hey, there, we're live at the nasdaq markets on this friday afternoon. the guys are getting ready, here's what's coming up on the show. >> let's make a deal! >> that's what a tech giant is hoping to say to twitter. >> plus, talk about a bank job. we'll tell you about how some traders are planning to make a mint off next week's bank earnings. >> and your coffee's undrinkbling. >> pretty harsh. >> so's your coffee. >> see what some think shares of

starbucks are going to do. honeywell shares tumbled on guidance. it was the company's worst day in five years, and that could have big implications for the best-performing dow stocks. >> obviously, industrials, with the exception of boeing did pretty poor lay. i don't know if there's a direct correlation between caterpillar and honeywell. capex is particularly weak and it's not a good recipe for caterpillar. >> we had ppg as well. there's some doubt about these sort of cyclical stocks. >> what's interesting is that you would think if the fed is ready to lift off, at least they're going on a rate-increasing cycle that

cyclical stocks would be ready to take off and they'd be leading the way. the problem you have with honeywell, is to see a gap like that, tells you that people are off sides. >> then general electric is down, the s&p is down. there's something going on under the hood. >> it's going to take more than reflation. if we start to see a rate increase e that's going to hurt multi-national companies like c caterpillar which generates about 40% of its revenues in the united states. >> you're taking a look at caterpillar here? >> obviously that's a big industrial name, tied to things that are global as we know and materials based, energies based, but is the best-performing stock. you could say too much of a good thing. if you look at the correlation

of this stock versus its sector, versus material in general, copper in particular, they have a relationship. and the relationship is quite divergent. two lines. cat's here in blue, then copper. this is a two-year chart. take a look at the same relationship going back three or four years. their this is the same problem. it says cat suggested copper's bottoming. but that's not what the wrong-term chart suggests. we have a ten-year chart. and what's so important is this ricochet. you've got this problem. meaning, cat is implying that all is well, and yet one of the major things that you can correlate it to is not suggesting that. take a look at this long term. you have this massive move, 30%. all the while copper dragging, not coming to life.

now earnings. same thing, but not looking at cat versus copper. cat price per share versus its earnings per share. here we go. cat is rising and earnings are on a downward trajectory. this table is purely self explanatory, right? columns and rows. years. take a rolook at the earnings i '12. then to six and four. we're estimated on the sell side for $3.50. take a look at the dividend payouts. a quarter, a quarter, now 60, now almost 90%. next year's estimate is for no growth at all. so as all that's happening, stock rallying, earnings not recovering. i just want to be short cat. and i think you can make money doing it. >> one of the important points i

think about the dividends he was demonstrating is cat has a limited number of things they reque with their cash flow. they bought about 14% of the company back over the course of the last years. those are suspended indefinitely. there are a lot of challenges. we foe we'know we're going to b looking at lower revenues. the december, 87.5 calls for that. you can sell it for about $2.10. if the stock stays right here, this is a trade that's going to pay you some money. this is a stock that's also due to go x dividend in october. think about the stock price, below $88. this is typically a strategy that pays offer very nicely. good probability of profit here. >> i think makes a lot of sense when you talk about the

buybacks. they were so aggressive with accelerated buybacks over the last five years. if they're not being that aggressive, it's gotten to where it was at the mid point of the last five years. with less accelerated buybacks, that should be a problem for the stock. the only issue on this is, is this year they're supposed to do $3.50 in earnings. two years ago, they did $7.50, $8.50. the stock's earning 25 times. >> there are very responsible people who have highly, let's say, purposeful backgrounds. >> not me. not me. >> i'm not talking about us. present company excluded. >> that was a commodity super cycle. >> there is no growth for the next 24 months. >> it keeps going up. >> no, it's not. >> remember in august, a massive move, deere is more forestry.

>> in terms of evaluate the actual structure. >> i think the idea of selling relatively high premium, near the money, i think that's a high probability trade. but the thing is, you're risking a certain amount to possibly make a lesser amount into an event. that's my only point about the short call spread. >> last call word. >> it was one of the last performers. you want to bet on it. i want to bet on uni vert. >> this is earning season kicks off next week. dom joins us with what we can expect. >> traders are getting ready to kick off another earning season, the early part of the season dominated by financials. this time around, traders aren't expecting nearly as many fireworks when it comes to those

results. check out shares of citi group. the options market currently pricing in an implied move of 3.1%. versus an average one-day move at 3.5%. j.p. morgan chase expected 2.4%. the average is it 2.7%. embattled wells fargo could move by 2.4% up or down, the average move there, 3.5%. and pnc, 1.8% up or down and the average is 2.9%. there are a number of reasons why we could see less volatility. they are viewed as being that compelling of a story. also the idea that maybe more clarity on the future direction of interest rates will likely be needed before any big directional bets placed on these bank. so melissa, it is that time

again. back over to you guys. >> thanks, dom. so, dan, how are you playing the banks? >> on friday morning you're going to have citi bank, j.p. morgan, pnc and wells fargo all report q3 earnings. that's almost 30%. just remember the rates have been taken down there, other than berkshire, this is a pure play banking etf right now. dom just mentioned the banks showed pretty good relative strength, why have they showed relative strength? the yield on the ten year was up 15 bits. the likelihood of a rate increase in november has dropped to about 17%. that might have been baked in, that might have been the move that we saw in yields over the last couple weeks or so. i don't find the banks particularly interesting. didn't jamie diamond call in to

your show earlier in the week and stick his neck out for john stump? he's a good trader. he bought that stock? february, genius. if i'm looking out to next week, i know there's a volatility with deutsche bank and interest rates. i may think of hedging the bank stocks that i own. there's the chart right there. 19 is a very big support level. i don't think it's getting to 20 anytime soon. but if you think could break down. if you think there's worse news in j.p. morgan or wells fargo, looking out at the october 14, next week, 19.5 strike push. you could pay 12 cents when the stock was 1963 today. look where it evened at 1938. less than 1% of the underlying stock price. you don't want to annualize that. but i'm pitching this as a bit of a hedge, and who knows what's going to happen.

two fridays in a row we've had rumors of deutsche bank. >> earnings aren't the primary driver. basically these other types of issues, and two of them affect all stocks. if you don't think you're wrong financials, you kind of are. are you if there's a rate bit or some kind of concern over the financial condition of a major bank like deutsche bank. if you own stocks. >> they don't have the dollar problem, right, and they have better earnings and are not tied to capital marketes. if you look at the kre, what about if this is just stuck going no your? th -- nowhere. that's what it looks like. >> we don't recommend put purchases against long stock. but the idea of using cheap

premium, this is the sort of trade if i was inclined to say, i can see for a couple of reasons between now and next week, the xlf could break 19, this is a cheap way to do did. >> we did see institutional bets, uup, which is the dollar etf, you're basically tagging along with some very big and smart money. >> i get a lot of questions on twitter about deutsche bank and your call on deutsche bank that is going lower. it's had a very good week theis week, up 4%. >> weakness to take advantage of? it's cheap? or are you stepping into a problem? i'm very much in the camp you're stepping in a problem. it's about the equity. and the ricochet makes it that much more vulnerable. >> you're sticking with a call that goes lower e. >> send us a tweet. check out our super cool

newsletter, the last thing that dan reads before he goes to bed. so what are you waiting for? here's what's coming up next. i'm going to make him an offer he can't refuse. >> you got that right. because with a twitter takeover around the corner, we have a way to play the merger free, that's right, free. plus, investors are getting burned by stocks of starbucks, and the chart looks like it's about to get worse. we'll tell you how to protect yourself when "options action" returns. i'm here at the td a meri options action sponsored by it td ameritrade. ates all the optia 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.

what?pony neighing] hey gary. oh. what's with the dog-sized horse? i'm crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. isn't that right warren? well, you could get support from thinkorswim's in-app chat. it lets you chat and share your screen directly with a live person right from the app, so you don't need a comfort pony. oh, so what about my motivational meerkat?

in-app chat on thinkorswim. only at td ameritrade. action." it's been a rollercoaster ride for twitter as there are talks about a takeover. josh joins us with the very latest. >> our own david faber reportered that multiple bidders remain interested in bidding on twitters, who are they and why would they want to buy jack dorsey's company. investors are reacting to these headlines. it was not a good week for twitter bulls. you saw that stock drop almost 15%. the problem reports that some big companies aren't actually curious about making a bid. for example, alphabet was widely discussed, given its cash pile, nearly $80 billion. twitter would give larry page a real social platform, but from page is not currently interested, that's according to

recode who said disney isn't in the running. so that leaves salesforce ceo. he declined to address the speculation, only saying that he looks at a lot of different opportunities. i was equally noncommittal with the "new york times," saying i'm not saying i'm buying it, but i'm not saying i'm not buying it. the rationale behind buying twitter, prance it could hope salesforce customers create targeted marketing campaigns. they're not fans of any such idea. joel fish bien saying it would be a much smarter use for search results would be much smarter. >> there's a lot of speculation. what's the best way to play twitter? dan has our call to action. >> there's a lot of things going on that make the trading options in the name, really attractive, rather than buying stock here. if you look at what's going on

since david faber broke that story on september 23rd. it was down on reporting that some like google were not interested. it's not confirmed. it's not even confirmed that the company set a date near the end of the month. earnings are set fofor october . i wouldn't be rushing in. i might consider a strategy called a risk reversal, looking to play for a high-20s sort of price here, and i just sort of wanted to go through the playbook on a risk reversal. i would be selling an out of the money put and using the proceeds to buy an out of the money call. one of the reasons i want to do that is to take advantage of the differential of the short put and wrong call. i want to better define my range. i don't really want to trade

entry here near $20 with this structure. i can define my risk a little better here. and the other one is i want a medium, minimum premium outlay. i don't want to be long premium that's going to decay. if nothing happens i have a real problem. in this instance i would look out to december inspiration. i wouldn't use that october 27 deadline. i might consider the stock around 1970 or so, selling the december put. ka call wi i'll lose money on expiration in december if the stock is between a massive range between 16 and 24. there's no harm, no foul, no loss. the stock stopped out at 25, that was at 2016 high. it has great support between '14 and '15.

i would be a buyer. the stock probably i goes back toward here, $15, $16, i'd be a buyer there. it allows me to get wrong down -- long at $16 and long at $24. and jim cramer's been saying 29. >> what do you make of this trade? >> if it goes to 26, okay. to lose $2, it would have to go to 14. one thing i might consider is actually doing a call spread risk reversal so i get slightly betterrow at -- at lower prices.

i think the potential upside is limited. we saw sellers of the november 22/25 strangle. somewhere between 19 and call it $28 between now and november expiration. if you're going to want to make money on the upside, it's in that range. >> it's gambling. this stock has moved 40% or 50% six times in the last year in a row. if your, it's trying to bottom, really, this kind of volatility, you've got to do a strategy like this, getting long or getting short, it's just deadly, go to vegas and get a free drink with it. >> i'm giving up some near-term profit participation, anywhere below 24 for all intents and purposes for not really getting slammed if the stock goes back to 17 for instance. that's where it all started before this rumor stuff started.

that's why i like it rather than getting at the mid point of the 2016 range. still ahead, shares of starbucks tumbling at the rate of 11%. we'll tell you how low to can go when "options action"s returns. 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.

what?pony neighing] hey gary. oh. what's with the dog-sized horse? i'm crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. isn't that right warren? well, you could get support from thinkorswim's in-app chat. it lets you chat and share your screen directly with a live person right from the app, so you don't need a comfort pony. oh, so what about my motivational meerkat? in-app chat on thinkorswim.

only at td ameritrade. welcome back to "options action," time for total recall. last month, carter thought starbucks was about to take. >> since twi2010, 2016. >> you can spend $2.20 for those. >> how does the chart look so far? >> it's not getting any better. something can't be right if every time you go to the store the store's full. >> we had an opportunity, could have sold that put rolled into the december put spread, you'd be playing with house money, that's the way i'd push this bearish spread to december.

>> it's a brother from another mother. i don't like either of them. up next, final call. stay tuned. 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.

[ clock titime. ] you only have so much. that's why we wanna make sure you won't have to wait on hold. and you won't have to guess when we'll turn up.

because after all... we should fit into your life. [ laughing ] not the other way around. [ clock ticking ] what?pony neighing] hey gary. oh. what's with the dog-sized horse? i'm crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. isn't that right warren? well, you could get support from thinkorswim's in-app chat. it lets you chat and share your screen directly

with a live person right from the app, so you don't need a comfort pony. oh, so what about my motivational meerkat? in-app chat on thinkorswim. only at td ameritrade. it's 4 billion plus on a core basis a year. but we're not waiting for that. when you are obviously we're in a quiet period. if you think about last quarter, expenses keep coming down and revenue stabilizes and growing. putting more volume. >> that was bank of america ceo with jim cramer discussing interest rates, you can catch the full interview "mad money" top of the hour. >> sell cat pillar. >> sell call spreads in cat

pillar. >> looks like our time is expired. we'll see you back here next week. have a great weekend. "mad money" with jim cramer starts right now. >> announcer: the following is a paid advertisement for the shark rocket complete with duoclean technology, presented by sharkninja. to get your carpets really clean, you might think the bigger the vacuum the better. but big means bulky and heavy. is that really what you want? so shark introduced a totally new idea with the original shark rocket ultra-light upright and nearly 2 million have been sold. with true no loss of suction... the power to deep-clean carpets and floors... and the versatility for above-floor cleaning, too.