hey, there, we're live at the nasdaq market site on this friday afternoon the guys are getting ready behind me. while they're doing that, here's what's coming up on the show ♪ >> jack is back with shares of both twitter and square surging. and the charts are putting even more gains from one of them. plus, biotech is breaking out. and a key event next week could send the space higher. we'll tell you how to profit for less and --

the apple worldwide developer's conference kicks off next week, and we've got a way to get long the stock for less than six bucks. it's time to risk less and make more the action begins right now. and that's where we start, with apple the stock closing at a record high today, as it inches closer to that $1 trillion market cap milestone. shares of the tech giant have been trading in a very tight range over the past month, but with its worldwide developer's conference kicking off on monday, could this be a catalyst to take it to $1 trillion and beyond let's get in the money dan, you are trading apple first today. >> yeah, so it might be. you know, that range is really interesting. since may 4th, it's been trading between 185 and basically 190, just banging around in that level. so when you think about this event, tim cook is going to kick it off at 1:00 eastern with a keynote, and i don't think

expectations are particularly high and options traders certainly don't. i think the implied loop between now and next friday is a little less than 2% the stock was almost up 2% today. expectations are not for some new hardware or anything particularly interesting so i think you could have a scenario here where they talk about services, they talk about all of these different expanding, operating systems, ecosystems, watch os, we know ios and mac os, and these are the type of things that made people feel better about the services growth, which made up 15% of their total sales in the quarter that they reported just a month ago. so to me, i think you set up for further consolidation in the near term, into this event but what you really want to set up for is that iphone guidance that's what drives this stock, and they'll probably give that late july, early august. and then you have that hardware cycle and the stock usually trades into. so to me, i think you just do a simple call calendar here. today when the stock was trading at 190, you could buy the june/september 195 call calendar, playing $5.50 to that,

selling the june calls at .80 and buying the september calls for $6.30. your max risk is that $5.50. what you want this trade to do over the next two weeks here is move up towards that $195, kind of break out a little bit, have that june call that you're short expire worthless, then you own that september one that's going to be near the money and at that point, you can turn it into a calendar again, turn it into a vertical spread. but what you're trying to do is chip away at that premium of owning that longer-dated call throughout the summer, catching a couple of different events >> you know, it's hard for a company this size to make really substantial moves, especially if it's going to be something that's more ecosystem-based rather than an update on how the biggest driver of their ongoing profits might be although, i do think, personally, the bloom is a little bit off of the iphone rose, so to speak, in terms of growth and the other thing that i would note is that the call you're selling is not a particular

expensive one. and it's a good thing that it is about almost 3% out of the money, because, you know, otherwise i might not be inclined to sell an 80 cent option on a nearly $200 stock. >> right and i just wanted to give ate little room, that's why i chose the 195 strike because at the end of the day, if it goes to 195, this trade is going to be profitable you can actually roll out of that short call. but really, i don't think owning premium into this week's event, that's the most important thing, is the right trade to play for a breakout carter may have some different views on that subject. >> i'm in the breakout camp here now -- >> but like explosive? >> well, remember, it is a big stock, but it moved from 160 to 190 in a matter of eight, ten sessions post-earnings granted, it was downgoing into that, but the breakout, the tight range, tightest range in about four years in terms of two to three weeks that tight, looked at it there on the chart it closed at the high of the range today. i think it's up and out. >> you know, one thing about buying that longer-dated option is that over the course of the next week, through the developer's conference, that is not likely, on its own, going to decay very much, right

so, you know, there is some benefit. some call for the 80 cent, because you're going to collect to do it, but you're not going to be offsetting that much decay, really, not in the grand scheme of how much the stock cost >> you wouldn't go and buy a september out of the money call for $6.50. that's what i'm trying to do here, is -- >> well, that's 3% of the stock price, right so i don't think that's such a bad play, if you're inclined to get along in the stock, is actually to buy longer-dated call i think it might be a good play. >> it's theme attic. it'snot specific to apple, but a mind-set in the market people are concerned, the whole synchronized global growth store is very much in question, again, financials and industrials not performing yet google, apple, amazon, the things that have worked, money is going there >> when you say break out here and now, what is the upside here >> ultimately, if you were to take a measured move this tight range, it implies about what dan is saying, about 1195. but once your into all-time highs, you can pick the number

want >> i'll get the last word here i think mike is saying, i'm being a cute if you think the technicals will be fine and they're not going to surprise the upside and excited about july guidance and the phones, you do calls, sell a put, buy a call, you do something. i'm just trying to be a little cute here. and i think there are a lot of ways you can do it >> you can buy calls here. the options are cheap. >> last word >> good trade/bad trade. >> now to another big event next week the asco conference, or the super bowl for drugs the world's biggest drug conference happening in chicago next week. biotech stocks have been seeing a bit of a resurgence lately, up 10% from the april low and you think there could be a breakout ahead >> a small cap/large cap thing, but let's figure oit out what we know, with one of the best areas of the market is small cap biotech, or a different way to look at it is, take a look at xbi in relation to its thigh from about three years ago. now, this is an equal-weighted

index, as from ibb, coming up next, and what we know, after contending with this prior high, we are now exceeding it, breaking out so keep that in your mind's eye and let's look at the ibb here is the difference, right? it's the large cap names that have lagged. sell ge celgene, multi-year lows, amgen, not participating. but my hunch is that this is going to start to catch up with some of the small ones if we put those two lines together, here we have them. meaning a lot of correlation and they've diverged over the past year a doubling or more my thinking is that large cap ibb is the way to play it, has got some upside here so let's focus on the ibb, top and what i have here is relative to health care sector. so now relative to managed care, relative to j&j, lily, pfizer. if i put in this downtrend line, we for the first time in about

three years broke above the line, ever so slightly, pulled back, and now we've broken out again. the beginning of relative outperformance to its sector and the spread with the small cap suggests to me that there's more to go. okay now the chart itself ibb and the channel it's been in since the low. literally, a perfect channel and my thinking is that we are at this low end and that we're headed to the high end so i want to be long ibb here. pretty straightforward thesis. >> all right so mike, how you trading ibb >> you know, several of the constituent stocks of ibb, which is basically the proxy for the nasdaq, bio-tech index are trading very cheaply the names he just mentioned, celgenes, lilies, they were trading nine times earnings. we thought they were cheap at 10 to 11 times earnings biogen seems to have turned. but here's something to think

about. it hasn't -- it's outperformed over the past month, but not over the past year not over the past five years but if you look back for the history of this index, it has about doubled the performance of the s&p total return index why is that? because it has great demographic tail winds, right? these are transformative companies that are developing transformative product that was huge potential customer bases and cost a tremendous amount of money. we saw that with the hepatitis drugs that came out. there was about nine of them that was obviously transformative so i think what you can do here, you can actually trade a call spread risk reversal to mitigate the cost of buying some of these options. i was looking at the july 103, 110, 117 call spread risk reversal, selling the july 103 puts for 95 cents, buying the 110 calls for $2.65, and selling the july 117 calls for 45 cents now, this is only going to cost you a little over a buck to do this trade one of the things you can take a look at. if you look at the same trade in june, you're going to notice that it isn't much different

fliein price. what that tells you is, this is ant trade that's going to decay much you do get participation for about 6 to 7% to the upside here >> mike, you've done this well with selling a downside put in a market that has been pretty rangebound, even if they are cheap in vol terms whatever, but you basically get long down at 104 versus a stock that's trading at 110, and then get long in the upside at 111. so that risk/reward ratio, you know, that makes a lot of sense to me. and as far as carter's charts, the most compelling chart, i think, is that uptrend the fact that it's kind of banging down on that, and you see a lot of room to mike's high strike, and that's why he's selling that 117 because a 6 to 7% rally over the next month and a half or so, would be pretty nice >> and if you were to toss in, let's say it's 50/50 for equities in general. if we're doing higher, money will flow to this laggard area

we've seen that in a lot of beaten up reality names. if the market is about to go into a big spin lower, i bet you a lot of the damage has already been done. >> but does the xbi chart look bad? because the premise of this trade is that that gap between ibb and xbi will be filled, but on a fundamental basis, there may be reasons why the ibb is trading the way it does. and that's because a lot of these big-cap biotech companies are more like pharma stocks now. there's been a fundamental sort of change in the exposition. >> and it's the small-cap ones, because theirselves acquisition candidates and they get the dream premium. when you get nothing but dreams, you can put any valuation you want on it >> and indeed, they do >> and some of these companies are also pairing off you have like bluebird tomorrow pairing off with celgene and loxo oncology early next week. these are, again, these targeted therapy oncology drugs have huge market potential so you want to spread your bets around all right, for everything "options action," check out

options action.cnbc.com. while you're there, sign up for our latest newsletter. more than 100,000 of you have. don't be the only one missing out. here's what's coming up next look, up in the sky! it's a bird! >> it's a plane! >> no, it's just soaring shares of twitter but if you missed the move, relax. we've got a way to get long for less than $2 we'll explain. plus, calling all "options action" fans reach into your pocket, grab your phone, and tweet us your question @optionsaction. if it's nice, we'll answer it on air, when "options action" returns. >> logical see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st.

hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade your insurance on time. tap one little bumper, and up go your rates. what good is having insurance if you get punished for using it? news flash: nobody's perfect. for drivers with accident forgiveness, liberty mutual won't raise your rates due to your first accident. switch and you could save $782 on home and auto insurance. call for a free quote today. liberty stands with you™ liberty mutual insurance.

(sighs) i hate missing out missing out after hours. not anymore, td ameritrade lets you trade select securities 24 hours a day, five days a week. that's amazing. it's a pretty big deal. so i can trade all night long? ♪ ♪ all night long... is that lionel richie? let's reopen the market.

mr. richie, would you ring the 24/5 bell? sure can, jim. ♪ trade 24/5, with td ameritrade. ♪ breaking down what we're seeing in tech space is another very rich man, cnbc's dom chu. >> well, melissa, i may lack the monetary wealth of other folks, but i like to think i've made up for it in other ways but jack dorsey, he's taken a good amount of heat over the years, but over the course of the last 12 months, dorsey has come out looking pretty decent for his job at the helm of both companies he is the chief executive of and a founder of, as well. and if you thought you had a nice month of may, it likely doesn't compare to dorsey, who saw his net worth increase by a whopping -- get this -- $733 million, or thereabouts. now, twitter stock has flown

right past the rest of the market, gaining 14%, just for the month of may, meaning jack dorsey's stake in the company gained around $65 million in value, not too shabby. and that means that his stake in square will account for the bulk of his net worth gain for the month, as shares of the payment processor soared by around 24%, meaning that that stake gained $668 million just during the month. again, not too shabby. if you look over the past year, investors who have been at least along for the ride have benefited to some degree twitter, still a long way away from record highs, but it's still up 88% just over the last 12 months. square shares up from over 150% in that same time frame. and by the way, set a new record high earlier today so it's been a nice run. but, melissa, what will it take to keep things moving in that upward and onward direction for both of those companies? time will tell back over to you

>> thank you if you want a piece of jack's fortune, how can you do it mike has the call to action. >> we'll take a look at using a call spread in twitter one of the reasons you definitely want to take a look at using options in a name like twitter is that the stock is clearly quite volatile the thing is that you don't want to just go out and buy outright options, though, because the options themselves quite expensive. and the structure we're looking at here is one that we're trying to use to limit our downside risk so if we take a quick peek at how the stock has behaved, you know, one of the things we can see is, obviously, it has had a pretty strong move, and we're getting right back basically to these prior highs right here the problem is, we can't really start selling puts over here as a way to collect some premium, because these ones down here are probably on the about 20%. so what's the structure we're taking a look at using i was simply going out to july, buying the 36/41 call spread, you can spend $1.45 for that that's a just a little bit over the 25% we like to pay when we're looking to buy a call spread we get a decent amount of time

until expiration, as well. and let's take a look, also, at how this works in terms of probabilities. now, had i simply just bought that call, i would have -- the stock would actually have to get up to the $38 level, just to break even so there's a 76% chance that that would happen between now and expiration by selling that 41-strike call, i've improved my odds. now there's about a 93% chance between now and expiration, that stock is actually going to get to my $37 break even and here's the other thing selling that 41 straight call, there's only a 36% chance between now and expiration it was actually going to get there anyway this is a nice option to sell and that obviously has improved the likelihood this trade is going to be profitable significantly. >> dan, what do you think of the trade? >> i like the trade and i think mike lays out the probabilities pretty well. for me, i'm usually generally catalyst driven, so i look at what the event will be to catalyze that mauove up to his high short stake that's really beginning to fall in august expirations. it really depends what you're

playing for, continued momentum over the next six week or so or if you're looking for an event to catalyze it, but i like his strikes and his target and the risk/reward makes sense. >> let's look at -- you had a chart up there >> yeah, or i drew one >> you drew a line so i have some twitter charts here skpleand let's try to zeroo those. the key is on march 14th, the stock was 36.60 and today we pushed above those highs at $36.65, ever so slightly so a new high. and if you look at the current high in relation to the five-year bottoming out formation, the implications are higher and really aggressively so >> yeah. i mean, the idea here -- and that's a good point. because i think they report on the 27th, which comes after -- july 27th, by the way. that's after the expiration of the structure. but i absolutely am just simply playing the stock's momentum here it's been strong now for a couple of weeks. and i think that it's likely to continue >> and why the catalyst is important to me, last year, they actually had negative sales growth for the first time since

their entire history and it's expected to be up 19% year over year, getting to $3 billion or nearly. and on a gap basis, profitability. if this quarter demonstrates this continued revenue growth with better monetization and better profitability, than this stock is going right to mike's target sometime soon, but you might need that catalyst all right, coming up, disney flying so low. get it, "solo," solo the new "star wars" sblauinstal failed to impress at the box office send us a tweet @options action and if it's nice, we'll lead it later on in the show much more "options action" right after this well, it's earnings season once again. >>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. moderate to severe rheumatoid arthritis was intense. my mom's pain from i wondered if she could do the stuff she does for us which is kinda, a lot. and if that pain could mean something worse. joint pain could mean joint damage. enbrel helps relieve joint pain, and helps stop further damage enbrel may lower your ability to fight infections. serious, sometimes fatal events including infections, tuberculosis, lymphoma other cancers, nervous system and blood disorders and allergic reactions have occurred. tell your doctor if you've been someplace where fungal infections are common. or if you're prone to infections, have cuts or sores, have had hepatitis b, have been treated for heart failure or if you have persistent fever, bruising, bleeding or paleness.

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(indistthat was awful.tering) why are you so good at this? had a coach in high school. really helped me up my game. i had a coach. math. ooh. so, why don't traders have coaches? who says they don't? coach mcadoo! you know, at td ameritrade, we offer free access to coaches and a full education curriculum- just to help you improve your skills. boom! mad skills. education to take your trading to the next level. only with td ameritrade. welcome back to "options action." we've got a news alert now on palo alto. josh is in san francisco with the details. josh >> melissa, some big news here out of palo alto networks, announcing that its board of directors has named nikeh arora as chairman of the border and

ceo june 6th nikesh arora former ceo and president at soft bank, also a big name out here in silicon valley as the former executive at google. >> thanks a lot, josh. see the stock popping in the after-hours intrade, granted, but still up >> here's a huge hire. you're playing with strength here the stock is making all-time highs on this sort of thing. i don't think you have to go out and buy it, but this is a company that doubled their sales in the last three years. now they need to get to gaap profitability, this looks like the guy to do it last week, mike said disney was set to soar on the back of its han solo movie debut >> you know, i am modestly establish on disney. the stock is trading at historically cheap multiples i think this is probably going to be a success at the box office i was looking at selling the june 103 puts. when i was putting at that, the stock was just under 103, slightly in the money. i could select $1.70 for that.

>> but instead, han solo sent disney shares so low get it so low stock down around 3% since the time of the trade. what do you do now >> one of the things i pointed out when i put this trade on, i was comfortable buying disney at the 103 stock. if you had the stock put to you, the play was to hang on to those shares i think it's a great candidate for that the stock is trading at historically very cheap multiples compared to how it has historically i think, you know, yielding almost 2% in terms of dividends, 13 times forward earnings. i think the "solo" story is probably likely going to turn around i'm comfortable owning the stock at these levels. >> patience is a virtue, and in this case, that's probably what's required. >> if you were to screen for stocks at or near 52-week lows in this environment, i mean, something can't be right i mean, maybe your premise is going to change, but i would rather wait for a few updates first. >> you saw "solo" twice? >> i did i thought it was great i think the stock rallied 5%

into the thing, whether it was excitement about it or not he was prepared to buy the stock there. he liked the potential leverage of the trade structure he had. not too different than what he talked about in twitter here in a name like disney, i think it does make sense to sell puts to buy calls when you're bullish if you're willing to buy the stock at that price. >> up next, we have were tweets and the final trade. see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade

(sighs) i hate missing out missing out after hours. not anymore, td ameritrade lets you trade select securities 24 hours a day, five days a week. that's amazing. it's a pretty big deal. so i can trade all night long? ♪ ♪ all night long... is that lionel richie? let's reopen the market. mr. richie, would you ring the 24/5 bell? sure can, jim. ♪ trade 24/5, with td ameritrade. ♪ we have time for a tweet and our fan asks, can you explain a butterfly. mike >> very quickly, so you buy one option, sell two options slightly away from that, and then buy another one to cover it the objective is you want the underline to run to the short strike where you're short those two options. >> good explanation. time for the final call. carter >> like biotech, big cap

biotech. ibb long >> mike? >> call spread risk reversals there and call spreads in twitter. >> dan >> so apple, if you're establish, call spreads or call calendars. >> our time has expired. i'm melissa lee. thanks so much for watching. see you back here next friday for more "options action." don't go anywhere. "mad money" with jim cramer starts right now the following is a sponsored program paid for by my pillow do you find yourself sleeping too hot or too cold, not getting the support you need to help relieve painful pressure points or struggling just to get comfortable? then get ready for a revolutionary, new sleep experience. introducing the my pillow mattress topper, the next generation in sleep innovation from the company that brought you the world's most comfortable pillow. [applause]