we're live at the nasdaq market site on this expiration site the guys are behind me getting ready, while they're doing that, here's what's coming up in the show >> buzz buzz sound when you hear this signal, hang up ♪ mr. telephone man >> but don't hang up on at&t and time warner. because the options market is betting that shares of "t" are ready to take off. we'll tell you how to play it. >> there's no place like home. >> and there's been no hotter trade than the homebuilders. but there's something in the charts that suggests the group

may soon cool. we'll explain. and later, square is now a $17 billion company. >> good lord, that's a lot of money! >> it sure is. that's why we have a way to buy it for less than two bucks we'll explain. it's time to risk less and make more the action begins right now. let's get right to it. as media merger talks heat up, the biggest of all, at&t's bid to buy time warner, remains in limbo. the department of justice poised to try and block the deal. those stocks have been on a wild ride are there any signs it might get through and how should you play these names? dan? >> you've got yourself a great segment about all the media companies. it really is the time warner/at&t deal that set this whole thing off. obviously there's a bit of a frenzy in the very near term, it seems like some companies have put their assets up for auction for all intents and purposes no matter what happens with the at&t/time warner deal, that's really going to dictate a lot of

these other deals that happen. i think this deal gets done. i know earlier this week the probability of this thing getting done was less than 50 for the first time since it was announced last year. i tried to take a shot at time warner a few weeks ago now i go back to at&t, a name we've talked about on the show before it's down 19% on the year, down 13% since early october. there was an earnings disappointment where they had greater than expected churn in their td group some of the churn in wireless wasn't particularly great. the stock now is down at a level that i think it makes sense to be a little contrarian, define your risk. give yourself some time. if you look at that chart, it really does look like that 36 level is a big breakdown level i think you can target with any good news in closing up to the high 30s, close to 40 where it was trading in early october again, you want to give this time to play out a look at february expiration. today the stock was trading at 34.60, you could buy the

february 35, 40 call spread, selling one of the fed 40 calls at 15 cents. that costs you a dollar. your break even is 36 bucks, you make up to $4 between 36 and 40. i like the risk/reward on this trade. option placrices are fairly che especially since this is going to be a newsy situation. you're risking a few percent to maybe make a lot i think this thing is a better chance than the markets are predicting right now >> i'm hoping regulators have the good sense a long time, office depot and home staples wanted to get together, that was ludicrous the one thing i would say about the trade, i like buying the call selling for 15 cents, i'm not so

sure if you spend $1.15, that extra 15 cents doesn't add up to a whole lot. you do this very often, you know, hold on to that thing, if it runs, then you have an opportunity to sell that at a premium. >> what about going after time warner again that's one that's really been sort of -- >> the tough thing is, what if they do have to divest something, what is the new price, what if at&t continues to go down, what if there's a cash and stock deal let's just say the at&t deal was cut off, the arms will have to go and buy at&t stock. i'm not telling you that's going to be a great scenario maybe they look to do another sort of deal that maybe the doj would be okay. >> the corollary is that a deal for fox seems almost certain >> which is a horizontal deal, which makes no sense, right? >> but if this deal goes through, you can see a comcast actually coming in, whereas if the deal doesn't go through, comcast is almost certainly out of the picture that could have been another way to play the idea that at&t's

deal goes through. >> that's true >> one thing i would also -- look, this is a company that has a decent bit of debt on the balance sheet. that's one of the reasons why playing it with options can make some sense equity is going to get more volatile as a result you have catalysts such as news coming out that's why it's prime to make a bullish play but i would go ahead and -- >> so mike just said why would you sell that 40 call at 15 cents. i'll tell you why. it's a week before thanksgiving. then it's going to be a week before christmas if you long hold the options and this thing is not going to be doing anything, i like that idea of having it out of the money call even if it came in 7 cents, at some point you have that move higher above my strike, i can cover that 40 call and sell a lower strike call for more people >> i see what you're saying, we definitely are going to have what we call a ball suck going into the holiday weekend those teeny call options will maintain some value because there is the potential for some news here.

>> the thing built charters, it looks identical to verizon i know you're thinking there's catalyst the time that time warner has dropped from 104 to 86, we're back to the level before all this happened. i'm on it. >> now to a group of stocks that have been surging this year, homebuilders, names like d.r. horton and pulte group are up. toll brothers up nearly 25%. this is the homebuilder etfs trading at decade-high these stocks are on shaky ground, carter, break it down. >> i'm not it's shaky ground, it's firm ground, but does it stay firm? they've been very strong the question is at some point is it too strong. we know we've seen that time and time again in certain asset classes, certain stocks. i think that at this point, we've seen a little wobble in so many areas of the market, this is due for that sort of thing. here is a chart of the itb it's got all the names you know,

from lennar to toll to d.r. horton and others. whether you call it a breakout or a big range from which it has finally gotten out, the breakouts occur. the question is can this really go a lot further without some form of checkback, checkback to trend, the 150-day moving average. let's look at this going back five years what we know is that mean reversion is a powerful principle, and that in up trends or down trend, you typically have mean reversion. you come back to trend i'm going to make the bet here that this is at this point due for some sort of move back to trend, which is kind of how things work. all right. this is also important this is the same etf itb let's draw the line from right here now, it's gone up. we see that. how has it done compared to the market it's made no progress.

in fact it's the exact same level it was going back to the '09 low. so it seems to me we're up against an inherently difficult level and this is where you're likely to pause because of how far the absolute chart is. let's pick on one. big move i'm thinking too far above trend. you can see the spread there let's do it on a longer term basis. again, we know that mean reversion is a powerful principle, and typically you'll oscillate above and below. it seems to me the next oscillation is that way. then there's this. this is the all data chart look where we are. we're right back to the high and a little bit through the high before you really can exceed a high, typically you contend with the high, which is you're going to likely do that. i want to fade this, this is excessive. this is the largest homebuilder, if you have great profits, take your money and run

>> this is the largest and best performing obviously it's tough, as you were pointing out, to spend a lot of premium this time we'll look to collect some you could sell the january 48, 50 call spread, collect ole cents, buying the 50 calls for 80 cents, that's 40% of the distance between those strikes this is something that's going to profit if the stock stays right here if it drops even if it rises very little bit and the maximum risk obviously is the $1.20, the part between those strikes that we're not collecting this is, you know, one of those situations where i think the relationship basically between the amount of premium we're collecting and the distance between those strikes sets up for short premium, which is hard in a low volatile environment. >> do you like this trade, dan >> i do. carter said it was contending with the prior high. what's interesting about that whole notion is like, even if it were just kind of contend, hang out a little bit, mike's trade is the perfect trade for that scenario obviously the best case scenario would be to have a check back to

that prior high and then mike's trade is going to be golden, as long as it just doesn't -- you know, if it sticks around here, you're going to be fine. and then you get back to what we were talking about, this month-long holiday period where things may be kind of quiet. >> it's too steep. you have the odds of a checkback. >> the story is generally pretty good, trading cheaper than the market that's true for this group because it's a cyclical, that's important. >> what about a rate hike? >> that would hurt this sector >> beyond market expectations. >> much of it is baked in. a company like this one trading 14 times forward earnings, there's obviously some disappointing news in the future baked into the price already it would have to be beyond what the market is expecting. >> is deer horn much worse in terms of the chart than itb? >> itb is equally steep. dhi is a big part of the waiting. the big names, whether it's toll, lennar, phm, pulte, this is the most extended

remember, this is a very small mid-cap -- large cap managers can't even own this. so they're clustering into the one they can own because there's a certain market cap level that typically is a complacency issue that can go wrong. check out optionsaction@cnbc.com while you're there, check out our newsletter, dan likes to read it curled up next to the fireplace. coming up next -- shares of square are up almost 265% in the past year but if you missed the move, we'll tell you how to get long for less than two bucks. plus calling all "options action" fans reach into your pocket, grab your phone, and tweet us your question @optionsaction. if it's ic we,e'll answer it o air, when "options action" returns. broker for help?

>>once, when volatility spiked... and? >>by the time they got me an answer, it was too late. td ameritrade's elite service team can handle your toughest questions right away- with volatility, it's all about your risk distribution. good to know. >>thanks, mike. we got your back kate. >>does he do that all the time? oh yeah, sometimes he pops out of the couch. help from real traders. only with td ameritrade.

. well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point.

that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back to "options action." the bitcoin boom continues as the digital currency is now up 705% year to date. it's starting to seem like anything that touches it turns to gold. check out square, overstock.com, all riding the bitcoin wave, hitting all time or multiyear highs this week as they brave the crypto currency. but professor khouw has a way to play these names mike >> we'll look at using a call spread why? we're taking a look at committing new capital to a stock that is trading at its

highs. secondly we have potential for a great deal of volatility, and we've seen a lot of volatility in bitcoin and other stocks as well we use a spread because the options premiums are similarly high a quick look at square, how much this stock has moved of late what goes up could potentially come down. we want to obviously avoid the risk that that happens to us so what i was looking at, going out to january, you could buy the 45, 50 call spread, spend $3 for the 45, sell the 50s against it for $1.30, a net debit. it seems like it's an on a one-way ticket to the moon right here this is a way to commit a little bit of money to the trade in case were you evyou think the rn to continue. >> i like the trade if you're inclined to buy the stock. this is a stock that's up 200% on the year and who knows what the next 10% will be getting the entry is difficult if any of you guys are really

interested in this story, two nights ago on "mad money" jim cramer had square's ceo on, talking about all the things, they didn't really spend any time on bitcoin. buying and selling bitcoin on the square cashout, if it becomes a thing in 2018, it will be icing on the cake it's about the secular trend towards payments, the cashout, the lending they're doing, it's a great story. i can't tell you up 200% is the place to be. >> that's just it, if you think about the difference between this very steep move and the steep move in a stock that's been 30, 40 years, there are cycles in the market, bull and bear markets, recessions let's take a marriott hotel that ultimately gets quite steep like a homebuilder, that's one thing. if it's a brand-new security, which this is, you really don't have price discovery yet people that haven't contended with it. it's just getting big enough to be in the market, it's not certain that people can even buy

it even today, exploding higher on volume like that, i would be slow to sell it. >> i thought you were going to say the opposite >> because it's new. if you go through a very steep period on mcdonald's, ultimately you mean revert. we don't have a mean to revert to >> because it's new, it's very hard to use any kind of fundamental analysis to say i think this thing is getting expensive. it's trading on promise, it's what everybody thinks might become of it in the future that's why it's hard to call a top on something like this it's also hard to reach out and commit new money to buying a stock. i hear the question all the time >> the analog is tesla when tesla was unknown, pro forma numbers, this is a guy playing with a spreadsheet when you make up numbers, you can have the stock go anywhere you want this is still nascent. >> i just want to make one other point. tesla last year was the best

performing stock in the s&p 500. it was up 250% in 2016 it's up 100% this year it's a $130 billion market cap that is up dramatically in two years. it did follow up that tremendous performance on a much bigger denominator this time around so to me at 17 billion, if people really buy into the story -- >> a cult of personality, when new funding is required, can emerge with sexy and exciting stories, like the truck and the super car. i like both products and i happen to be short the name. so much for that >> at least that one's rolled over if you think about this, you know what the precondition for severe weakness is it's preceding weakness. every major giveback in the stock market, in 1987, the stock market was already down 15%. tesla showing weakness now makes it more problematic. this is still pushing up aggressive new high.

>> tesla has had a 35% peak to trough decline every year for the last five years. this stock has gone parabolic, up 200% in the year. this is the point of the show. we're not saying buy stock here. we're saying if you're inclined to buy the stock, this is -- >> if you want to continue to play this to the long side, options are really the only way to do that the call spread is the way to mitigate the cost. a retail stock searching after surprising earnings beats. we'll tell you what that name is send us a tweet t to @tisaoponction. if it's nice, we'll read it after the show much more "options" after this i think it's terrific. your kids go to college and you start trading. >>yeah, 5 years already. 5 years, hmm. you ever call your broker for help? >>once, when volatility spiked... and? >>by the time they got me an answer, it was too late. td ameritrade's elite service team can handle your toughest questions right away-

with volatility, it's all about your risk distribution. good to know. >>thanks, mike. we got your back kate. >>does he do that all the time? oh yeah, sometimes he pops out of the couch. help from real traders. only with td ameritrade.

well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. welcome back to "options action." time to take a look back at our open trades. dan made a contrarian call last week on general electric >> john flannery seems to be the

right guy to re-right the ship but it could be messy in the near term. that's why it makes sense to be contrarian using options yesterday you could buy the january 2024 call spread paying $1.10 for that >> since then ge shares plunged another 9% ceo john flannery disclosed he bought 60,000 shares of the stock but it failed to give the stock much of a boost today. >> it was messy, that was the whole idea, the timing was kind of weird we detailed it on a friday afternoon, the news came out monday morning, the thing was lower. i think a lot of people who would have looked at this situation, i certainly did, had it on lower levels than we talked about at the end of the day i still thing the $20, $22 range makes sense for a snap back. we're also playing for a few months here. at the end of the day i think you're probably okay if you got in early last week on this one >> we've been debating whether

ge should have signed a capitulation >> right when you're trying to do something dangerous, buying something that's falling, you have to be very tight in your discipline s there's nothing wrong with trying to get long and cutting it you lose a dollar, maybe three or four, but when you get a bounce you'll make that all back and more >> all right also last week, mike made a bullish bet on walmart ahead of its earnings report. >> take a look at walmart, number one, hitting all-time high, number two, because the things trading 20 times earnings this is really the haves and have-notes in retail, isn't it the relatively high implied move, i was looking at the november/january 92 1/2 call spread >> walmart had a winning week, the stock soared 8%. mike, you had the direction right, the trade structure was off. >> yes i was selling to move the magnitude, it proved to be larger we sent out a tweet earlier to

roll this out to the december/january call spread i think the story remains intact for walmart. >> i don't think anyone could have anticipated a 10% gap on earnings sometimes getting too cute when you think you have the fundamental story and the technical story, you just buy the call spread. >> that's great, of course, but i'm going to make the case this is something you trim, because this is not something that's new and unknown. there is recovery. walmart has made a fairly large move not only absolute, but if you adjust for beta, it's ridiculously steep >> does target look better >> worse >> worse >> target can't even come to life this has got a problem because it's too good. target is down in the cellar and wallowing around on the floor. >> carter is very vivid tonight. up next, the final call omhe tis skfr t i think it's terrific. your kids go to college and you start trading. >>yeah, 5 years already. 5 years, hmm. you ever call your broker for help?

>>once, when volatility spiked... and? >>by the time they got me an answer, it was too late. td ameritrade's elite service team can handle your toughest questions right away- with volatility, it's all about your risk distribution. good to know. >>thanks, mike. we got your back kate. >>does he do that all the time? oh yeah, sometimes he pops out of the couch. help from real traders. only with td ameritrade.

well, it'sonce again.eason >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade.

welcome back to "options action." time to take your tweets jared asks, twitter looks to be on the verge of a major breakout what's the best way to play for the upside >> jared, i see the same things you see and i see a fundamental change in the story. i can see the stock in the high 20s in 2018. look at march expiration and consider a 22-30 call spread in the near term, maybe cost you a buck 30 or something like that >> i see the same thing that you both see i would agree. listen, this has been a loser. no one's made money in it. and for the first time it looks like a legitimate bottom >> from bring back jackie, volatility seems to be quietly returning to the market. best way to go along a volatile trade? mike >> the vix is higher than expected this is a quiet time historically i would buy some spy puts. >> time now for the final call the last word from the options pits carter >> d.r. horton, dhi.

sell it. >> i want to sell call spreads in d.r. horton >> at&t, if you're contrarian, i like february call spreads >> it looks like our time has expired. i'm melissa lee. for more "options action" chec . my miss is simple, to mick you money. i'm here to level the playing field for all investors. there's always a bull market somewhere and i promise to help you find it. "mad money" starts now hey i'm cramer welcome to "mad money. welcome to cram america. other people want to make friends i'm just trying to make you some money my job's not just to entertain but educate and teach. call me at 1-800-734-cnbc or tweet me @jim cramer don't blame th