> we'll break it down. and chipolte shares continue to see pain as e-coli outbreak spreads and one analyst said it is about to get worse. she'll explain what it is that has her so worried.

the action begins right now. let's get right to it. and if there is one lesson to learn this week, it is just how quickly consensus on popular trades can come undone. so let's get in the money right now. and we've seen it from sectors or bond positioning, it is amazing what has happened this week. >> we've had a little bit of a snap-back. if you take it -- how we performed week on week, we have very little change. people are getting whipped. and one of the reason is because people place bets and when i say people, i'm talking about hedge funds for example in the same trades. they start moving in the same direction and you get ensuing volatility and i think that is what we're seeing. >> i think you're talking about the range of the s&p trading between 2150 and 2100. and the dollar moving lower yesterday. and we've been talking about it and talking about it. and a couple of bits of commentary for mario draghi or

lack ther of sent it down. and the takeaway for me is when the consensus trades come online they do so violently and we have a massive dislocation like we have seen in the last 24 hours. >> the word spazmodic comes to mind. crude surging on the draghi day. plunging again today. the stock market up 30 spoon handles and doing it again. this is schizophrenic. it is -- it has lost its mind. >> in terms of the swings, carter -- >> that is my point. >> but could we say there is technical damage done to the market if we are flat for the week. >> nothing changed this week. >> nothing changed? >> but it is more accentuated so it is causing such trouble in hedge fund performance and in frankly -- >> but it speaks to something that is important as we go into the new year. i think that we have a couple of central banks here who are kind of on different pages here.

the communication is not in sync and we're having a lot of volatility. >> the communication is not supposed to be in sync. you have very fundamentally different problems in the european market versus what is going on in the united states. we are due for a rate increase. we've been dealing with artificially low rates for an excessively long period of time. we also have to contend with the fact that we're in probably the senth or eighth inning of a prolonged bull market. and if we see softness our own central bank needs room to act and won't have it. meanwhile, europe is contending with a lot of structural problems in the entire euro zone. >> let's get to the consensus trade. >> the opposite way, when you think about the industrial commodities complex, it has been a very profitable consensus trade to be short them. and i want to take a look at freeport macmaran, down 65% on the year. it is down. look at that chart right there. so back in august, it broke those august lows. you see that one red circle there.

that is when carl icahn announced he took an 8.65 stake, shares in the company. the second circle is in early october when he actually -- the company and him came to an agreement and they gave him board representation and listened to his recommendations. since then the stock is down 40%. we have a ten-year chart. the stock today made a new inter-day low. this has been a consensus trade. the stock is likely to continue to trade poorly into the new year. but if you want to ride his coattails, maybe he sees something you don't. if there was a slight uptick in demand for copper or gold in the new year, i think the sentiment is so poor you could have a sharp snapback. to me, when i was looking at the stock it was $7.80 u. could do a strategy called a risk reversal. you could look out to february expiration, give yourself a few months here and sell the february six put at about 33 cents. use the proceeds of that to buy the february 10 call for 33 cents. here is the deal.

on a mark to market basis as the stock moves toward the lower put strike you have losses, higher call strike you have gains. and in february you have an asymmetric situation. if you have any of the reasons listed above, you have leverage to the upside. the worst part is the stock is at $6. >> buying extreme weakness is a dangerous game and dan knows that as well as anyone. but there is nothing specific to this company. you could have picked u.s. steel or hp -- >> except carl icahn coming in when he is doing it and that is interesting with sentiment so poor. >> and when you look at chart, it is 95% growth. so it is either diggers -- >> wouldn't you go with a guy -- >> i think carter is saying why bother. >> we are saying why bother -- because of the consensus trades. >> if you are looking to trade the other side why you wouldn't look at buying that call. because this is a company that has now about $27 million worth

of debt and less than $400 million in cash. one of the lowest levels in five years. i look at this and see a lot of risk. and the calls, even though they are relatively far out of the money at 33 cents, are a cheap way to use the leverage on that balance sheet and there is a ton of leverage. >> no doubt about it. you could have the calls. you have that risk bet. >> speaking of carl icahn. we have information right now. let's get to morgan brennan in the newsroom. >> reporting a 12% stake in pep boys, manny mow and jack. carl icahn saying that representatives of his company have and intend to continue having discussions with pep boys and various parties. he believes that pep boys auto parts segment could present an excellent acquisition opportunity for auto plus. they are a subsidiary of his enterprise holdings. pep boys did previously reach a deal to be acquired back in late october tor $835 million in cash by bridgestone.

but ikan taking a stake and that stock is up 11% after hours. >> and this is a interesting buy considering the acquisition and the fact that pep boys is up 60% year-to-date. it is not a beleaguered stock. >> he is playing in the risk space. that is what that is. you are making a bet that the deal closes or get a better one. that is as simple of trade as you could find. people sell calls against the long stock positions up around where they think the deal will get done. you know, and maybe it is because some of his other big bets, as you point out, haven't been working. he's moving into a different type of trade right now. >> in the auto sphere, these auto parts retailers have been doing better than the auto stocks. >> well, we've been talking about on the desk, and carl -- and i know you have views on it. the stocks were about 18 million and people are asking is this as good as it gets. the auto parts, if it is as good as it gets, they should perform if auto sales decline.

>> you always need wiper blades. and carter is seeking shelter in one of the older dow components out there. what is it? >> offense and defense here with j&j. if you are courageous, you could find diggers. but i would rather do something safer and a little quieter in this kind of environment in a spasmodic environment if you agree with that characterization of equities. this is the s&p 500 health care sector and it is johnson and johnson. what appeals to me eye is lag obviously. this is largely driven by biotech and other things, it is still a lag for one of the biggest components in the sector. and the -- the thing started to break away, this is a ten-year chart, you are talking about performance for the sector that is almost double that of one of the biggest constituents. so just look at the daily chart and see what we could find. a lot of noise.

you could draw the line anywhere you like. this is what my eye sees. i see a break above that line. so the first thing that appeals to me is that. you could do that. you could also do that. i see head and shoulders of sorts. let's put them both together. i'll play for a move here that would take us back to the all-time high of about a year ago, looking for about 8% in j&j. so if it has equities, if it were to go higher, you think you will get performance here. and in the event the market has some trouble, would you make the bet this is a good place to hide. >> and in fact, just this week barkleys upgraded j&j. there is positive sentiment in this one too. >> johnson and johnson, it is a reasonably valued stock. this is not a volatile stock. it is probably not the first place you look when you think about options.

opposite of freeport, if you are trying to make a bet. but it has advantages if you are trying to make a bet using options using the low volatility. so you could go out to february and look at the february 105 calls casting $1.75 so less than 2% of the current stock price to make a bullish bet. the stock doesn't need to rise that high. bear in mind, over the next couple of weeks it approaches that strike, you will see meaningful appreciation in the calls and we did see the stock trading above 90. so there is downside you could see and this mitigates that. >> so listen, i think the technical setup looks great. and fundamentally, this is a medical device and pharmaceutical company, consumer is much less but they have a ton of dollar exposure. 3% dividend yield and great balance sheet. this is a name you want to hideout technically and fundamentally. you could buy the 105 calls but i think you could own the stock. take the dividend and maybe override it. >> i was going to say -- >> before the august and september swoon, when you look

at the one-year chart, it is trading between 100 and 05. >> that is $10 down. >> it may have another swoon. >> that was two months ago. we're looking at a two-month time frame. could you have a 10% down frame the answer is we just saw it. and we know it could happen. why you would sell a call over 60 days that would yield you 1.5% of the stock -- >> if you own something like this -- >> and plus you overlay. >> if you are betting for an 8% move to the upside, bet for the upside and it won't cost that much to do it. >> if you have a question, sent us a tweet to at "options action." and for everything "options action," check out our website. we have the hottest options news and videos throughout the week and exclusive trades so check it out. here is what is coming up next. that is how some big traders are planning to beat the market this year and we'll tell what you they are betting on. plus -- >> it will get worse before it

gets better. >> that is what one analyst says about chipolte as the e-coli outbreak spreads. we'll tell you what has her so worried when "options action" returns. 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.

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.

we're back on "options action." it is the story of the market, chipolte cutting guidance due to the growing e-coli outbreak. the stock hitting a year-to-date low in after hours trading. for more let's bring in deutsche bank food analyst who slashed her price on the stock this morning on news the e-coli outbreak is back. welcome to the show. with chipolte cutting the guidance and withdrawing guidance for 2016 are you inclined to revisit the rating on the stock? >> obviously what we did this morning, everybody thought was fairly draconian and we got a lot of pushback on it. but given what they announced tonight, we were not nearly draconian enough. i think our fear was always that when you have a situation like this that happens with a company that has a halo of quality on it, it actually -- the impact could be even worse than it could be on something like taco bell. so i guess our fears kind of played out with the press release tonight and obviously we'll have to revisit our numbers. >> what sort of multiple do you think chipolte should trade at at this point.

the forward p.e. is about 33. mcdonald and yum, are they in the low 20s or so. where should it trade right now? >> well i think i heard you say earlier on the show 480 would be a number you would look to get interested in. i think that depends on what next year '16 numbers look like. but based on what they guided to for fourth quarter for '15 and what that could imply for '16 because you have to assume the trend on comps on '16 is worse than what we previously put into the public domain this morning, the stock could frankly at 480 be trading at 33 multiple on lower numbers already. so i think if you look at their historical range, it is kind of in line. i think the bigger question though is it is not about the growth really on chipolte. i think it is the question about the halo. and i think as we wrote this morning, you know, i think there are other issues with chipolte in general. e-coli is a very big issue.

but i think there is also a bit of a menu fatigue issue. that exacerbated with the fact that some of the decent component of the comp is price increase driven. all of these combined don't bode well for the -- at least the intermediate term in our view. >> karen, great to have you phone in. thank you. she cut her price target this morning 525 but will look at the numbers again. and menu fatigue. you say how many burritos could you possibly eat. that is one issue. >> and that is one of the issues. i don't feel if i went in, i would get e-coli. but it is one of the things i think about when i see the store. if i was hungry, i'm not the instant that happens. if you look at the options, the net of this, the open interest on the put side didn't increase. we have 65,000 open interest on the puts. the last strike that is active is the 500s. now basically what happens when

a stock declines, when you see interest, that creates buying pressure. why? because people cover the short bets at this point. she pointed to the 480 level. at 480, i will say if it drops below that there is not a lot of interest in the options market because there isn't interest below there. >> where do you trade around that? >> i'll let carter talk about the technicals but there was a break a couple of months ago. but i would mention had when you talk about fatigue from a consumer standpoint, you have to think about a consumer standpoint. with the multiple here, this was trading at a high multiple to most peers. when you look at mcdonald's that has gotten their act together and have a fresh menu and new management. i could see this being in the doghouse for a long time. >> you have gaap once and gaap again. when you are in freefall, do you want to be there declaring value. don't do it. coming up, the nasdaq ended the week within a hair of the all-time closing high but that is not good news for some of our traders. we'll explain after the break.

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.

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." it is time for a little call out. we take a look back at trades that weren't working. coe and carter thought tech was about to run out of steam. >> the narrative is simple. risk less so you could make more and that is what coe and carter tried to do with their bearish bet on the nasdaq. carter thought the tech heavy index was looking topee. >> we would say start to fade this based on the long-term and based on the fact that so many have already done huge moves. microsoft, google, amazon, not much potential left. >> that is when i knew, tech was in trouble. >> so to make a bearish bet, i bought the triple q december 1 strike puts for $2.60. now to make money, i need the triple q to fall below the strike of the put that i bought or in this case below $109.40 by december expiration. but spending 2.60 to buy a put, had i lost my mind? so to spend less, i sold the 106 strike put for 1.05 and reduced the total cost of my trade to

$1.55. now i could see profits if it falls below the 1.55 or below 110.45 by december expiration. but there is always a catch. and by selling that put i cap my gains to the difference between the strike of the put i bought and the strike of the put that i sold. and wouldn't you know -- carter botched it. you see, techs rallied 2% since the time of the trade. and now i'm looking at a loss. >> relax, mike. because "options action" fans don't care about your gripe. they just want to know one thing -- what will you and carter do next? >> well, microsoft, amazon, alphabet and netflix hit an all-time high and the nasdaq ended the week within a hair of the closing high. so carter, what do the charts look like? >> a little bit of both. the options is not doing anybody

any favors. you are getting more huge moves. just like what we heard in the preface there, it is up 2% -- not much is happening under the service. it is the same big names driving. apple came to life today. if apple starts to join this, that will move things higher. how much time do we have left? >> until the end of the month. the clock is running out. >> so what do you do. >> there is not a lot left. i'm inclined to roll it. we saw a huge put spread on the iwm this week. the long options aren't that expensive. go out as much as six tos. >> speaking of tech, while dan saw a flurry of bullish activity in tech and other etf. >> let's talk about the xlk, 40% of that is apple, google, microsoft and facebook. and so today when the market was just ripping, there was a big call purchase in december expiration, logically targeting that fomc meeting, looking out and buying 55,000 of the

december 45 half calls, paying 9 cents. that is about $500,000 in premium. it is a big trade as far as contracts. not exactly much on the premium standpoint. it breaks even at 45.59, up 3%. and what i find interesting. this is the xlk. it is a concentrated, of the big winners year-to-date, it breaks out right here. the trade ser looking for a low-premium leveraged way to play big-cap tech for a breakout. and then there was one other in the xlf today, hold on one second, people, that is the financial etf. a buyer of the 50025.5 calls paying low premium, 8 cents, making up 4.5%. a buyer of 180,000 total and i suspect it was the same buyer. these break back at the prior highs. so two low-premium big-contract size leverage bets to the upside over the next couple of weeks. >> would you go with the xlf. it was also financed today. big movers.

>> first of all, the xlk and the qqq are a 90% correlation. because of the dominance of the big names. but financials, that is important for the market. but financials have not helped much. and so unless and until they do, one can continue to be thinking, hey, this market could go anywhere. if the big financials do come alive, that will help those who are constructive. >> up next, your tweets and the final call from the options pit. 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.

time for the final call. the last word from the options pits. carter? >> johnson and johnson had a high of 109.99. play for a move back to that high of about 6.5% to 7%. >> mike. >> we're teasing all-time highs. think you could reach out to xlf and press.

>> and if you want to make a bullish bet, the risk reversal could be okay if you are short puts but just buy the calls. >> our time has expired. thank you for watching, i'm melissa lee. check out our website for more "options action." in the meantime, "mad money" starts right now. >> announcer: the following is a paid program for the t-fal optigrill, brought to you by groupe seb u.s.a. -- innovative ideas you can't live without. how do you like your steaks -- rare, medium, or well-done but juicy? whether you love tender, juicy grilled chicken or mouthwatering grilled salmon, there's nothing quite like the taste of perfectly grilled food. but grilling it right is never easy. undercooking your meat can be dangerous, and overcooking makes it dry and rubbery. you never get it just the way you like it -- until now. introducing the t-fal optigrill, the world's first and only patented indoor grill with built-in technology that