lows. even copper, which saw a huge move this week, got dragged down in this selloff. so is there more pain ahead, or could this be the ultimate buying opportunity? let's get in the money right now. dan, what did you think? >> we've talked about this a little bit over the last few weeks. crude oil has been in a tailspin here. obviously, the dollar has had this move up to the high end of the range, that it's been over the last year. one thing that's really caught my eye is oil stocks caught really good strength in crude since mid-october. to me, it could be somewhat of an opportunity when you look at -- let's look at an etf like the energy select etf, the xle.

40% of that is exxon, chevron, schlumberger. so i do like the relative strength that the energy stocks are showing relative to the commodities. >> the important thing about the energy complex, all of those companies, is we really should be taking a look at their valuation relative to the curve, not relative to spot. and the spot story in crude is one of oversupply, disappointing news. from an oil producer's standpoint, and the fact that everybody's producing, everything that they can. that kind of an environment, obviously, spot crude is low. but actually, the long end of the curve hasn't come down as much. so that might actually support the thesis that they didn't deserve to actually drop. >> i'm glad we led with the oil story. if the market wasn't such a huge story, this is what we should have led with fast money. if you think about it, crude oil is going down for fundamentals reasons now. there's a lot of it out there, and it only seems to be more and more coming out of the

pipelines. i'll tell you this, you're talking about the stronger dollar being the reason, that's not the reason. there are fundamental reasons why crude's going down, which makes these stocks, although potentially attractive, very expensive. schlumberger at 40 times forward earnings, in this environment, is not a cheap stock. i've got to tell you something, if you're piling in because you think crude is bottoming here and it's going to reverse higher, i think you're making a mistake. >> right now, the spot situation in crude oil, which is driven by clearly oversupply, if you believe that there's going to be a stronger economy going forward, if you believe that oil demand is going to pick up, then you believe that the forward curve shouldn't have moved down, and that actually supports a longer view. >> you're trading xle. >> i want to take that longer view that mike's talking about contrary to what you're talking about. >> ganging up on me! >> what's really nice about this program is that we can define our risk. and we can look out and target some events. and one of the themes this week in the market was rotation. and i think you could see rotation back into oil stocks that have shown good relative strength, especially if crude finds some support in the low 40s and works its way back towards 50 over the next few months. i want to look at the xle and play for a breakout. look at that chart right there. that is crude. i think if you probably have a

floor near-term at 40, we have an xle chart. look at the series of higher lows it's made. it's approaching that breakout level here. i really like that price action. option prices in the xle are fairly reasonable. they're basically down towards the low end of the 52-week range. i want to look out towards january expiration. i want to buy a call spread. i want to look at the january, 70 to 70.5 trade spread. the etf is trading 69 today. you could pay $2.25 for that january 70 call. you could call one of the 70.50 calls at 25 cents. your max risk is $2. between 72 and 70.50, you could make up 5 1/2 dollars. i like that risk/reward. it's very near the money participation. the options are cheap. but i'm defining my risk. playing for that breakout. >> i love that. that's why you do a show every friday at 5:30 called options. fantastic. i want to win lotto this weekend, that ain't going to happen either. and i want to encourage you to take a look at schlumberger, look where it traded to up over the summer, about 84 bucks.

traded back down to 75. look at the recent high, i believe it was 84 bucks. 78 now. i think it retests 75, then we'll have a conversation if you invite me back. >> in defense of dan's strategy, it's not a lottery ticket. i think that's an important point. you're not going to have to sit here and wait until next monday. he's playing it out until january. that out of the mochb call he's selling against is offsetting a lot of decay. you can sit in this trade for a little bit. all you need is a modest rally and then you can take it off. >> guy's taking you down tonight. >> i like the fact that mike likes the option strategy. i like the risk/reward of this thing. 70. we had that longtime chart. that's a big breakout level. it's been unable to get above 72. if we get that, get a rotation back into these names. people don't think about it on 40 times existing earnings. if they start thinking about what was the peak earnings, their earnings were down 75% from peak a few years ago. >> and by the way, if opec does get it together, we could see a little bit of a spike that's going to help them out regardless. >> let's switch to retail now.

the etf rallying following positive earnings out of names like kohl's, ralph lauren, nordstroms. so what can we expect as we head into another busy week of reports for the space? seema mody is in the newsroom with a preview. >> earnings season may be slowing down. next week, we'll hear from names like dick's sporting goods, best buy, foot locker. but let's focus on some of the big box retailers that are expected to see some outsized moves. home depot reports on tuesday, before the bell. and the options market is implying a 3% move in either the direction. and then there's lowe's. on wednesday the stock is expected to move up or down by 4%. and last is walmart on thursday morning. traders expecting a 4% move in either direction, following its report. now, what's interesting is that these are three stocks that have fallen sharply from their recent high, but i've seen a bit of a resurgence of late. whether or not this momentum will continue remains to be seen. melissa, we'll keep an eye on those names. >> thank you, seema. what's interesting, mike, about home depot, it also occupies a

space in the xhb. it's a home builder play, as well. and both of those sectors really rallied this week. >> they obviously had a big bump, as many things did, as people are hoping on a stronger u.s. economy. it's interesting, home depot has been outperforming lowe's in a couple of key areas. appliance sales is one of the thing that's been hurting lowe's. the other thing, it's trading at a cheap valuation compared to how it has historically. about 10% cheaper, depending on which metric you're looking at, which i think makes it kind of attractive. that said, there have been suggestions that this space in general was seeing strong performance earlier in the year due to weather and some of the more recent results might be a little bit more punishing. if you're going to make a bullish bet going into this, also, market moves larger than they typically are historically. so the way i would play this, you can use something called a call spread risk reversal in home depot. we're going to look out to december. the 120, 130, 130.5 call risk

reversal. sell the 120 puts and buy the december calls and sell the 135s against it for $1.15. net/net you'll spend 75 cents. the nice thing i like about this trade, we just talked about that rally that they had off the haven't lows. that's effectively where they'd put the stock if it does pull back. otherwise, you'd get to capitalize on a little upside move here and not risking a lot to do it. >> great trade structure. it does take trade management. i love how mike chose the 120 put to sell. it was just there a week ago. on a miss and a guide down, it's going back down there. and really, what you're doing here is you only have the ability to make $4.25 on the call spread, but you really don't have the worst-case scenario for $10 below. soy like the risk/reward of this. i had, last week on the program, i took the wrong side of xrte, it was a bad entry. i was pressing a short. after a $10 move, you know, there's not a lot of room for error on a long entry to the upside swob this trade gives you

a little flexibility. >> what about the fundamental picture, guy adame? >> i'm glad you asked. i've been a home depot bull for a very long time. >> long time. >> i'll rig something up. who talks about it -- starbucks talks about the fact that maybe consumers are pauling back for the election. >> uncertainty. >> there's a very good chance it happened in this quarter and home depot. i think there is a chance that they miss. i think the guide down will be commensurate with what they miss. i'm not sure they're going to obliterate the stock. we could see that 120 level that they just talked about. i think there's a very good chance that they miss, pulls back, and i think you buy with both hands. >> we're in a very different investment regime. even if the last quarter was slightly disappointing, people will now look forward. they'll look through and i think that they'll speak to that. we're in a very different environment. and we have a lot of questions, but right now, it seems like the market is basically taking only the good side out of those

questions. >> would you want to own home depot at 120? >> it's tough. i was looking at it. i thought it got pretty oversold. it's down 16, 17% a week and a half ago from those recent highs. but i was kind of wishing carter was here. what carter might have said was, look at the weakness in some of these other prior leaders, nike, starbucks, disney. and maybe home depot was starting to make that move. this is a really important quarter in guidance i believe for home depot. >> before we go to break, can i say one thing? i have feelings, too. i want you to know that. >> that it? >> for folks at home -- >> there's no trade here. >> i gave you a trade! i repeat myself all the time. >> we're happy to have you! got a question out there, send us a tweet to options action. for everything options action, check out our website, optionsaction.com and check out our newsletter too. some say it's better than the "new york post." really? yeah, really. what are you waiting for? here's what's coming up next. >> you complete me. >> my god, that's cheesy, but

it's also how investors felt about drug stocks. and we'll give you the name that has more room to run. plus, bonds are crashing, but there's something in the charts that suggest that it might be the time to buy. we'll explain 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. so we know how to cover almost alanything.ything, even mer-mutts. (1940s aqua music)

(burke) and we covered it, february third, twenty-sixteen. talk to farmers. we know a thing or two because we've seen a thing or two. ♪ we are farmers. bum-pa-dum, bum-bum-bum-bum ♪

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. >> the election results sparking a rise in rates this week.

the u.s. ten-year rising -- the yield rising about 2% for the first time since january. it wasn't just here. the german bund, guilt, also higher. the move is prompting jeffrey gundlach to say this on the halftime report earlier today. >> the 35 basis point move since the election is not that surprising, given the narrative that's developed about the trump victory. so i do think this rate rise is about 80% through. at least this leg of it. there's a potential for another leg up in yields, when we get into 2017. >> so is he right? is there a tradeable opportunity in the bond market right now? dan's over at the smart board with a call to action. dan? >> well, of course jeffrey gundlach is right, that there is a tradeable rally coming, because he's spot nailed every move in the bond market over the last couple of years. i want to take a look at this. i was starting to look at this gundlach's interview with wapner earlier today and i thought it was really interesting. he said he thinks that probably 80% of that move is there. let's look -- this is the

30-year chart of the ten-year treasury yield going back to 1986. this is about as much of a trend as you will see here, right? so here we are, kind of back up the trend. i think you have to ask yourself, what happened this week to have that massive move in the ten-year bond yield, that is gong to make it break that trend in a meaningful fashion. is there something that really happened? i'm not certain that happened, okay? this is the ten-year treasury yield on a shorter term time horizon. look what we just did. we just broke that level. this was the taper tantrum when the ten-year treasury yield was at 3%. we're above that. we had this very sharp move in a very short period of time. obviously, 3% feels like a long ways away. to my eye, maybe it's 2.5%. so here's -- let's talk about a strategy, if you were inclined to play for a bond rally, which would be in the near-term, very contrarian, for all intents and purposes here. and i would think about using a

strategy called a risk reversal. in this instance that i'm going to detail, you would be selling it out of the money put and using the proceeds to buy the out of the money call. why would i do that, okay? i would look for a low premium outlay. if i'm selling a put, i'm taking in premium. if i'm buying a call, i'm spending premium, and i want to look to do that as little as possible. so i would be an outlay, low premium. i don't want to spend a lot, okay? why? because option prices in the bond market and the tlt in particular, the 20-year bond etf have been jacked while the thing is moving around here. and the other one is, i have low conviction. yeah, maybe, maybe i'm going to get this thing right, but i don't want to spend a lot of premium to do it. i want to give myself some room to the downside if i'm wrong and give myself some room to the upside. let me quickly go now to the tlt. look at this sharp move from the highs. i want to make a point here, this is an instrument that many times, investors use a flight to

quality. it's not always just about interest rates, but sometimes it is a flight to quality. we is a that earlier in the year. it's broken this down trend. lastly, this is the price of options in the tlt. they've obviously spiked here, again. that's making the case why i don't want to spend a lot to do it. here's the trade strategy that i'm thinking about. there's an 85% probability that the fed raises interest rates at december 14th, the next meeting. the next meeting after that is february 2nd. all bets are off on that one. you tell me, are financial conditions going to be rocky as we head into inauguration day? what's going on in emerging markets? i don't know if you caught that one. emerging markets have acted poorly in the last couple of days. and think about the conditions that caused the fed not to raise rates again, since that december hike spop here's the trade, looking out to february, being a bit contrarian here, take

advantage of high option prices. i would look to sell the february 116 put. this is when the etf was trading about 1.22 and a quarter. so i make mup on the upside, up five. lose money down at 116. if you're looking at my tlt chart, that 115 level is a big, big level. i'm not paying anything for that. market-market, i lose money as the etf goes down and make money as it goes up. i like the risk/reward. >> thoughts, mike? >> that is definitely trying to reach out and catch the falling knife. if i take a look at that. we have had a 30-plus-year bond rally and i suspect that we have just seen the end of it. and, you know, we're going to find out next year, clearly. i do like the structure, though, because, you know, there is some cushion. and if jeff is right, and there is only about another 35 basis point move, the amount of risk you're taking by selling that downside put is probably not that large. and we've seen how violently it can move, which is one of the reasons why options prices are

evaluated right now. >> the chart that dan just showed, and bk said he's going to see ten-year yields back at 2% and he was right. question, are rates going up because the economy is booming, or are rates going higher because the rest of the world that owns our debt is terrified that the new regime might restructure debt, might do other things to debt. that would be my thing. so if i own u.s. debt right now, i would be absolutely frightened that things that historically have been true here -- >> best house on a bad lock. >> for years and years. >> the other reasons that rates could go higher, you could see higher productivity growth. we could actually get gdp over 3%, which we haven't seen in a decade. that justifies that. that would also, actually, justify money inflows, because on a currency hedge basis, you still have a positive carry on that tried. so people are printing away. so i think that is the lid that you have, which is probably why you're comfortable selling that

put. >> and i want to make one last point. when the fed raised interest rates last december, they signal four rate increases in 2016. we know they're only going to do one. i don't think they're going to make that same mistake in mid-december and signal a rate increase, one after another. so to me, if you get any sort of volatility associated with the things that spooked us early in the year -- >> very quickly, though. even if you do have short-term increases, that puts a cap on inflation. just because short-term rates go up, doesn't mean the long end will go up commensurately. >> biotech stocks just posted their best week ever. that's great news four traders. we'll explain why, after the break. [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.

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. time for the wrup side call. we take a look back at some of our winning trades. a few weeks back, dan said biotech was about to break out. >> today when the etf was trading 59.75, option premiums are very high here. this is not a particularly easy trade right now. but, i think you looked at january expiration, look at the january 60.75 call spread that cost about $4. >> the xbi just posted its best week ever.

so, dan, now what? >> you take profits when you have a double on it. when you get closer to 70, the risk/reward with two months out isn't fantastic. i think i take the money and run very soon. >> i'm an ibb guy. i think xbi goes higher. if you have a double on anything in a week, you absolutely have to take money off the table. i'm telling you now, the valuations will start to matter in the biotech space. i think the air cover they now have under a trump administration is strong, so i think these things continue higher. can they pull back next week? maybe. but i'm a big believer in biotech especially now. >> let's stick to health care in general. bristol meyer is up next. darren thought the health care name was due for a bounce. >> i think you get a good bounce here after this sell-off. i want to be contrarian and make a bet on bmy. >> i think the way you want to play this, look out to january, by the 52 1/2 call spread. >> you may have noticed that the chart master is not on the desk tonight, but he did send us a little postcard. hi, team, he writes, i'm off today at a three-day company

retreat, so a work weekend for me. have ra great show, a great weekend, and hang on to bmy for prospective further gains in the weeks ahead. >> this thing is still trading at a 20% discount to historical valuations. however, our call spread is in the money. our answer here is you could take some money off and still stay long by rolling out and up. >> all right. coming up next, 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. so we know how to cover almost almoanything.hing, even a rodent ride-along. [dad] alright, buddy, don't forget anything! [kid] i won't, dad... [captain rod] happy tuesday morning! captain rod here. it's pretty hairy out on the interstate.traffic is literally crawling, but there is some movement on the eastside overpass. getting word of another collision. [burke] it happened. december 14th, 2015. and we covered it. talk to farmers. we know a thing or two because we've seen a thing or two. ♪ we are farmers. bum-pa-dum, bum-bum-bum-bum ♪

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. all right. we have time for tweets. the first one is the kid asks, new york or chicago-style pizza? what do you say? that's obvious! come on! >> that's a layup. >> don't answer that one. >> there's nothing chicago style. nothing. >> john's pizza -- >> chicago hot dogs are better

than new york hot dogs, but new york pizza is better than chicago pizza. >> first of all, i'm telling you right now, nathan's hot dogs. grilling this weekend? nathan's hot dogs. not dan nathan. >> i like hebrew national. black and white cat asks us, should i hold the wfc calls expiring next week. i'm up over 500% on them. >> no, no, you don't. take the money -- if you want to take some of the profits and roll out enough, that's fine. but you take those. >> do you concur? >> i do. >> basically, that's a nice, fat profit. take it. lock it in. time for the final call. lost word from the options pits. pete? >> lastly, veterans day, thank you, veterans, for everything you do for your service. you guys and gals, the best. that's what i have to say. >> mike? >> here here, thank you to the veterans. and home depot, earnings next week, use call spread risk report. >> dan? >> excellently define risk. and a special shout-out, my dad,

lieutenant colonel in the army reserves. >> our time has expired. see you back next week with more "options action." meantime, "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 even eat off of the floor,