>> welcome to "options action." i'm melissa lee. here's where the action is tonight. wake up. will the market give a rude awakening next week? is the best yet to come in best sbie out with earnings tuesday, but we'll duke it out tonight over your best options. and called out -- >> i want to buy the november 4

149 put spread. here at the desk of the world's third largest options market and across the street in the windy city of chicago, some chills emerging in options land with some warning signs in the financials. so how will the stock market spend less to make more? goldman sachs quietly making a 52-week high. but will equity traders rejoice, options traders did not. placing bearish bets in wellss fargo in particular. now mike, how do you interpret this oox? >> well, one of the things we keep talking about is volatility is coming out of the market a lit built, but that doesn't necessarily mean as it continues to rally, everybody is completely complacent. that's not what we're seeing here.

wells fargo hasn't really participated obviously compared to a name like goldman sachs. a bearish trade in a place where wr there isn't that much activity, they bought 50,000 puts and sold 100,000 puts. they expire next week. the xlf will have to sell off 10% to make it pay off. >> if you see this put activity in volatility in general, how do you interpret that? maybe that's just putting on protection at a good price? >> that's a great point. this buyer of those puts is actually buying, you know, a wing here. this is almost a lottery ticket. you know, he paid 15 cents yesterday and 14 cents today for that september 14 put. that's not a lot of capital committed to that trade. so it catches headlines because you see 150,000 contract trade, but it's really not a huge

commitment to the down side in the xlf. >> quickly, before we hit our friends in chicago, you put a collar on wells fargo last week. is that a trade you would employ for another stock in the financial space? >> you could use them on any one. goldman sachs is a great example. we all know how great goldman is. the fact of the matter is it's not far away from the all-time highs it made at the top of the market in 2007. i think, you know, collars are strategies that kind of help you sleep at night. we talk about this as just risk management trades. implied volatilities are low. you know, put these collars on around event where is you think there's an opportunity for the stock to fall. >> the critical thing, if you see a stock that is running. goldman sachs had a great run. you might have said that and you would have missed out on some upside. if the stock starts to rally -- >> one quick point is you have

to trade these tactically. >> you guys both mentioned goldman sachs. you're thinking space on the activity you're seeing, there could be an inflection point in this point, a stock that hit a 52-week high today. >> certainly we saw a little nibbling going on in october 180 calls. also october 180 calls. just a little bit of nibbles. as mike mentioned, traders are not as complacent this time around as the rally continues. i actually like seeing that. you know, what it steal teles me is traders are bidding up options premiums. look at xlf over the last 30 days or so. that's moving up around 2% a day. goldman sachs, moving up around 1.5%. where you traders won't that buy option premium. whenever you get a selloff, people are buying option premiums. so they can go in and actually buy the stock on a selloff and get the stock to rebound and move higher again. that's the type of inflection point that i'm talking about. whether these stocks can continue to make new highs or if

you see a dramatic selloff. >> to scott out there in chicago, you're seeing a lot of regional names, also a lot of activity. >> that's right, put buying in the second-tier financials was the theme of the day. and particularly in key corp. we saw somebody buy 26,000 of the sub $6 puts. that's about 12 times the average daily volume. and in regions financial, we saw 50,000 in $5 puts. that's about nine times the average daily volume. so brian is absolutely right. investors are not as complacent as they were previously. when you spend this kind of money with only a week to go, you buy puts in this sort of vol yup, that's more than just trying to protect down side, i think that's absolute fear. >> so basically a potential inflection point. we also have put activity in the regionals and in wells fargo. a crucial test comes wednesday when oracle releases its results. time to make the call where the

traders give you next week's best strategy. what do the options markets see for oracle? put and call prices imply a 4.5% move, nearly half the average move in the last four quarters. dan, why don't you get us started here. >> that's very gracious. one of the things i would say is that implied move, shy of its average move is telling me there's not a lot of fear in this situation. and to be quite honest, it's really pretty decent here. one of the things i want to -- i don't think the stock is going to move a whole heck of a lot on earnings. inthe outlook is going to be fine. i think investors are waiting for clarity on the sun mic microsystem that the eu held up a lit built. i want to create a synthetic long structure to take advantage of a breakout. it's a really nice looking chart. things are firing on most cylinders there. i'm selling the october 21 put

for 35 cents and using the proceeds to buy the october 24 call for 45 cents. like i said, it costs you 10 cents to have that structure. what are the risks? if the stock is at 21 or below on october expiration, you get long. you start losing money on it. up 5.5% on october expiration, you also get long at about $24. this is a synthetic position to get you long exposure for -- once we get through the earnings, and maybe we start to see that breakout as investors digest all the news. >> mike, what do you think of this trade? >> i really like these types of trades. one of the things you're trying to do when you trade options, put everything in your favor. one of the reasons is exactly what we were talking about earlier. people are buying down side insurance. when they do that, they dend toed by it up. when you start to lose money, you have a larger down side cushion than the upside one. these are the types of trades i really like, particularly in a stock like oracle, where i don't think there's any risk the stock welcome go to zero.

>> what are your thoughts on this? this is a trade you would put on? >> dan, obviously, you take a pretty bullish stance to put this type offed by on. you've been good on some of these earnings calls, especially in the tech sector. you're not as bullish because it seems the street always tends to hate on oracle and larry ellis for some reason. i give them a grade a if i had to grade their stock. but it tends to underperform. one thing you might look at is selling put spreads. oct 20 or 22 put spread. those type of trades are actually giving you a 1 to 4 odds on your money. you're risking $4 to win $1. i like those kinds of odds. >> do you want to modify your trade, dan? >> no, i like that trade and i like your equipments. keep them coming, brian. >> the problem with his trade is it's still really capital intensive. just because you're not letting

things out, you're not using any capital. >> that's the faux football music. i would have taken him as an ace for base kind of guy. we are previewing this weekend's nfl kickoff. competing derivatives strategies. it is time for "put up or shut up" where dan and mike agree on a direction of a stock but duke it out on the strategy. current at the money calls and puts imply an 8% move on its earnings. both mike and dan are bearish, but that is where the similarities end. and dan, we should note that stacy is coming back next week. so maybe tonight you've got a shot of actually winning this. but let's start off with the best case scenario. lay out the arguments for us. >> if you take a look at the chart of this stock, you're going to see a stock that's

responding pretty favorably. i think a lot of people are expecting some favorable guidance coming out of next week's earning. there have been contrasting reports coming out of a couple of companies. i'm taking a contrarian view on this thing. largely because we need to see a lot of consumer strength for them to do well. i think they've really had some competitive strength because of the circuit city dropping out of the picture. >> yeah, and i don't disagree either the stock has rallied 30% in the last 2 1/2 months or so. i think a lot of good news is in the stock. i think the store vi fine. but one of the things i want to do, option prices ared by up a little bit here. i don't want to outright buy options here, but what i want to do is look to a one by two put spread. i want to look at the september 23 37-75. i'm buying one 35 and i'm going to sell two of the september 35 puts for a total of 50 cents. that structure cost me 25 cents. how do i make money here?

that's a great graphic. between 37 1/2 and 35, i make money. most money i can make, 2.35 and my payoff trails off between 35 and 32.50. then i get long at 32.50. i'm willing to draw a line in the sand that the stock isn't going down 17%. >> you've got another trade? >> i like a lot what he's doing here. i still feel like i want to give myself a little bit more dun side protection. i'm going to do the same trade he did but i'm going to buy the 32.50 put because it's offered at a dime. i have much of the same reward and i'm only going to pay an extra time. the max loss is 35 cents. the insurance is cheap enough that you might as well buy it. >> okay, scott, you are the judge in this bout. what say you? >> you know, i usually hate to

be short options in september and october, but there's a reason that options -- when options are really cheap, there's a reason for that. and for that reason, i just don't want to pay a dime for that way out of the money put. >> a dime? >> and there's only a week to go till expiration. >> thank you, scott. >> brian, where do you stand? >> dan, congrats on your first win. there's a chance the stock actually rips higher. be careful of that. maybe you want to look at buying a straddle at the money. i sort of like that play, but i can appreciate their bearish tone on this. who knows if the consumer is ready to react to that this? >> how does victory taste? >> it's okay. >> a little anti-climactic

there. all right, got a question or disagree with the verdict? send us an e-mail. optionsactions@cnbc.com. coming up next, palm is out with earnings next week. dan has a trade on this name that would return over 300%. find out what it is after this. time for pump up the volume. the names heating up options traders sizzle index this week. a stay on the vegas strip for 44 years. they staged sinatra and the rat pack's legendary performances. an upgrade had shareholders on a hot roll. but the hottest hand in this casino is held by the call buyers. who is it? the answer when "options actions" returns.

>> wroor options traders pumping up the volume this week? las vegas sands. call volume this week was three times its normal option. welcome back. you heard ou lvs calls were active ton that sizzle index. this stock is up an astonishing 1,000% in the last six months. scott, you're watching this space and this call activity. what did you make of it? >> earlier we saw buyers step in and pick up 15,000 of the january 20 calls in lvs. this is the same expiration we saw somebody buying the $15 call.

while it's up a ton, the 52-week high is still in the 40s. given the situation in macau, they have that straightened out, that's what call buyers are shooting for, that 5 -week high. >> time for "called out." it's the losers that can be the most instruck tif. dan recommended a put spread in palm. that trade didn't work out so well. he put the trade on once again but the pain is still in the palm of his hand. just because we're risking less to make more doesn't mean we'll always come out ahead. case in point, dan's put spread on palm. >> i want to buy the november 14-9 put spread. >> they're betting the stock will go lower an they're willing to cap their profits in exchange for reducing their cost. how does it work? let's take a look at dan's trade.

dan thought palm's stock would trade lower but a simple short sale wouldn't do. >> i wouldn't short this stock. i still wouldn't short the stock. >> so instead, dan paid $2.40 for the november 14 strike put. now he makes money if palm falls below $14. but to complete his put spread, dan then sold the november 9 strike put and collected 70 cents. if dan thought palm was heading lower, why would he sell that 9 strike put, which is a bullish options strategy? because he didn't think palm would trade below that $9 level by november. so by selling the 9 strike put, dan limits his profits to the difference between the 14 strike put that he's bought and the 9 strike put that he's sold. but he also collected 70 cents for selling that 9 strike put and reduced the cost of his trade by a third. good thing dan cut his costs, because that trade has not worked out. palm continues to trade above $14, and with each passing day,

dan's put spread loses value as those options head towards expiration and time decay takes hold. now one trade has become this man's obsession. >> i'm actually more negative. the company has released earn g earnings. they won't see a word about the units of this palm pre device. >> there's no talking him out of it. >> i'm just wondering if this is dan's great while whale. >> now captain ahas been and his great white well, we're wondering if this is a lost cause. but with erngs on tuesday, is redemption finally in the palm of dan's hand? quick illustration of why we talk about these strategies. no, it's not to confuse now. it's to try to save you money. and here's an illustration of that. had you just purchased that november 14 strike put, you would have paid $2.40 and lost 25% of your money. dan's put spread, worth only 3%

less. on this show, we do try to spendless to make more, and here dan lost less but he has yet to make money. so dan, what are you doing with this trade now? is this still your whale? >> i amendment sticking with this thing. you guys have had a lot of fun and i appreciate all the earlier compliments. me a lot of complime compliments on this. and i appreciate it. let me tell you, i have this. i have had everyone since 2007. palm thing think that they have the iphone killer. this last product is a hunk of plastic junk. i don't see them in anybody's hands. >> we'll get a good read on this next week and i want to stick with that put spread. >> all right. >> spend less is one of the critical things, improve your

odds is another. when you keep buying these verticals, you are not um proimg your odds oh much. dan has been great at making tech calls and you really need to be brave for these things to pay off. >> scott, how do you feel about vertical? >> generally, mu question to dan is dan, you have made so much money with apple, and then you turned the call into a call spread, leave thee these guys alone. >> there is a $2 million air pocket that needs to be made up by these phones. but one thing you can look at is selling a call titimes the keer

against you. you still get that bearish bet play on. >> moving on. >> real quickly, those are all really great points. the timing is the big one here. we have his event final lu come c finally coming next week. i want to pay 40 cents for the september 13 put. i think if they blow urt it, i think the stock is headed back to 10 quick. >> good luck with that. >> all right, got a question, tom is dan'smobey dick. right after the show.

a somber day on wall street. today bjc partners held their annual charity day. celebri

celebrities helping raise more than $13 million by conducting real trades with clients. the revenue will be distributed to charities. >> the people who have put this thing together. ever you year this thing has been more successful. last year we raised over $12 million this year over $13 million. that is great support from the customers. and the ones that you already mentioned, so it was a nice way to try to make something out of a sad day. >> the last word from the options pit, mike? >> the thing is i have decided that it is time for him to turn it around. i'm going to take a punt and buy

this put in palm. >> stick with me, e-mail melissa next week. >> if i'm long, i'm puking them on monday. >> brian? >> i like dan's trade on best b buy. the 40-45 call spread to his trade. the action continues online go to our website. thank you for watching. see you back here next friday.