Because it has been a mixed quarter for the highflying f. A. N. G. Stocks. Netflix and alphabet both surging. But giving back most of those gains. Amazon tanked. What can we expect from the last of the group, facebook, when it reports next week. Lets get right to the money now. Dan. You may be surprised, but i would be very surprised if there was a some sort of big negative surprise in facebook next week. I think amazon, what happened there, was about spending and it was about conservative guidance going forward. And, listen, i wouldnt put it by the people over at facebook. Their stock is up 25 in the year. Think about how much market cap its gained. 100 billion. They have made a lot of Strategic Acquisitions with that currency here. And they are investing like bezos is for the future. I dont mean to sound really bullish into the print with the stock very near the alltime highs here, but i wouldnt be surprised if there is something fundamental to their business that takes the stock down. It would be about spending. Whats interesting to me is, you know, google deserved to trade higher, if any stock did. Very reasonably priced. It doesnt have an Expiration Date on their product like apple might, and they had very good results. To me, it just feels like everything is a little bit heavy in this space, and i have a hard time believing that facebook is going to gun higher if google could not with the results they came out with. If you think about google, really didnt trade higher. What you call price impact, which is the percentage change from two days prior to one day after. Meaning google had already run up into its earnings. And at that point, todays action, its unchanged over a fourday basis. And i think the thing we know is this. When the top five stocks in the s p are equal to the weight of the bottom 250, and that is the case right now, both 2. 5 trillion, from this point forward are a one, two, sixmonth basis, better to bet on the bottom 250 than it is to bet on the top five. Thats apple, amazon, google, microsoft, and so forth. So facebooks going to have to be perfect, and the question is, is it priced in. So what do you do . I actually think it could be. When you think about just the price action today. Like i said, amazon down 5 and google barely up. And i think the risk is really to the down side in facebook. If youre interesting a new long and think the stock could actually break out to a new alltime high and maybe a new high earlier in the week, i think you want to define your risk. The problem here is the option actions in facebook are very high headed into the print. I got inspiration from mikes playbook on butterflies last week. If you want to define risk long, think of it as a stock alternative, maybe take some off the table, want to define your risk into a potentially volatile event, the Options Market is implying a 6 move in either direction. Thats like 22. 5 billion given this current stock price. So i think it does make sense to define your risk. I would use a call, butterfly, looking at november expiration, and i want to define the range. 6 to the upside would be about 140 with a stock trading at 131. 50 today. You could buy the november 130, 140, 150 call butterfly. Paying 3 for that. So here whees youre doing. Youre buying one of the november, 130, 140 call spreads and selling one of the november 140, 150 call spreads. It cost you 3 to do that. Like i said it cost you 3 to do that trade. Your breakeven at 133. The stock trading at 130, what im trying to do is mitigate some of the potential vol collapse after the earnings event. And im selling more options near the money than i am buying. That way, if the stock just does what google did, its not going to murder me, okay . Ful it goes down, i define my risk to 3 bucks. And thats where to me on the charts, you dont want to be long facebook. This is actually a fly that sets up, i think, perfectly for earnings. Number one, youre able to price in such a way youre targeting the average move. The one youre buying for the up side protection, 15 cents, a tenth of the percent. Youve got to buy that cover the upside. It would be crazy if you didnt. Even though its highly unlikely facebook is going to shoot through 150. And the other thing is, flies cannot be in this case. Your expiration is shortly after next weeks earnings. It actually is setting up, i think, very nicely. And i mean look. Its beaten talking about 12 out of 12 quarters in a row. Not up post earnings. Three of the last 12, actually has traded down, even though its beaten. In terms of the chart, its obviously important. Roy no one needs me to interpret, its an up trend. Up and to the right and steady and relative strength is good. Its not faltering. The market has. You know what . So has amazon until it wasnt. Right. And to me this is really an options trade. Not a pound the table, get long facebook before the earnings. But heres the thing. Im risking three. Its a dollar and a half in the money. Okay. So the breakeven is a dollar and a half away. I can make up to seven if the stock was at 140. If it blows through 140, i still make money from 140 to 147. So theres a huge range to the upside if things get out of hand. And like mike said, i dont want to do a call fly too long dated. This is just a couple of weeks after the event expired. You really believe the stock is going to move 6 either one way or the other. You want a trade thats going to pay you more than what you put into it if you get your bet just right. Lets move on to biotech. The pain continues with the ibb. Closing the day down almost 2 . Big phrma got whacked too, so could the stock be a bargain now . Meg tirrell has more on this. Hi, meg. Biotech investors hope people think its bargain now. If you check out health care for the year, its been a really tough one. You can see there the ibb down about 23 for the year. October was particularly bad as well, biotech losing 14 for october. As we saw, things like ariad getting a letter from the government over its leukemia drug, mylans epi pen still getting scrutiny. Of course, is the scrutiny over drug prices . We saw the pain in amgen and enbrel and insulin prices in the united nations. That hurting biotech. The coming election also scaring biotech investors. This fear of a potential democratic sweep. The news today with Hillary Clinton maybe making that slightly less likely to happen. Of course, californias prop 61 also a big topic. Drug industry investors are focusing on that would sort of mandate some drug rebates in that state, people in the industry really, really not liking that one. If you check out p. E. Multiples historically for biotech, they crossed over with phrma and the Broader Market at the end of october around the time Martin Shkreli came out, drawing Hillary Clintons attention to the space, that tweet that sent biotech stocks downward and theyve continued from there. So biotech, this is a chart from rbc, trading now about 13 to 14 times earnings lower than phrma and the Broader Market. Michael at rbc saying they should be trading about 15 times, and they should be trading at a premium to the market, given Growth Prospects in the space. Thank you so much, meg tirrell. The backdrop not good, but chart master says one of the beaten down stocks could be so bad, its actually good. The worst thing you can do. This is like not for the faint of heart. Youre buying catching the falling knife. Today more destruction, amgen down, mckesson. I want to look at brings tal meyer, its own set of problems. Nothing short of a beating this year. But lets look at some setup charts and try to get down to bmy. So just to put it in longterm context, this is one of the parts that composes the whole. The part being the orange, the whole being the blue. S p 500 in orange, health care in blue. And what we know is on a very longterm basis, if you look at your chart, youve got exactly the same performance. But when you do things like this, absolutely, it doesnt tell you relative. Just tells you well. Wow, they look the same. Obviously, theyre not. Lets look at the relative performance. That is the same chart, same time frame, done a different way. Okay. There they are juxtaposed, one to another. And here is the health care sector, and its relative performance to the s p. What we know is that when health care was going down, of course, in the crisis, 0809, its shocking, meaning the very definition of alpha. You want to be something defensively. Whats happened now, of course, is that while it kept up for most of the bull market and was with the market, obviously, it has been a relative underperformer. What appeals to my eye, however, is that were right back to where we were and where we were some 12 years ago, meaning theres been no relative outperformance at this point. And i think that based on its valuation, so many other things weve just heard, this is a point where you want to be contrarian. And now lets look at one of the worst of all, of course, bristolmyers. Here is the whole, one of the big parts, health care. And here then is a subset of health care, bristolmyers. I mean its really been doggy. Now, longterm chart. You can call this whatever you want. A lot of people call it a double top. I put some circles in just to sort of now, at this point here, we dropped about 40 . Guess what this is. This is about 40 . I think this is where you get some sort of throwback and i think this is where you get it about right like this. Im going to play for this being an oversold again, catching a falling knife as a matter of technique, terrible. Here is the actual fiveyear chart of bristolmyers. And here is the line that its down to. I think you get a good bounce here after this selloff. I want to be contrarian and make a bet on bmy. All right. And, mike, you know, the fundamentals are actually improving, given the last Earnings Report it posted. Yeah, were looking at a company 15 for the year. 22 , i think, to the bottom line. They are in oncology and cardio. These are big areas. So obviously from fundamentally, i think its a pretty good story. It is trading about two times richer than the group though. So when we Start Talking about it being a discount to the market, this ones only a mild discount and were trying to catch the falling knife. So im not inclined to sell downside puts in a situation like this. So i think the way you want to play this is to look out to january. By the 52. 5 call spread, spend 1. 5 to get that, basically think about it this way. If it does trade down to the mean valuation of the group, that takes it down to about 45. You dont want to be short the downside. If it goes up to that level, 56, 57, 60 to 90 days, this is the target were choosing there. A buck and a half, obviously, youre only spendings a small percentage of the current stock price. Would you do this . The stock is down, what, 25 of the year, cut in half over the last year. 3 dip in yield. A great balance sheet. So i suspect if they kind of put some of their cash to work, this stock is going go higher. The idea of actually selling that upside call, so mike buying a call spread makes sense. The implied volatility, the price is elevated and im sure thats what you were thinking about. Normally wed maybe sit with a fewmonth outcall and wait for the move. Premiums are elevated because there are some big stories. Divo, their drug that obviously didnt do well, and the lung cancer trials, the big part of the reason we saw that chart fall off. Thats really where a lot of the promise lies. There and eliquis in this thing for the next five years. So thats why the volatilities are elevated. That doesnt mean y th are there going to be any big cap phrma mergers . Do we see some of the big guys come together . I know that was a thing last year. They dont just none of that. But what destruction . Thats the point. First bristol and today amgen. Mckesson. At some point, you reach a cathartic selling for the whole group. I think youre kind of there. I get that on a technical basis. But, mike, why not wait until wait 11 days and then put a trade on and see what happens. I dont think first of all, if something if something if todays news somehow changes things, then thats probably going to be better for this group, but i dont think it does. I really think what happened today is going to be is going to be blown over by this time next week. Got a question . Send us a tweet to optionsaction. And check out our website. Youll find our latest trades, news, and videos. And while youre there, check out our super cool news letter. What are you waiting for . Heres whats coming up next. Heres whats been happening to shares of twitter. No weve got a way to get long shares for almost nothing. Well explain. Plus, talk about an oscarworthy trade. I cant deny the fact that you like me weve got a way to make money on disney if shares go up, down, or nowhere at all. Howdy, maam. Well show you when options action returns. [pony neighing] what . Hey gary. Oh. Whats with the dogsized horse . Im crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. Isnt that right warren . Well, you could get support from thinkorswims inapp chat. It lets you chat and share your screen directly with a live person right from the app, so you dont need a comfort pony. Oh, so what about my motivational meerkat . Inapp chat on thinkorswim. Only at td ameritrade. Hey nicole. Hey i just wanted to thank your support team for walking me through my First Options trade. Well, i feel pretty smart. Well, were all about educating people on options strategies. Well, dont worry, i wont let this accomplishment go to my head. Im still the same old gary. Wait, you forgot your french dictionary. Oh, mucho gracias. Get help on options trading with thinkorswim, only at td ameritrade. Welcome back to options action. On the heels of at ts proposed 85 billion deal to acquire time warner, m a will be a hot topic when a number of Media Companies report earnings next week. Julia boorstin joins us with the latest on everchanging landscape. Julia. Thats right, melissa. There are two areas to watch. Tv trends and m a. They will be very much in focus as analysts and investors try to figure out where media is going from here. Next well hear from discovery, time warner, fox, cbs, and charter, and then we hear from disney the following week. Everyones trying to figure out what at ts historical deal means for the other media giants, whether at ts vertically integrated behemoth will pose tougher competition and whether it will prompt more consolidation between content creation and distribution companies. Now, the only media giant to report so far is comcast. It got a boost from the election as well as the olympics. The question is how much the other big players will benefit from the political ad surge and how much comcasts olympic gains caused viewing losses elsewhere. We can also expect lots of questions about whats underlying the nfls persistent ratings decline and whether it will turn around and, of course, impacts espns disney, fox, cbs, as well as nc. Now sports is in particular focus because those expensive sports rights are considered the glue that is holding traditional tv together, that bundle. And with the world series under way and the nba season just getting started, well have to see if other sports follow in the nfls decline. Melissa . All right, julia boorstin. Thank you. The decline in the nfl ratings could hurt one media giant in particular, and that is disney, whose espn unit has seen big declines in viewership. So whats a good way to play right now . The call to action. Mike. Okay. So we are going to talk about actually one of the most common option strategies there are. An Investment Strategy called selling a covered call. You want to do this when youre mildly bullish on longerterm holdings. I certainly think disney qualifies for that. You want to look for premiums that are going to reward you for sacrificing some upside in the shares. And finally you want to choose a strike for that call that still gives a little bit of upside. Lets take a look at disneys chart here. Now, this is interesting. Going into earnings, were looking probably between now and november at a move of around 4 on average until, you know, next three to four weeks. Thats about what we have been seeing in the longterm and over the last four quarters. So the way to capitalize on that, look at the november 96 calls. You could sell those for a dollar. Thats with a stock at around 93. 80. Still a little bit of an upside. Notice this breaks even right up there, basically around 97 bucks. Targeting that 4 , 5 move to the upside, obviously if it goes down, you will take some losses. But youre still going to be better off than you would have been by just owning the stock because youre going to be able to keep that 1. All right. So lets talk disney. Dan, what do you think . If youre long disney, the likelihood of a sharp increase in the stock to the tune of 10 , get it back unchanged, doesnt seem particularly likely given the trends in the space. So i like the idea of rolling shortdated calls, taking in yield here. One idea, would you take that call premium and maybe buy a put and collar it and really protect yourself because if they were to make a long acquisition, i dont think investors would like that. I think the trading action, if you were just do a simple screen, how many stocks of this size, 150 billion or go down are actually up on a rolling one, twoweek basis. Markets pounded. Disneys daytoday relative strength suggested a bottom. We know its about 30 . On a rolling 18month basis, one of its worst relative periods in history, and this looks like its found a floor. I think its up. Yeah. Mine slightly over a year ago basically on this sports thing, we basically that was august of last year, skinny bundle comments and basically cord cutting. Thats when a lot of the premium that disney had before that got sucked out. So kind of think that fundamentally it also makes a lot of sense here. All right. Still ahead, twitter shares tanking to the tune of 23 in just the last month. If youre long the stock, weve got a way to get some of that money back. We will explain after the break. [pony neighing] what . Hey gary. Oh. Whats with the dogsized horse . Im crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. Isnt that right warren . Well, you could get support from thinkorswims inapp chat. It lets you chat and share your screen directly with a live person right from the app, so you dont need a comfort pony. Oh, so what about my motivational meerkat . Inapp chat on thinkorswim. Only at td ameritrade. Hey nicole. Hey i just wanted to thank your support team for walking me through my First Options trade. Well, i feel pretty smart. Well, were all about educating people on options strategies. Well, dont worry, i wont let this accomplishment go to my head. Im still the same old gary. Wait, you forgot your french dictionary. Oh, mucho gracias. Get help on options trading with thinkorswim, only at td ameritrade. Welcome back to options action. Time for our total recall. We take a look back at some of our open trade. This hasnt cost much, and heres why. On options action, its our motto, in less than 140 characters. Risk less so you can make more. And thats what dan tried to do with his bullish bet on twitter. Dan thought the social media stock was going higher. I dont think this board can sell this company for less than that 2013 ipo price at 26. But buying 100 shares would set dan back nearly 2,000. So to spend less, dan instead bought the december 24 strike call for 65 cents. Now in order to make money, dan needs twitter shares to rise to the strike of that call by more than the cost of the trade. Or in this case, 24. 65 by december expiration. But spending 65 cents to bet on twitter surely, you cant be serious. I am serious. And dont call me shirley. So to cut his cost, dan sold his put for 65 cents and created risk reversal, but he did something else. He also made it easier to make money, and heres how. Between the 65 cents he spent buying the call and the 65 cents he collected selling the put, dan was able to put the trade on for nothing. Nothing . Yep. Nothing. And that means if twitter shares take just one penny above the 24 strike call, dan will make money. But nothing is free. And because dan sold that put, he could now be obligated to buy twitters stock at that put strike price. Or in this case, 16, even if twitter falls well below that level. And since the time of the trade, unfortunately thats exactly what has happened, with twitter shares down 9 . And now with no deal on the horizon for the social giant, twitter is in a rage, calling foul on a trade gone awry, and they all have the same question. What will dan do now . So heres it is at 16 bucks. So here is the question for dan. Would you be willing to have the stock put at 16 bucks. I would. So heres the thing. At the time the rumors had abated, the stock at 1970. I said i wouldnt buy the stock, but i want to get the stock in december expiration. Down at a level where i think there is a lot of valuation support. And also give leverage to the up side. When i think about this trade, the stock down 2. I like that, given the news flow and everything like that. Just quickly on the stock, i think its trying to find a bottom here in the high teens. Look. If you take a look at buying a stock at 20 on all of that chatter and then you think about the risk of it falling to its alltime lows around 14, if something fell through, thats a 30 decline, the risk you were taking by buying the stock there. By selling the 16 put, your risk to the absolute lows was 10 of the stock price. Where it would be put to you. If youre going to try to make a bet to the long side, after its already had a big run like it had i like the trade at the time. And i think it still makes sense. Its a gambling chip. Come on. It came out 50 at the ipo. Its 17, going straight down since the day it was born. Ive never seen anyone come out so quickly, person to refute, disavow, reject. No, were not interested. No, were not whos going to buy it . Were talking about rumors. The only thing im going to say quickly, i think it might have shown some stabilization here, so we might be finding a bottom. All right. Coming up next, the final call from the options pits. Pony. Oh, so what about my motivational meerkat . Inapp chat on thinkorswim. Only at td ameritrade. Hey nicole. Hey i just wanted to thank your support team for walking me through my First Options trade. Well, i feel pretty smart. Well, were all about educating people on options strategies. Well, dont worry, i wont let this accomplishment go to my head. Im still the same old gary. Wait, you forgot your french dictionary. Oh, mucho gracias. Get help on options trading with thinkorswim, only at td ameritrade. Weve got time for a tweet. This one is for dan. The retail trader says gold, what is it good for . I dont know. Jewelry. What do you think . I think enough gold is a currency and a very important investment and you should have some. All right. Time for the final call. The last word from the options pits. Carter . Bristolmyers, catch the falling knife for a rebound. Mike coe. Cover calls are one of the best Investment Strategies you can avoid, disney in november, 96 if you already own the stock. Dan nathan. Do it with a defined risk. I like the november call. Looks like our time has expired. Im melissa lee. Thanks so much for watching. Well see you next friday for more options action. Mad money starts right now. Announcer the following is a paid advertisement for the shark rocket complete with duoclean technology, presented by sharkninja. To get your carpets really clean, you might think the bigger the vacuum the better. But big means bulky and heavy. Is that really what you want . So shark introduced a totally new idea with the original shark rocket ultralight upright and nearly 2 million have been sold. With true no loss of suction. The power to deepclean carpets and floors. And the versatility for abovefloor cleaning, too