welcome to "options action." your front row seat to the smart money. i'm melissa lee. here's where the action is tonight. wake up. will the market give a rude awakening next week? we'll give you the setup. is the best yet to come? best buy is out with earnings tuesday, but we'll duke it out tonight over your best options. and called out -- >> i want to buy the november 149 put spread. >> will earnings provide

redemption. "options actions begins now. here at the desk of the world's third largest options market and across the nation in city of chicago, some chills the windy emerging in options land with some warning signs in the financials. so how will the smart money spend less to make more? goldman sachs quietly making a 52-week high. despite finishing lower on the day. but will equity traders rejoice, options traders did not. placing bearish bets in wells fargo in particular. the october 26 strike put sees heavy buying as well as a number of other strikes. now mike, how do you interpret this action? >> well, one of the things we keep talking about is volatility is coming out of the market a lit bit, 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.

somebody is putting on a bearish trade in a place where where there isn't that much activity, they bought 50,000 puts and sold 100,000 puts. a lot of ak sift september 14th will 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. that has these massive runs. 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 events where 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. one of the things you'll take a look at, if the stock starts to rally and tread water. >> one quick point is you have to trade these tactically. i don't suggest putting them on and leaving them on.

>> you guys both mentioned goldman sachs. brian, i know this is one you're thinking based on the activity you're seeing, there could be an inflection point in this stock, 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 tells 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%. traders want that buy option premium. what that tells me whenever you get a selloff, people are not owning stocks. they're 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.

>> talk about doubts, 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 somebody be buy 50,000 of the sub $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 volume, that's more than just trying to protect down side, i think that's absolute fear. >> so basically a potential inflection point. in goldman sachs. 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 does the options markets see for oracle?

current at the month money 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. the outlook is going to be fine. i think investors are waiting a few months out for clarity on the sun microsystem that the eu held up a little bit. i want to create a synthetic long structure to take advantage of a breakout. you see that chart. it's a really nice looking chart. things are firing on most cylinders there. what i want to do is in october, 21/24 risk reversal. 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. i think you're doing that here. one of the reasons is exactly what we were talking about earlier. people aren't that the complacent. they're buying down side insurance. when they do that, they tend to bid 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 will go to zero. so i like this trade. >> brian in chicago, 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 of bid on. don, you have to compliment. you've been good on some of these earnings calls, especially in the tech sector. one thing to take a look at, if you're not as bullish because it seems the street always tends to hate on oracle and larry ellis for some reason. i don't know why. they have phenomenal earnings. 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. on the down side. 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. i like oracle. i like what dan he's talked about. >> do you want to modify your trade, dan? >> no, i like that trade and i like your compliments. keep them coming, brian. i appreciate it. >> 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. >> we haven't heard that in a

long time. the faux football music. my second favorite song. my favorite is ludacris' rollout. 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. tonight best buy, the retailer reports urngs on tuesday. current at the money calls and puts imply an 8% move on its earnings. still less than its four quarter average of 11%. 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 earnings. 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. that's why i'm taking more of a bearish stance on this one going into earnings. >> 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 story is fine. but one of the things i want to do, option prices are bid 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. i'm buying one 37 1/2 put for 35 cents 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%. >> ding, ding, ding. mike, you're up. you have never trade? >> i like a lot what he's doing here. i still feel like i want to give myself a little bit more down 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 dime. to protect myself to the down side. the max loss is 35 cents. versus the same thing that you have long in the stock. not that i think it's going to do it but 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. so i like dan's. >> thank you, scott. >> brian, where do you stand? >> dan, congrats on your first win. the best buy and consumer look to be at an inflection point. 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. sell against it. i sort of like that play, but i can appreciate their bearish tone on this. who knows if the consumer is ready to rebound yet. >> how does victory taste? >> it's okay. >> we'll know next week. >> a little anti-climactic there. all right, got a question or disagree with the verdict?

you think mike should have won this time? 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 staple on the vegas strip for 44 years. this casino staged sinatra and the rat pack's legendary performances. now owned by a billionaire, 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.

>> 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 52-week high. >> time for "called out." we look at our less successful trades. it's the losers that can be the most instructive. dan recommended a put spread in palm. back in may. 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 14/09 put spread. >> they're betting the stock will go lower and 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 earnings. since they announced this product. they won't say 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 ahab and his great white well, we're wondering if this is a lost cause. but with earnings 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 you. 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 spend

less 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 am sticking with this thing. let me tell you something. you guys have had a lot of fun and i appreciate all the earlier compliments. >> whale, windmill, use whatever metaphor you want, dan. >> i have had everyone since 2007. palm thing think that they have the iphone killer. they never even told us how many they sold. they cut the price. they introduced a new product. this last product is a hunk of plastic junk. i don't see them in anybody's hands. it's ironic the name of the company. >> we'll get a good read on this next week and i want to stick with that put spread. >> all right, captain ahab. >> all right. >> spend less is one of the critical things, improve your odds is another. when you keep buying these

verticals, you are not improving your odds so much. brian had it right when we were talking earlier about oracle. if you're trying to improve your odds, selling these out of the money verticals is working better. 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 i like being long put vertical. my question to dan is, dan, you have made so much money with apple, and then you turned the call into a call spread, leave these guys alone. quit beating up on them. >> i think one thing dan's getting at, there's literally a $2 billion air pocket that needs to be filled by pri phones. but one thing you can look at is selling a call times the keep moving higher against you. sometimes when the stocks start running higher, they drive you

crazier and they keep moving higher against you. you get that pro- you still get that bearish bet tex by selling the call spread. play on. >> moving on. >> real quickly, those are all really great points. the timing is the big one here. we have his event finally coming next week. i want to pay 40 cents for the september 13 put. the stock is trading almost $14. i think if they blow it, i think the stock is headed back to $10 quick. >> if you're going to play for the catalyst, one option is the way to do it >> all right, got a question, . good luck with that. think palm is dan's mobey dick. send us an e-mail. go to our website. exclusive trades and educational strategies right after the show.

a somber day on wall street. as everybody reflected on the events eight years ago, september 11th. today bjc partners held their annual charity day celebrities helping raise more than $13 million by conducting real

trades with clients. 100% of the revenues made today will be distributed to dozens of charities. so our hats off to mike and his firm and everybody who was a part of that event. certainly a terrific day in memory of those lost. >> the people who have put this thing together. every year this thing has been more successful. last year we raised over $12 million, this year over $13 million. i think that's pretty extraordinary support from the customers and the people on wall street and the celebrities that included ivanka trump and those you mentioned. it was a very nice way to try to make something out of a rather sad day. >> all for a great cause certainly on this national day of service. time now for the final call, the last word from the options pit. mike? >> i never buy premium but it's time for him to turn it around.

believe it or not, 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 buy. one thing i would add, i'm more optimistic at a call spread. 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.