of a concern to me. when i see the market rally, what i'd like to see is see it in some of the bigger names that have participated and that are telling me that investors think that those valuation res cheap that we're going to see fundamentals come toward the market. instead, we're seeing a lot of buying activity and high beta names. what we would like to see is broadening out. >> right now, the market seems to be going higher. there's a lot of positive sentiment going through the market. how do you grapple that with the fact that no trader is -- with straws? >> it seems like we have a lot

of people who are missed the move. ite a recipe or not having bought toldman, but some of the naems you mentioned, jpmorgan has put heavy call ratios on them. however, only about traded today in citigroup. it seems to me that's come quite a way. >> brian, you're watching wells fargo. >> yeah. wells fargo is another name in the baj stocks. we're seeing a lot of bearish activity in the last few days in which options traders are coming in and, of course, going out and selling calls in august. what does that tell me? some of this rally still has yet to hit all of the names in the bank. wells fargo is still trailing

some of the names here now. but i have to say, a lot of them had this openings for the last few months. i still there's there's some caution out here in the worng place, punish it looks leak some of these moves are ready to move higher and higher? yes yeah. bun emotion at two different times over what we've had the last few months. fear caused a lot of selling here and fear of missing the potential bottom, who knows if it was the bottom or not, fear is buying a lot of this buying right now. and the other point i would make, you referenced citigroup, aig and bank of america. these stocks in particular, if you look at them, this is a bay ta trade. citigroup st a $3 stock. if you're a hedge fund, you can load up on this thing. it's call and a call with a government guarantee. bank of america, the same thing. aig, the same thing.

you can buy lots and lots of shares, relatively cheap puts at this point because on historical basis and implied volatility it's massively. there's a ton of short interest here. i think what's going on -- these are rented positions. these are not funds where the mutual funds are adding at this point. >> aig is probably -- pgd. sorry. >> aig is probably a special case here, though. i don't think it's people getting into aig because they're afraid they missed the boat. 3/it's the economic outlier of the three. is a proxy for the price of options. so you see implied volatility first and that means the options are getting cheaper. dan, you've got a trade on bank of america here. >> the stock has a great run. it traded in low single digits back in january. the stock is up here in the high

teens. the company has made some pretty fine improvements here. they're trying to get that merrill listen acquisition in line. i think they're making some progress here. maybe the stocks are ahead. 57% or so off last september's high. it's about 57.5% off the january low. if you look at that on a technical basis, you're probably at an inflexion point. so what i want to do is buy the november 15.12. i want to pay 30 cents for that. what am i doing? buying one november 15 put for $110. that package costs me 30 cents. how do i make money on this the trade? between 15 and 12 and november sxiration, i can make between 9 and 12% of my money. >> i think you have some -- you know, i think you have a good probability of making a --

>> it's a critical point on this trade because usually when i'm bearish, i hate these one by twos. i see a lot of people do them. one of the reasons you don't like it is because if you're making a bearish bet and the stock comes in, a lot of times you'll see the implied volatility rise and this trade isn't working in your favor for quite some time. you're hoping at that time that you get to ride it toer andation. because you have that government backstop, you hope you get long the stock at a low level. we've got the move on here. your next option, attention, shoppers, walmart sets to report earnings next thursday. the stock isn't the only thing that's fallen this year. options proo is on the name has tumbled. this is a chart of walmart's implied volt tilt. the white line is to walmart stocks what the vix is for the s&p. so the, with volatility down so much, are traders beginning to

take directional betts on this one? >> well, with walmart, options are a great way to take the bet. in an environment where this should have been a home run for them, and you have to wonder what happens to walmart when new walmart customers go back to those old upscale doors that they used to frequent but that they were visiting walmart only because of the current situation. so there's lots of down side here for walmart and there's not much upside. given this situation, if options prices were higher, i would normally want to sell a call spread to take advantage of that. but because options are so cheap, instead, i want to use the other side of that coin and buy a put spread. specifically, i want to buy the december 47 half, 42 half put spread. i can pay about $1.40 for the spread buying that 47 half put for $2.20 and selling the 42 half put for 80 cents. so that's a trade that i want to do. there are a couple questions that come about because of this.

number one, if volume tirlt is so low, why do you want to sell that downside put? well, there are a couple of reasons. one, volatility. options produce is are not cheap. they're not free. i can cut this spread by about a third by selling that downside put. another question is why do this in december? well, i can put the same spread on in september for about half the price, but i would only own the options spread for about a third of the time. >> actually, i think that's really important that scott just made those two points. they have earnings next week. the implied move is nothing. he's looking out to december. selling that downside put, i think scott is drawing a line in the sand that the stock is not going to go below that. and don't be afraid to draw the line in the sale. the only thing you're foregoing is potential up side if the stock -- >> and in buying a put spread

instead of a call spread, you have to question whether the consumer comes back into the marketplace. buying the put spreads, options pr prices are cheap in some of the consumer staple names. it's a good opportunity to own volatility and protect yourself to the downside because there is a chance that this consumer lags in this recovery coming out of this recession. >> definitely on the table still. fans of william shatner will certainly recognize that theme song. that would be the theme to star trek. he's also the face of online retailer price line. so either he made a huge intuitive lead or we're ready to duke it out with derivatives. yes, it's the latter. team to put up or shut up where we disagree on a problem, but

don disagree on how to handle it. mike, you've got a put fly. >> yeah, that's exact lit right. one quick point with this, the consensus view has been bullish lately. positive stocks. this stock has reacted positively. up about 30% in over a month. up 80% on the year. analysts like the stock. they like it because they have higher exposure to higher margins like hotel bookings. however, in my view where you get into a situation where everybody has a rosy picture, i want to be more of a contrarian. when the implied move is a whole lot less than what we think it turned out to be, it's not going to be a great time to sell openings. i'm looking at buying a 1.30, .on 20 put.

i'm going to buy one 130 put, sell two of the 120 puts, and then buy one of the 110 puts at 80 cents. one of the reason i'm selling those two is to finance the purchase of the 130 puts. i'm going to outlay about $180 to put this trade on. at the 1.20 strike -- >> ding, ding, ding. >> that's it. have at me. >> and mike asks, why is he doing it? his broker is sitting at home going, watch your limit trades. i like mike's trade and i think it makes a lot of sense here. he dropped a lot of fundamental knowledge on you and that's great. you have to sometimes pick a direction. i want to do the same thing. i want to buy the august 130/120 put spreads. i want to pay 3.25 for that. my max is 6.75 double the premium that i have paid.

one of the reasons why i like my trade more than mike's, i think it's a bit more manageable. it gives me more prerogatives to take it off. the last thing you want to do is take off that put fly. so my trade just gives you, i think, a bit more prerogative. >> you got the bell. i'm going to pull out the hook now. scott, you be the judge. who wins? >> you know, alligator spreads and that is the commissions eat up all your potential profits, so i hope that mike's broker didn't go out and buy that boat yet because dan takes it this time. >> ryan, just quickly touch to you. >> yeah. i wouldn't overlook the price target. you don't outlay a lot of money, you don't outlay a lot of risk and you could win huge if it comes near your strike. so he's got a bearish look. you could see it go to 120.

>> we'll keep you posted on what goes out. guy questions? send us an e-mail. optionsactions.cnbc. up next wbl shares of ge around some 30% in the last month punish dan delivereden options activity. >> time for pump up the volume. the names that were heating up options traders sizzle index this week. founded in 1992 and listed on the nasdaq four years later, this pharmaceutical company had the most successful antibiotic launch in u.s. history. now it's expanding use of its popular cubiza drug, the company that be the target of speculation. snow

[ water ] hey, it's me -- water. did you know that when you filter me from your tap i'm pretty much the same as i am in a plastic bottle? well, that's not entirely true. see, at home, i'm 10 times cheaper. other than that, though, i'm pretty similar. oh, wait, there's no expiration date. and i don't have to get shipped all around the country. but other than the costing, the expiring thing, and the shipping thing, we're pretty much the same. pur. good, clean water.

general electric stock. the stock has been on fire, but it's the openings trade that truly paid off. >> on options action, we're always looking to put the odds in your favorite. but sometimes we can't help putting on the risks if only to make more. case in point, dab's ge strakel. >> i want to buy the august 11th 10 and strangle. >> they're buying one out of the money call by purchasing one out of the money put. in dan's case, he bet that ge stock would have a big run up or down going into august. >> it has the potential to be volatile. it hasn't found a home yet. >> so he bought both the august 6011 call paying a total of $1.15. that's the most you can use on the trade. but why did dan buy both the

call and the put? because he didn't know which direction ge stock would go. so by owning both the call and the put, dan can profit if ge stock goes either up or down. >> i almost want to use ge for a proxy for what can happen in the market if we have at an inflexion rate. >> dan's odds of success are low because he bought not one, but two out of the mope options. and unless ge moves by more than the cost of the trade at ex operation, dan loses money. in order for dan to profit, he needs ge trade to trade boston the $1.15 put or above $12.15 or below $8.85 bier andation. since dan put on the trade, ge stock has been on a tear, rye easying pore than 30%. now the man some call simon

cowel's muse must make a choice. dan's strangle becomes less optional as he heads towards expiration? and they all want to know the same thing, what will dan do now? now, at the time of the trade, ge stock was 1070. if you bought 100 shares, you would have risked about $1,100. dan's strangle cost $115, currently worth $370, a return of more than 300%. strangles can be a hard case the win, but in your case, it paid off big time. >> it did pay off. you know what they say about a blind squirrel every once in a while finds a nut there. the only thing to do here now is

sell that call. the put is worthless. you sell that call, move on and look for the next trade. one thing i would say is at the same time, mike had an interesting trade, too. it had had different risk-reward parameters. every once in a while, you can use single stocks to play potential inflexion points in the market. >> one of the things that dan has done effect ily is put on a couple long premium trades and they've paid off pretty nicely. i usually try to take less premium risks. my trade involves selling some down side to buy some up side calls. >> and the key word, inflexion point. you use options to buy when you're at inflexion points in the market. dan had a theory, ge was at this great inflexion point. the market was going to be going lower and banks and financials

were going to go lower. that's what you use, that's when you use stranglings and straddle toes play the market. >> do you think the run in the market has anything to do with the fact that openings actions was moving to 8:30? sfli thought it was moving to 7:30 central time. >> chicago is the center of the world, right? >> let's not take a vote night. it would be a tie. send us an e-mail and we will answer it next week at 8:30, 7:30 central time. go on to our website, cnbc.com. it is your chance to ask did question and our chance to educate you.

time now for the final call. >> i think openings traders are a little overprotect hive, selling a couple calls out of the money against it and loo for the market to move higher over the next couple of weeks. >> scott. >> i'm watching my december put spread in walmart before earnings. >> dan. >> i want to make some bearish betts, look to november 15, 12, bank of america. >> mike. >> first of all, i can't say that i entire agree with brian. when we stretch the rubber band as far as we have, we look for it to come back a little bit. look for the put fly which we talked about earlier in the show. >> our thanks to the traders. i'm melissa lee. we'll see you back here next friday at 8:30 eastern time.

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