(train wheels on tracks) it had no mouth, but it spoke to me. it said, "rocky mountaineer: all aboard amazing". that was fun. stocks have having their best day since september. will the rally last? we'll ask the guys behind me. take a look at what's coming up. >> don't touch it! >> that's what some traders are saying about one hot sector. we'll tell what you it is and how you can profit. plus one group of stocks stayed out of the rally today and it could get a lot worse next week and here's a hint. and -- >> a million dollars isn't cool. >> you know what's cool? >> $52 billion, that's how much

market cap facebook has added this week and it could be just the beginning. the action begins right now. all right. let's get right to t.stocks weren't the only thing up today. check out the dollar after the bank of japan decided to chuck its currency under the bus. dan, the strong dollar, really been a headwind. >> let's think about what the dollar started to real, the second half of 2014 when the fed intricated they would end qe and one of the first groups that were hit was consumer staples because largely 50% to 60% of the biggest names in the group have a ton of exposure overseas and global growth is weak. in a lot of emerging markets. when you think about what's happened real since the end of qe, the end of zirp, a huge dollar move and consumer staples were first hit. procter & gamble was trading at $90 to start the year. it went down 30% at one point. something interesting happened has we went into the end of zirp, last year.

staples caught a bit and largely because of that yield that hey lost them have. coke, procter have a 3%, 3.25% dividend yield and deemed to be defensive so i think what happened this week is the dollar is going higher and i think stateles are ready to turn. >> short term it definitely strengthens the dollar. obviously as other countries try to debase their currencies on a relative basis fanned we do see another rate hike here the dollar has to strengthen. that's a necessary by-product. i'm not sure they will and increasingly they won't and that shows us the rate curve, if they are going to be low here then they might actually see some people. >> the biggest thing is if you're saying there's a lonely manager and you can't hold cash and can't get out. the playbook says, and it's happening this time, you rotate defensively so on the week as of the close just at 4:00 p.m. three of the top performing sectors were utilities and if the whole thing is going to come apart, it is, it has been.

eventually these are in trouble and these have the underlying bid of people who have to commit capital. >> i guess the question is do the fears of the strengthening dollar in a weakening global economy kind of outweigh the yield these things have. the yield cuts higher as the stocks go lower. looking at the xlp, consumer staple etp. aside from the summer it really traded between 48 and 51 bucks. really unable to kind of break out there, and i think it's going to fail again, too, especially as we get into further into q1 and as people really digest what happened in japan. i think the dollar is going higher. i think you can actually fade this move up to what has been technical resistance here. i want to make one point. the xlp, consumer staple epf, three of the top holdings make up 25% of the weight and all companies trade 22 times earning. two of them, coke and peps, will actually decline in 2016 so to me what are you buying here if

you're just buying that 3% yield? >> that's the crazy thing. who is buying it and it's being bought because it's the best place to be. >> carter, you're putting out a fundamental sort of reason why there's an underpinning for this sector. >> i'm looking at the chart and what the charts are made up of are people making fundamental judgments. if a chart is good it's because the biggest mutual funds and ebb doumts are acting and they know that history tells us when things get bad. >> the chart is good. >> what i'm arguing against is the chart is going to be better regardless of what happens. if we're in trouble this holds up well. and from a fundamental standpoint if you see long dated rates falling, what does that tell you? that's basically telling you we're not anticipating either inflation or growth, that you're basically baking boast those in the cake which is more appealing for staples than for growth. >> yeah. i'm going to be one of those people make hag fundamental assessment here. i think they are too expensive. i think options prize and implied volatility in the xlp is pretty reasonable and that's why i want to define my risk and buy a put spread and today when the

put spread was 50, 75, buy the march 50, 45 put spread and paying 80 cents for that and that's my max risk and by a march put for $1. between 49.20 and 45 on the downside i make up the 4 to, a really nice rirk/reward relationship. i'm defining my risk and if the xlp breaks out wrong fundamental and technically i defy my risk to less than 2% of the stock price. >> do you like the trade itself in and of itself? >> i do like the trade. number one, as you pointed out looking back we are close to the highs in the space. we're also close to the highs in terms of implied volatility and that usually doesn't happen. when prices are higher, options prices are lower and in xlp, so much concerned in the market, option prices have gone up. two things are possible and one it's possible things will bounce around a little bit more and the other is you should use a spread. >> if -- look, it's a bad tape,

we know ricochets happen. ultimately they will get around to coke and pepsi. everyone gets dinged at some point so time is ultimately on your side. here now money is desperately clinging on to these and that holds them up. >> does that concern you? >> not really. it's gone up top 451 bucks three times in the last seven months and has failed and actually come in about 70%. my trade doesn't need a whole heck of a lot to happen on the downside for there to be a quick double. >> moving on to big earnings reports. we'll hear from alpha fet, yahoo! ups, gopro just to name a few and some with biggism kagsz on the global economy. what would those be, carter? >> the charts don't speak to those but let's look at general motors. the issue is we know we've had peak auto sales reaching back to the '07 highs and as a setup we

could look at began motors versus all auto and versus the s&p. s&p, of course, is leading and then have you a global index, everything from renault to puget, toyota, honda, gm, ford and began motors, of course, bringing up the rear. it's been an underperformer to equities in general and to its own peers, if you will. here's a daily chart and what's i think is important is this. this stock has basically made no progress. you can say that's okay but what has the market done? the market has been ripping for four, five, six days, and what we know is that, therefore, on a relative basis, this is making new relative lows. no one is buying this as opposed to staples, for instance, and that's a tell or a problem. long term lows, draw the chart if you want. one could say that's a triple bottom. do anything you want but here's what my eye sees, this. we -- after this big ricochet we have responded to this

megaphone, call it whatever you want this. projects to my eye down towards the bottom. guess what the bottom is? it's exactly these lows. i think you're going to go as low as 20 on general motors. i'm a seller. >> wow, 20. mike, how you trading this? >> this is a situation where fundamentally it's pretty hard to short it because this is something that's trading at single digits in terms of the forecast earnings. that said, volatility is a little bit high. i'm actually going to look for a way to stay neutral to bearish. looking to just sell the 29, 31 call spread. the call spread was 29 bucks, maybe higher now and maybe the 30, 32 will work. selling the 29 per 1.40 and buying 391 for 55 cents and collecting 85 cents which is a little bit more of the percent of the difference between the strike, here's the thing. this is a strayed that will make money if the stock trades right here and drifts a little bit lower and even if it rallies upwards it won't basically go to the full value. distance of the strikes if it happens at expiration.

two things that can happen if it's good and one is if you short the sthok at basically one of the cheaper valuations of anything in the market right now. >> mike makes a really good point about the options trade. actually a really good options trade because if things settle out, you don't want to make money. don't need for it to go down. i'm a little cautious and had a discussion in the prior half hour and that's why you have rallies like we had today. people got bared up and sentiment was really bad. seems like if you get a dollar and you agree with carter's technical take and mike's fundamental take and you can short it when it makes a move back up, that's a great entry because we know fundamentally things won't move. >> carter, quickly, what was your take on today's rally and what does it mean for the charts? >> you mean for the s&p in general? >> we know that good steady robust uptrends are punctuated or characterized by counterer trend selloffs and downtrends

are characterized by sharp countertrend rallies, fade ralies. >> so fade this. >> sure. >> got a question out there. let's be honest. we all do. send it to us and tweet it at options action and we'll answer it and also check out our website, optionsaction.cnbc.com, articles and tutorials, almost as good as "star wars." maybe not that good. meantime, here what sells coming up. >> like sands through the hour glass, so are the days of our lives. >> in a historic anomaly could be pointed to morphing for stocks and we'll explain. plus -- >> i like it a lot. >> what's that traders are saying about facebook, and we'll tell you why they might like it even more when "options action" returns. ♪ make that move, right now i'm here at the td ameritrade trader offices. 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 and 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. td ameritrade.

>> are you ready. i'll get you prepared with my game plan and stocks are literally soaring. "mad money" is next. e trader, rated #1 trading app on the app store. it lets you trade stocks, options, futures... even advanced orders. and it offers more charts than a lot of other competitors do on desktop. you work so late. i guess you don't see your family very much? i see them all the time. did you finish your derivatives pricing model, honey?

td ameritrade. welcome back to "options action." i'm seema mody. despite today's rally still an ugly month for u.s. markets, the worst january for the dow, s&p 500 since 2009, and the worst month for the nasdaq since 2008. the stocks faring the worst on the nasdaq are interestingly enough all biotech, vertex and pharmaceuticals all down 20% in 2016 and keep an eye on the small-cap stocks as we enter the second month of the year. the russell 2000 witnessing its worst month since september 2011. with all that red though there was some green and six dow components close the month in a positive territories, verizon, mcdonald's, p & g, j&j and walmart which interestingly enough was the worst performing stock in 2015. we'll have to see if that trend

continues. lastly in currency, the dollar index ended up almost 1% helping by the dollar's almost 2% gain against the japanese yen thanks to that surprise move from the boj last night. >> seema, thank you. what should we expect for the rest of the year? carter is taking a look at what happened to stocks the last few times the s&p lost ground in january. what happened? >> the premise of the january barometer is if you start out the year weak you won't do that. not just the market, if a political campaign starts out poorly, sport school year, you're struggling most season. 70% of the time they go up, more gillette razors and more oreo cookies consumed and gdp expands so unconditional the odds of a down year are only a third. time, going back to 1927. but if january is negative, this gets, the odds jump to almost 58%. that's what we're dealing with now. now, then the issue is how much

of the damage is done in january? maybe all of the january is accounted for in january. i have a table here of the ten worst januarys on record, and -- and it descends obviously '09 we know this one. this is 39 after the bounce off the low and so forth and what i want to show you is the final table. we're now down this year 5.07 so we're going to be within the top ten and matching 1977 by the two columns are what's important. the rest of year and full year meaning after the damage done in january, february to december returns. so the key is this. rest of year doesn't necessarily mean that you're down. the full year you're down but it turns out if you look at this you've done a lot of damage in the month of january, so then you can say so what's the point of the whole thing? because this is still a below average return. markets on average 7% to 8%. regardless of whether we've seen all the damage done i don't think we have. regardless we're still not set up for a good year for those who are thinking that we are.

>> basically it stinks. mike, how are you trading the s&p right now? >> you know, this is interesting because i think it's up very well. i actually like this kind of market because when options premiums rell slated and things are range bound it's an opportunity to get into some. trades that typically outperform. we've had a period with a roaring bull market where better strategies have underperformed because it's hard to outperform a market that does nothing but go straight up and i think the way to take advantage is sell some and lean on this at possibly slightly lower levels. if you look up to march and you sold 185 strike put, you can collect about 3.5 bucks for that. what will that do for you? a couple of things. one thing is you'll be collecting more than 1% a month to do that, all right. 12% annualized and something else. if the market does come in a little bit it will be put to you at 185. you'll be getting right around 16.5 times earning and long term

historical average going back 15 years for the s&p. i don't know when i look at u.s. treasury rates what it's telling us. i don't think it's telling us anything good. hard to figure out why they would rocket from here because it will tell us we're not having astronomical economic growth but you can't live in your accounts in cash all the time. generally want to invest and be on long side and this is the way to do it and get paid even if the market goes sideways. >> i don't love this trade. the market is kind of crash, and i don't mean we'll crash but we'll have bouts of volatility. 194 today or the s&p, 185 a week ago, and to me i think that you get paid to sell options when there's a lot of fear in the market, not on a day where we bounce over the last week or so, you know, 3% to 5%. to me there's better ways -- >> that is a fair point. >> yeah. >> hand what does spell fear, so if you're looking at the market saying is this enough that i should start selling puts or not quite enough? when the vix gets over 20, actually over 27, pretty much a

sweet spot, that generally indicates a short term oversold condition. looking ahead 30 days, the outperformance, if you take long bets in the s&p, dramatically outperformed. you'll make money 63% of the time and average 100 basis points so right here we're kind of in a danger zone and lingering between 20 and 25, and that's where we see the big bets being made. talked about it earlier in the week when we saw the big v ho l seller in the vix saying, looks, it won't get a whole lot better but won't get a whole lot worse and i think that's where we're going to live. >> we got down to the august low, september, and everybody is thinking i lost money. on any further real i want to exit. there's dead bodies above. interested sellers who want to, if given the chance, recoup losses. >> take a listen to what our very own courter wirth had to say about microsoft last week. >> this is going to ricochet, did a little bit and kind of started to right here and go on

for more. >> nice call. microsoft now just inches away from multi-year highs so where does carter see it going next? we'll tell you when we return. here at td ameritrade, they work hard. wow, that was random. random? no. it's all about understanding patterns. like the mail guy at 3:12pm every day or jerry getting dumped every third tuesday. jerry: 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. td ameritrade.

steve, other than making i'm here atme move stuff,rade trader offices. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place and 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. td ameritrade. welcome back to "options action." a winner and a loser sums up last week's show. first the winner. getting bullish ahead of microsoft earnings. listen. >> we're going to make a run for the all-time high. microsoft here on the long side, defensive offensive name. >> i'm looking out to april. that's going to give us a decent amount of time before this plays out. the 52.5, 57.5 call spread, make 235 or so for the 52.5s when i was looking as though. the whole thing is going to cost you 1.65 >> stock was up nearly 6% today so first carter, do you still

like it? >> take it off or do something. if you're still wanting to be a low turnover, hole the high quality or safe name, you stay, yeah. but what do you want to do? >> yeah, in the money we're splitting the difference between the strikes. i think you could roll up if you wanted to bet a bullish press. one thing about microsoft, they are migrating their business to infrastructure, more like a utility so they are facing a very different set of challenges. they seem to be doing it version very well in terms of execution and you see that in top line growth so, you know, overhaul i think they are really doing a job transferring their business and i think you still probably want to roll and take some of the money off the table. >> a great call and all the pieces came together. here's the thing people are forgetting about microsoft. if it's a utility it's trading well above a market multiple. so expensive. they are doing a lot of things well here, burks again, where they are getting some of this growth. you know, you used to get gosh to the best buy and buy microsoft office and now you can

download it and that's the thing. >> there's a cloud in microsoft. >> major staff. >> and this and that. >> got it. >> on the multiple and the utilities and staples. these things are all trading 22 times earning. >> traded high multiples. >> in fact, you're shorting them. >> saying, you know, fine, get back to the 2000 high. have a ball. >> last week dan made a bearish bet, no surprise on facebook and their earnings. take a listen >> today i'll use a trade structure called a butter fly and i want to use a put butterfly and today when the stock was around 98 you couldify the february 95, 85, 15 put butterfly for 1.70. >> that one hasn't exactly worked out. facebook shares hitting an all-time high in today's session and what do you do now, dan? >> obviously a very contrarian trade and very bad call and i've been very bad on facebook and when i looked at this trade idea and thought about the potential for the stock to move lower on a

disappointment, it had the potential to maybe go down 15% if they disappointed. to me to define your risk to less than 2% of the stock price, to have a range between 95 and 75 where you could actually get a bunch of protection, i think that -- that doesn't excuse the fact that i was wrong about it and i think it's really important to remember that this is a $320 billion market cap company trading at 17 times trailing sales and on a gap basis trading 53 times earnings. i know they are really executing well here, but fact of the matter is trees don't grow. >> getting the trade wrong is not the same thing as making a bad bet. i don't think this was a bad bet because you only risk 2%. >> everything else was horrible. >> right. >> wait, wait, wait. it wasn't all bad for dan, we should note. >> phew. >> two weeks ago dan thought it might be time to seek safety in the bond market and it has rallied 30% since then. so, dan, what do you do? >> one to look for the opportunity as the tlt continues to grind out. cover that put and sell higher.

some of the profits you made on this thing and reduce the downsize risk here. >> all right. coming up next, the final call from the options pits. i'm here at the td ameritrade trader offices. 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 and 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. td ameritrade.

you thought this week was fun. the single most important fact for the stock market is getting dropped on wall street next week. are you ready? i'll get you prepared with my game plan. plus, stocks that are literally soaring. "mad money" is next.

here at the td ameritrade trader group, they work all the time. sup jj, working hard? working 24/7 on mobile trader, rated #1 trading app on the app store. it lets you trade stocks, options, futures... even advanced orders. and it offers more charts than a lot of other

competitors do on desktop. you work so late. i guess you don't see your family very much? i see them all the time. did you finish your derivatives pricing model, honey? td ameritrade. welcome back. we have some break news. ceo elon musk has increased his investment in tesla exercising options and holding on to the stock, that according to a tesla spokesperson. he has exercised and held 532,000 stock options which is approximately $100 million in current value. melissa? >> thank you, seema mody. certainly has not been an easy -- hasn't been an easy january for most stocks but for tesla as well here and actually we were trading below 190 for a while. looked like we were going to break to that low. >> we came right to well-defined level support at 180. prior tops and prior lows. kind of looks like what i call a pair of 2s, no character.

fair money dolomite. >> that doesn't necessarily mean he's a buyer of the stock, could be exercises his options which he could sell it hand maybe he needs to raise some cash. >> all about the 2016 deliveries and here and i think they will probably my mission is simple. to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere. i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i'm just trying to make you money. my job is not just to entertain but to teach and coach. call me at 1-800-743-cnbc. or tweet me @jimcramer. a week ago this very friday you couldn't give stocks away. we left here dazed and confused and glad the miserable five days