May soon cool. Well explain. And later, square is now a 17 billion company. Good lord, thats a lot of money it sure is. Thats why we have a way to buy it for less than two bucks well explain. Its time to risk less and make more the action begins right now. Lets get right to it. As media merger talks heat up, the biggest of all, at ts 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 . Youve 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 theres 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, thats 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 weve talked about on the show before its 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 wasnt 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. Youre risking a few percent to maybe make a lot i think this thing is a better chance than the markets are predicting right now im 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, im not so sure if you spend 1. 15, that extra 15 cents doesnt 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 thats one thats 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 theres a cash and stock deal lets just say the at t deal was cut off, the arms will have to go and buy at t stock. Im not telling you thats 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 doesnt go through, comcast is almost certainly out of the picture that could have been another way to play the idea that at ts deal goes through. Thats true one thing i would also look, this is a company that has a decent bit of debt on the balance sheet. Thats 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 thats why its 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. Ill tell you why. Its a week before thanksgiving. Then its 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 youre 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 youre thinking theres catalyst the time that time warner has dropped from 104 to 86, were back to the level before all this happened. Im 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 decadehigh these stocks are on shaky ground, carter, break it down. Im not its shaky ground, its firm ground, but does it stay firm . Theyve been very strong the question is at some point is it too strong. We know weve seen that time and time again in certain asset classes, certain stocks. I think that at this point, weve 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 its 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 150day moving average. Lets 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 im 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 lets draw the line from right here now, its gone up. We see that. How has it done compared to the market its made no progress. In fact its the exact same level it was going back to the 09 low. So it seems to me were up against an inherently difficult level and this is where youre likely to pause because of how far the absolute chart is. Lets pick on one. Big move im thinking too far above trend. You can see the spread there lets do it on a longer term basis. Again, we know that mean reversion is a powerful principle, and typically youll oscillate above and below. It seems to me the next oscillation is that way. Then theres this. This is the all data chart look where we are. Were 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 youre 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 its tough, as you were pointing out, to spend a lot of premium this time well look to collect some you could sell the january 48, 50 call spread, collect ole cents, buying the 50 calls for 80 cents, thats 40 of the distance between those strikes this is something thats 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 were not collecting this is, you know, one of those situations where i think the relationship basically between the amount of premium were 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. Whats interesting about that whole notion is like, even if it were just kind of contend, hang out a little bit, mikes 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 mikes trade is going to be golden, as long as it just doesnt you know, if it sticks around here, youre going to be fine. And then you get back to what we were talking about, this monthlong holiday period where things may be kind of quiet. Its too steep. You have the odds of a checkback. The story is generally pretty good, trading cheaper than the market thats true for this group because its a cyclical, thats 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, theres 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 its toll, lennar, phm, pulte, this is the most extended remember, this is a very small midcap large cap managers cant even own this. So theyre clustering into the one they can own because theres a certain market cap level that typically is a complacency issue that can go wrong. Check out optionsaction cnbc. Com while youre 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, well 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 its ic we,ell 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 ameritrades elite service team can handle your toughest questions right away with volatility, its 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, itsonce again. Eason yeah. Lot of Tech Companies are reporting today. And, hows it looking . I dont know. Theres so many opinions out there, its 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. Thats 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. Its 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 well look at using a call spread why . Were 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 weve 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 its an on a oneway 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 youre inclined to buy the stock. This is a stock thats 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 squares ceo on, talking about all the things, they didnt 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 its about the secular trend towards payments, the cashout, the lending theyre doing, its a great story. I cant tell you up 200 is the place to be. Thats just it, if you think about the difference between this very steep move and the steep move in a stock thats been 30, 40 years, there are cycles in the market, bull and bear markets, recessions lets take a Marriott Hotel that ultimately gets quite steep like a homebuilder, thats one thing. If its a brandnew security, which this is, you really dont have price discovery yet people that havent contended with it. Its just getting big enough to be in the market, its 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 its new. If you go through a very steep period on mcdonalds, ultimately you mean revert. We dont have a mean to revert to because its new, its very hard to use any kind of fundamental analysis to say i think this thing is getting expensive. Its trading on promise, its what everybody thinks might become of it in the future thats why its hard to call a top on Something Like this its 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 its up 100 this year its 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 ones rolled over if you think about this, you know what the precondition for severe weakness is its 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. Were not saying buy stock here. Were saying if youre 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. Well tell you what that name is send us a tweet t to tisaoponction. If its nice, well read it after the show much more options after this i think its 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 ameritrades elite service team can handle your toughest questions right away with volatility, its 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, itsonce again. Eason yeah. Lot of Tech Companies are reporting today. And, hows it looking . I dont know. Theres so many opinions out there, its 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. Thats 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 ElectricJohn Flannery seems to be the right guy to reright the ship but it could be messy in the near term. Thats 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. Were also playing for a few months here. At the end of the day i think youre probably okay if you got in early last week on this one weve been debating whether ge should have signed a capitulation right when youre trying to do something dangerous, buying something thats falling, you have to be very tight in your discipline s theres nothing wrong with trying to get long and cutting it you lose a dollar, maybe three or four, but when you get a bounce youll 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 alltime high, number two, because the things trading 20 times earnings this is really the haves and havenotes in retail, isnt 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 dont 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. Thats great, of course, but im going to make the case this is something you trim, because this is not something thats new and unknown. There is recovery. Walmart has made a fairly large move not only absolute, but if you adjust for beta, its ridiculously steep does target look better worse worse target cant even come to life this has got a problem because its 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 its 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 ameritrades elite service team can handle your toughest questions right away with volatility, its 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, itsonce again. Eason yeah. Lot of Tech Companies are reporting today. And, hows it looking . I dont know. Theres so many opinions out there, its 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. Thats 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 whats 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 2230 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 ones 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 youre contrarian, i like february call spreads it looks like our time has expired. Im melissa lee. For more options action chec. My miss is simple, to mick you money. Im here to level the Playing Field for all investors. Theres always a bull market somewhere and i promise to help you find it. Mad money starts now hey im cramer welcome to mad money. Welcome to cram america. Other people want to make friends im just trying to make you some money my jobs not just to entertain but educate and teach. Call me at 1800734cnbc or tweet me jim cramer dont blame th