be the moest vulnerable. if there's a split decision i think you're going to see split decisions that's the way the qqq has been trading and i think mike's trade selling premium. >> again, these are -- the markets depend on these names because they have growth. and when economic data rolls which we know is happening globally, there's only two

trades. something that's independent of the economy or the market or you go for yield and these will have to be perfect. >> well, biotech will also be in focus with a number of large names reporting and operators see some pretty big moves ahead. >> some big names in biotech reporting. biogen both report next thursday. a 3% move in either direction for celgene, bio gen is expected to see a move. this as biotech stocks have fallen 10% over the past month due in part to the political rhetoric around drug pricing. we'll have so see if earnings can change that story. >> all right.

thank you very much. so, dan, how do you do that? >> so i've been saying this over the last couple weeks that i don't think hillary clinton is elizabeth warren and i think there's a lot of bad news price into the biotech sector so i think the real fear is that the democrats would win the presidency, they'd win the senate and the house and then you know, the head winds about drug pricing become a very big deal but i don't think that's all going to happen so i think there's a good chance that into year end or maybe into the new year, biotech stocks start to rally. trading in a very well defined range, it's down 20% on the year. it's only up 12% from those lows. that's a problem but i want to look at the xbi. that is the s&p biotech. it's actually made a very nice move off the bottom.

a series of high lows and higher highs. look at that rejection at 70 bucks or just below it and that's when the likelihood has been increasing that the dems really run the tables here. i think this set sets up interestingly. in the xbi looking out to january expiration, playing for a bounce into the new year. when they were trading 59.75, and i've got to say this, option premiums are high here. i think you look to january at the expiration, you look at the january, 60, 75 call spread that cost about $4 by one of the calls for 4.40. your break-even is 64 bucks. listen, people, you've got to get the direction right on this one so it's one of those ones where you have to be convicted that it's not as bad as it looks if the democrats take the white

house, maybe take the senate and maybe take the house too. >> i do think the high options premiums are justified for exactly the reasons you say. if you look at the fundamentals of some of the biggest constituents, the names like, you know, biogen, names like this, they look cheap and the reason is because of this overweighing concern that the whole business model is a broken one and i think this is a situation where we are going to see a big break one way or the other and we have an identifiable -- >> would you be willing to make that bet on the direction though? a break higher or a break lower. >> my inclination would be to make it on the lower side. these have been punished severely, so you have to figure if that's what's baked in the cake -- >> times are good. >> i'm good or -- >> i mean, graded. feels like a b? >> they can draw the lines just the way people want. could it be 16 times cash flow or 18?

it's all nuts. here's the reality. this is almost like classic doubt there. this is the greatest performing part of the market. i think it multimately there's upside potential. i think you'd be contrary to bet up. >> does it concern you that this is going to be a by partisan issue? >> it wasn't like it was down party lines. >> i think evaluation is a big issue here. i think there's some pinups. when i looked out to january expiration, the call premium plus the put premium and the xbi was offered at 15% of the underlying stock price. the s&p between now and the same period in january 20th which happens to be inauguration day is only pricing a 5% move in either direction. three times the potential volatility. if you get the direction right -- >> the drug pricing issue is one

that keeps coming and going. we're in election season. it wouldn't surprise me if we hear a lot less when the election is over. >> options action.cnbc.com. we've got the hottest options news. check out our super cool news lu letter. here's what's coming up next. caterpillar shares are suddenly falling. but that's great news for one of our traders. we we'll explain why when we return. frds [pony neighing]

what? hey ry. 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.

hey nicole. hey!

i just wanted to thank your support team for walking me through my first options trade. well, i feel pretty smart. well, we're all about educating people on options strategies. well, don't worry, i won't let this accomplishment go to my head. i'm still the same old gary. wait, you forgot your french dictionary. oh, mucho gracias. get help on options trading with thinkorswim, only at td ameritrade. . wea've got a news liter on the potential at&t deal. >> a head line that at&t is nearing a deal to buy time warner inc. including that debt that would value time warner at $100 billion or so. keep in mind earlier cnbc did report that the price tag could be up to $110 a share. we're looking at shares of time

warner up about 4% in extended trade. >> david actually reported up to 110 earlier today, so what kind of options activity have we seen? >> of course the brain nailed the number there. so 130,000 calls traded the three most active stripes. all people looking for something somewhere up towards that number. >> a little perspective. when time warner acquired aol, do you know what they paid for that company? 164 billion and now they're being acquired for what, 100? talk about value destruction. killing money, unbelievable. >> brought to you by carter. moving on to tesla reporting earnings wednesday after the bell and the option market is implying more than a 5% move for the stock. the only question is which direction? mike is with our car to action. >> the implied move doesn't tell

you how kpensive the optiexpens are. when do you want to do a trade like this? when you're barrish on a stock and number three, when you have identified a price target. let's take a look at the possibilities here. this is tesla trading right around 200 bucks when it closed today and you can see we're looking at a pattern. i'm going to leave this to carter to address, but this looks like a down trend to me and the other thing is we have a very big short interest which is going to create some measure of support if the stock does fall so i'm targeting a price around 170 right around december. the way you're going to play this is you're going to buy the december 190 put. you're going to spend $9 for that. then sell two of the 1.70s at

3.50 and that whole package is going to cost y$3.20. around 3 bucks, only about 1.5% of the stock price. that's the reason we're doing this. the other thing is why are we buying this put? tesla, if it does start to move can move a lot and i don't want to be sitting there if it moves much more toward the downside. >> what do you make of that? >> looks like a down trend to me too. the stock acts poorly and the burden of proof is on the bull. down, down, down and to the right, not keeping up with the market. something must be burdening the stock. it's probably something to do with the stock or the business or the valuation. >> 24 and a half thousand deliveries which is up year over year so that takes mystery out of the quarter. we want information about

capital raising. >> he's gone back and forth in the last month about that. we do need it and then the last point is the city stuff which is obviously pretty much in flux. i'm a big fan of butterflies. you're threading a needle in the stock. i would maybe look to move it closer to the event because if i get that move to where we're targeting and we'll take it off. >> the best performing dough stock is rolling over. how much worse it could get when options action returns. [pony neighing] what? 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.

hey nicole. hey! i just wanted to thank your support team for walking me through my first options trade. well, i feel pretty smart. well, we're all about educating people on options strategies.

well, don't worry, i won't let this accomplishment go to my head. i'm still the same old gary. wait, you forgot your french dictionary. oh, mucho gracias. get help on options trading with thinkorswim, only at td ameritrade. more details on the possible at&t time warner deal. >> sources is reporting that at&t and time warner have reached an agreement on most merger terms and that they're aiming to announce a deal as early as sunday so this discussion seems to be moving rather quickly and according to this report a deal could be announced as soon as sunday. >> we are showing the quotes in the afterhour session. at&t, that's not much volume but time warner shares, there's a lot of volume behind that 5%

move higher. you still don't think the deal is going to go through though? >> it's going to take a very long time. it's going to be a stock deal and the stock is going to trade time warner at a discount to the price, whatever the price agreed upon is and it's probably at least 10%. the stocks trading at 94 in the aftermarket. there's not a whole heck of a lot of upside un-lless it's in discount situation. let's say the doj came and they sued them to break up the deal. the stock is going straight back where it was a month ago. >> a high of 94.45 and it ticked down all day after the initial news. you have to assume they're rushing to get this done because they're going to get it done. i think that's a -- >> well, they don't know. >> being the regulators notwithstanding, meaning all the chatter was they wanted to beat someone else who might be sniffing around. >> frequently in situations where you hear there was a deal

announced, you know f you are going to be inclined to try to press and become your own merger player, normally the merger guys would actually, do i race out and buy calls? what the merger desk typically do, they're trying to sell premium so for those of you at home saying well, i don't want to go out and buy elevated stock price, call spreads are going to be the way that you'll do that. >> but if you want to stay long it and you want to give yourself some time, then you could think about selling upside calls and buying downside puts so you could collar your stock and have protection to the downside. >> there should be a bounce in at&t stock. is the safer trade to be effectively long at&t playing for a bounce off of a breakup of this deal. >> well, first of all, i mean, we already are sort of in that

trade already -- >> for this situation. >> it makes it more compelling. our play was in verizon but i think that is one play you could do it. but you're not going to get an answer that quickly. so if you're going to make that play you're going to have to make it play out overtime. >> at&t, the price of options are probably usually pretty cheap. they over going to tick up a little bit because there's obviously some risk to what's going on here. if you own at&t for your kids you can start selling calls against that to take in a little bit of premium on a regular basis. >> coming up next, we've got your tweets and a final call from the options pits. [pony neighing] what? 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.

hey nicole. hey! i just wanted to thank your support team for walking me through my first options trade. well, i feel pretty smart. well, we're all about educating people on options strategies. well, don't worry, i won't let this accomplishment go to my head. i'm still the same old gary. wait, you forgot your french dictionary. oh, mucho gracias. get help on options trading with thinkorswim, only at td ameritrade. let's take some tweets. first one here.

strong cat is the inverse or var we can uup is very strong. continue with this tracking? >> we do. so cat around 90 as pulled into 86. i think this should be the beginning. i want to stick with this one. presumption the lower prices. >> we're in good shape on this tr trade. even if the stock just sits here and languishes until december expiration we're going to get paid. >> and the dollar has been very strong. >> it's making a run back to those highs here and a lot of people didn't think it was going to happen and rates haven't moved up a whole heck of a lot either so i think that's going to be a head wind to u.s. corporate earnings. >> last word from the option pit? >> a bet on perfection and be short the q kwrk q. >> if you're inclined to make a bar wish threat in tesla, i

think you're inclined to do it. >> i have a call on xbi. >> tease for the twitter feed. looks like our time is expired. thanks so much for watching. check out the website, meantime, don't go anywhere. mad money with jim cramer starts right now. >> announcer: the following is a paid presentation for the shark genius steam pocket mop system, brought to you by sharkninja. ♪ we all know life is messy. >> the dirt and the mud. >> there's a juice spill, chocolate milk spill... >> there's always little tracks of dirt coming in. [ baby giggles ] >> announcer: but that's just the dirt you can see! imagine the household bacteria on your floors that you can't see! especially in your kitchen and bathrooms. >> having a son that will pick things up off the floor, put them in his mouth, sometimes