which is up about 8.5%, is really, you know, potentially a problem for the market. we have five stocks that make up almost 25% of the weighting in the nasdaq composite. those stocks are apple, oracle, intel, microsoft, cisco. we've seen this movie before and it doesn't end that well. when we look at the s&p, two of the largest weighted stocks in the s&p 500 are exxonmobil number one, and chevron, those two stocks are down 9.5% and 7.5% respectively. if we have another leg up, we need those stocks to participate. >> you either need that to happen or you need the unthinkable, which is for the same tech names to continue to rally to the moon, i would guess. there's definitely a couple of reasons the energy sector is a place to look. number one, any economic recovery is not going to see us rocketing up because unemployment dropped and we start seeing massive productivity gains. what we're probably going to see

is some of the big cap names that have underperformed, as the ones dan just referenced here actually start to outperform now. and they have typically over the last nine years, these are names that have done really well. this year, not so much. in fairness, exxon significantly outperformed the market in 2008. it was a good defensive play despite the fact that oil prices plummeted. >> it's going to be a fine line. we want to see that price of oil move higher in order for those oil stocks to have some sort of momentum higher. at the same time, there's a negative correlation when you take a look at the consumer names and oil. you don't want it to get too hot or else you have the rest of the market kind of falling flat. >> absolutely. and i would say what's interesting about the trading on the options, particularly in the oil sector. those are your two etfs is volatility buying.

now a couple of sectors mike and dan referenced earlier, the tech sector, your tech etf, put buyers and protection in this rally, go to the xlf, put buyers, some protection there. where is again? energy, are we going to have a breakout here? individual stocks, there's nothing too crazy going on, that's okay. that could be a great opportunity. when things are quiet in the options, sometimes it's better to get involved. what is most fascinating this week, ets became much more popular again. people were using them to hedge to really look for different ways to position themselves. you could look at the agriculture etfs, as i mentioned the energy, the financials, the tech, pretty much across the board. >> scott, does it matter. i'm going to take the other side. does it matter it's energy in particular? we're putting emphasis on this. you want to see leadership, but can it be health care, another name outside of technology at this point? >> it could be. but as we pointed out, oil is such a huge portion of the s&p. now stacey makes a great point, we've seen volatility buyers in oil names, but haven't seen directional option trades. and that may be the -- this may be a situation where it's the

dog that doesn't bark is important. what this may be saying is people don't have an opinion about oil because we've seen so much volatility that even bad earnings news from oil is going to be discounted. people may well say -- oil's back above, well above $60, and we're going to -- we're going to focus on earnings going forward because now oil's fully priced. >> there's a little bit of a backstop in the energy names. first of all, the multiples in these things are low, lower than the s&p and lower than they've historically been. the second thing is the futures tell us a little bit about what the expectations are for crude. it's one of the few spaces where we can actually see what the anticipated price is for the product that they sell. and the demand equation has been keeping the price relatively low in the near term. and in crude, much more so even in natural gas, which we'll get to in a second when we start talking about which stock has the play here. but there's no question when you look at this, there's a little bit of a floor.

to where i think the energy names can fall. >> let's throw out the earnings calendar briefly. you mentioned a play. two big names coming out. thursday, exxon mobil, friday, chevron, chevron is the name in terms of the play. what is the trade, mike? >> one of the things, when we spoke about the integrated oil space, a good way to make a play on oil in the past and i typically mentioned conocophillips. i've said that a lot. it has proven to be a little bit of a value trap for me because it trades at five times earnings, 15 times forward earnings estimates and depends on what you think the future price of crude is going to be. reason for that, more exposure to refining, they invested heavily when crude prices were very high. they have more leverage, there's a lot of things that actually have sort of worked against it. despite the fact that i still think that maybe that's going to make a move, i'm looking at chevron with less exposure on the refinding end, less exposure on the natural gas end, and discounts on a multiple basis to exxon, which is the market leader. what i'm looking to do here is january 10, 60-75 reversal,

looking to sell for $2.40 and buy the 75 call for $2.35. i'll collect 30 cents to do this trade. the reason i picked on the downside, it has gone below that level a couple of times but an attractive level to pick up the stock. this is a bullish play in cbs. >> dan, what do you think? >> i don't like the timing of it. i think the market has won a great deal. i think as we already noted, this stock has really underperformed the market. i think if we have some sort of correction that has to do with the economy, maybe rolling over again, i think demand for crude is going to be down. the price of crude is going to go down, and these oil stocks that trade very poorly are going to trade even more poorly. >> well, you should start buying puts on the s&p in that case. but i really think, it isn't just -- an economy recovery story here. i don't really see crude prices coming down a whole lot and i don't think a lot of people think in 2010 we're going to. and you're going to see some purchases of the integrated ahead of those expectations for higher oil prices. >> just quick --

>> one point. one point out there, separating the thesis, let's forget our thesis on oil. let's look at this specific trade. if you're thinking about buying the stock, this is a more interesting alternative. if you have a resting bid out there, this is a better way to play it. third thing i would say, if you're thinking about buying the stock versus doing the trade, this definitely has some margin requirements. similar to buying a stock, but very different from a call spread here in terms of margins. >> we've got to move on, we've got a jam-packed show. next option, ace in the hole, that is the hope, at least, of las vegas shareholders, left for dead casino stocks have been on a tear as investors have taken the bankruptcy card off the table. doubling down here. let's go into the zone. option prices for lvs implying an 8% move on earnings, less than the average four quarter move of about 15% for the stock. few play the odds better than our own stacey. stacey, what are you seeing in terms? >> what i like with this story, let's compare two stories that

are similar, winds and las vegas sands. looking at these two stories, las vegas sands has been applying half of what we've seen over the last four quarters, an 11% move compared to the move closer to 16%. wind is less, it's more than las vegas sands. i like these stories because they're similar stories. i want to compare those movements. looking at the las vegas sands volatility looks inexpensive to me heading into earnings. i want to own that volatility. the first thing i look for in a trade was i didn't want to end up being short options, then i had to go to the thesis here. i actually think it's an interesting story because everybody knows the downside to it. everybody knows that things aren't great in las vegas. they're having debt covenant issues, financing, we know that story. i think it's very well and mike has said this before, i think it's a great point, it used to be a binary event, are they going bankrupt or going to be okay? they could say so many things that would send this stock higher, i was looking for upside potential here. keeping in mind, yes, over the last two weeks, i don't

recognize stocks up 60%, with the market up not nearly close to that. the trade i was looking at specifically buying the august 10 calls offered at $1.60 when the stock was trading around $10.80. break even, stock's going to increase about 6%, that's well less than its average move. again, i'm picking the one direction that i think the up side is more interesting. i think there are definitely different ways to play. any way you play las vegas sands, you have to own up. >> i've got to jump in here. you're talking about a cheap move and volatility is cheap relative to historical, then you've got to make a volatility play. to me, buying $1.60 option on a $10 stock, you need a 16% move. one way you need it to go up. unless you think you have some sort of edge, why this stock is going up, i think the trade's a punt. i love you, stacey, i just think that this is --

>> all right. you probably want -- >> stacey was right about the direction. >> hold on. scott's got a position in lvs, i believe. scott? >> that's right, i do. i think stacey is right about the direction, but i think she's wrong about the trade. two weeks ago in the jan 2011 $15 calls, we saw huge buyers and stacey is right about the direction, but i think she's wrong about the catalyst. i think we've already had it. it's when wind and vegas sands talked about ipos for their projects to get those back online. it's critical for vegas sands to make that happen. that is the catalyst. i think it's absolutely a buy -- >> i have to jump in here. >> august calls because, look -- >> wait a minute, wait a minute. before everybody gets in such a huge twit about the amount of risk being taken here. >> twit -- >> first of all, it doesn't require 16% move, this is a ten-strike. this is $10.90 stock. there's 70 cents worth of extrinsic premium, if the stock

stays still, that's what you're risking. let's keep things in perspective. that is less than 7%. we don't need a 16% move. if you really were concerned about a possible downside move but still wanted to make a fuller step, you could look for a similar amount of extrinsic premiums. by doing this, you're risking less than you would be. can it move 7%? absolutely. >> all right. let's move on here. time for the music. and this would be disney's "when you wish upon a star." new indoor record for cheesiness, which we try to do every week here on "options action," or we're about to have a substantive conversation about two competing derivative strategies.

anyone who knows the show knows it is the latter. time for the award-winning "put up or shut up." dan and mike agree on a direction of a stock but duke it out over the strategy. disney is set to report earnings next thursday, but we have got the trade tonight. and we should be clear this is bearish. they're both bearish, but dan, how are you playing it? >> well, listen, the stock has just rallied 20% in the last two weeks. it's kind of pinning its hopes on some form of outlook that's going to be better than expectations. i think this move in the last couple of weeks like i just stated kind of incorporates a lot of that enthusiasm. here the stock is at 26.5 or so, what i want to do is buy august 26 24 put spread, i'm paying 75 cents for the august put. and my max gain is $1.45 and max loss is 55 cents, this can be used as cheap protection against a long position or it could be an outright bearish bet. and one of the things i'm playing for is retracement of that 20% move, maybe about 10%, i don't think the stock's going a whole heck of a lot lower. and i think this actually sets up a pretty decent risk reward.

>> ding, ding, ding. mike, you're up. >> well, first of all, on a -- just taking a look at consumer spending, i think you're going to make a bet here, a bearish one, certainly something to look at. and as he referenced, long the stock, had a good rally, you might look to protect some of those gains. mcdonald's was disappointing revenues. clearly the consumers aren't out there spending. what's that going to tell you for movies, theme parks, everything else that disney's involved in. that helps make the bearish case. i wouldn't buy that put spread and there's a couple of reasons. the first is, we're playing this with a catalyst, an event coming if you're trying to make a short-term bet like that using options. one of the things about spreads is, they rarely realize the full potential of the profits they can make right after that catalyst. i would just buy the 24 put that

he would sell that would provide me with the protection down if the stock really does collapse if i was going to own it and if i'm going to take a bearish bet. you don't need it to be profitable. wait for the stock to fall. >> before stacey rules, this is another one, the only person going to make money is mike's broker here. you're not going to make money on that 20 cent option, that's 15% on the money. >> no rebuttals, that's a rule. stacey, judge stacey, weigh in. >> two things here. i like both trades from a bearish perspective. in terms of the catalyst, i have to agree with mike on this. if the stock goes down, mike's trade actually has a better shot at giving you a 50% or 100% return than dan's does that next day. i like them both thesis wise, i think they're interesting, but that next day, mike's going to win. >> was that a surprise that she thought it was mike? >> not really. >> got a question, send us an e-mail, the address is

optionsaction@cnbc.com. you heard it at the top of the show, stacey correctly called the selloff of microsoft off the break. up next, her next move. more "options action" when we come back. time for pump up the volume, the name that heating up option traders. this perennial dotcom runner-up was a blight on tech earnings this week after the sales forecast missed the mark. but this shares and options were on the move for another reason. the "wall street journal" reporting that the company's board was meeting, possibly to reignite a deal with an old flame microsoft. who is it?

turned microsoft's pain into her gain. now she's faced one of the hardest decisions a trader faces, profit taking. on "options action," we're always looking to risk less to make more. case in point, stacey's put purchase on microsoft. >> one of the strategies i think

is attractive is buying the august 24 puts they were offered at 90 cents. >> when options traders purchase a put, they're making a bearish bet that the stock will fall, owning that put allows them to sell that stock at that put strike price. as the underlying stock falls the value of that put increases. in a case of stacey's trade, she paid 90 cents to buy the microsoft august 24th strike put betting the microsoft stock would fall off earnings. >> my concern is here what can microsoft really say after this current rally? can they boost guidance? at the same level that ibm did? i'm more nervous with microsoft on the downside. >> that 90 cents she risked buying the put is the most she can lose on the trade no matter what the stock does. but in order for stacey to make money, she needs microsoft's stock to fall, or at least settle below that $24 level by more than the cost of that put by expiration. worst-case scenario, microsoft stock continues to rally. stacey's put expires worthless and she loses her 90 cents. best case scenario, mr. softy has a hard fall in the value of stacey's put soars.

since she made the trade last week, microsoft stock has fallen 5%, but the value of the put she bought has increased by 40%. had she shorted the stock, she'd made $120, but she would have been exposed to limitless risk. by buying the put, she only risked 90 cents and the gain on her trade was eight times greater than it would have been using stocks. now this frugal femme fatal must make a choice. take profits on her put or hold out for more gains, her lesions of fans are hanging on to her every word. that's because unless microsoft stock falls further, the value of that put decreases tass heads toward august expiration. and now with the clock ticking, the options world wants to know what will stacey do now? >> okay, stacey, no pressure, but i do think that dan rather and gary coleman are watching. you bought that put as a bearish plan and sold off, what's the next move? >> right, you know, this is one of those direction is right, my timing, unfortunately was off in the sense that the market rallied.

if you waited, you either got a better strike or better than 90 cents, all that being said, if i knew the market was rallying, a lot of things done differently. i bought it at 90 cents, what did i say at the time? i did it for that play, earnings, earnings are done, i'm done, i'm selling it, it was bid $1.20 today, i'm selling it at $1.20. what's done is done. >> is that what you would've done, dan? >> she made the point it's -- she also made a directional bet. those are two things we

discussed before. we know the volatility implied for the move into the event is going to come out of it right afterwards. net net she ended up -- if you're going to sell that option today or sold it today you risk 90 cents to maybe make 30 or 40 cents. the risk-reward doesn't look great after the fact. and one of the things we have to make certain qualitative judgments about where stocks are going and where you're going to draw a line in the sand. that's one of the reasons i wanted to lower the price of -- excuse me, that 90-cent put and sell, like, the 21, i was going to draw a line in the sand and risk less. net net my trade would've up more. i'm not trying to turn this into a put up or shut up -- >> let scott be the judge on this. >> how tough it is to make money, particularly earnings because they implied volatility just gets crushed as soon as earnings are announced. >> okay. got to leave it there. got a question, send us an e-mail, we'll answer it during 101 web extra. go to our website optionsaction@cnbc.com. your chance to ask a question, our chance to educate you, that is right after the show.

time for the final call. stacey? >> sticking to my guns, i like the las vegas sands trade. >> scott? >> i'm watching oil. if we have bad news, we may end up discounting. >> mike? >> chevron, looking at the risk reversal. >> dan?

>> disney. buy august put spreads into earnings. >> our time has expired. for more, go to our website optionsaction@cnbc.com. i'm melissa lee. thanks so much for watching. see you here next week.