this is "options action." your front row seat to the smart money. tonight making bank on goldman. how would you like to make five times your money in just two months on goldman sachs? it is our options trade on goldman. we show you how you could make money too. plus talk about the perfect price. a trade on priceline.com that will get you for just $6. we'll explain. and the nike mea culpa. are they sticking with the trade? "options action" begins right now. live from the nasdaq market site, i'm melissa lee. these are the traders here in times square and in beautiful california. welcome to the show on a busy expiration friday. best start for stocks since the reagan administration. is it too late to get in at this point. let's get in the money right

now. we're not talking just 52 week highs. we're talking multi-year highs. microsoft, nike, chipotle on highs at the close of this week. mike, do you believe in this rally at this point? can it continue? >> i think it can continue if we don't have the concerns that are suppressing the market. the economic data have been good for awhile. what we saw in the options market in the early part of the week is people were getting -- a lot of skepticism was reflected. they were waiting for another shoe to drop in europe. we were seeing that the downside puts were getting more expensive. the at the money volatility was rising all else equal which is unusual. which reflected that kind of concern. then all of a sudden, fast forward two days and everyone seems to have forgotten about it. one quick point, we see the vix is trading under 18. we have a three-day weekend in here. also the markets actual day to day moves haven't been that severe. it's very ex pen tiff. the cost of remaining long

options when the market is just sort of moving in small increments is very high. that allows volatility to fall sharply. >> we've seen volatility fall going into a weekend. for a long time we've seen it stay the same or go up. >> and the vix has gone up a little bit the last couple weeks. despite the fact the s&p has done well. correlation is no longer one. some names are doing really well. some poorly. overall the index is up a little bit. mike mentioned the vix. it's 17 day that has nothing to do with jeremy lin. despite what you might think. it has to do with the fact it's a three day weekend. it gets crushed before a three-day weekend. right now a better measure is probably options on the vix. they have got incredibly expensive. up about 25% in the course of this month. i think that's a better measure of fear in the market. >> no surprise you are the contrarian here as well. you are looking at new highs or lack thereof in this rally. >> yeah. it's funny. when you look at the may 2nd

high from 2011 where the certain new high composite index we're hitting. the readings were north of 1200. here we are about the same levels here. i think we have a chart to show that. on the index yesterday a composite, is we have 324 new highs. what that says is the breadth of the market is not that healthy. so as we approach those highs the more skeptical i become. it's hard to be a contraire cran in a raging bull market. and the nasdaq is up 13% year to date. the s&p is raging. to me in a lot of ways when everyone is looking up, i like to look down. that can be expensive. >> some of the stocks that have risen the most so far this year are stocks that fell the hardest. we are looking at sears holdings, green mountain coffee, netflix, kb homes. these are amongst the best

selling stocks this year. they have so much ground to make up. so you see a lot of rotation into places where people are saying if i'm going to make a bullish bet, i'm going to try to do something giving leverage. rather than trying to reach for the stocks that have had a run. >> now, of course we mentioned all these stocks here. but financials have helped lead this rally. we have seen a bit of a pullback this point over the past week. >> last week it was interesting. some of these stocks looked like they could do no wrong. they reached the points from last august. they got above the moving averages. to me it appeared that a lot of the easy money was in those stocks. you also had that little, it's kind of a nichy thing. a lot of these banks pay their employees in a good bit of stock. been buying the stock the last couple weeks to give their employees. that was part of this artificial lift. at some point in the last week you saw some do well over

stanley morgan down 6.5% from the highs it made a week and a half. to me a lot of the easy money might have been made in the bank stocks especially as mike mentioned. you saw this rotation this year. into the stocks that really lagged last year. one quick point, talking about values being cheap, >> okay these trading had big discounts. but of course you see the financials raiding their own stocks and they're basically bringing those ratings in. there's a great deal of skepticism. being in the business ourselves can see some of the challenges being faced. >> so, dan, which stock specifically -- it's not a stock this week you're looking at in terms of the ones that move the most. it's not bank of america, for instance. or citi group. >> to me it's kind of goldman sachs. this is a stock that i think a lot of people think is above and beyond the whole group here. and they think if there's an earnings recovery for this space, goldman's going to be one of the first to figure it out.

to me, i wanted to take a look at goldman as we head into the spring and get a better look for what 2012 earnings looked like. goldman had the highest expectations of the group. wall street expects them to be up 150% year over year in earnings. this is one where i think, like i said, i think the easy money might have been made. as we head into earnings in april, i know that's a good ways away, if you're long and you pick some of this up, you may want to consider stock replacement and define your risks as we get a good sense for the visibility earnings for the rest of the year. >> what dan is doing tonight is he is using a call butterfly or call fly. we've got to open that playbook and break this down. it's a bullish strategy. you buy one call and then sell not one but two calls against it to offset the calls. to protect yourself, a higher strike call of the sam expiration. this probably sounds complicated.

the goal is simple. you want it to go below the strike of the two calls you are short. it's like threading the needle here. with that said, dan, walk us through the trade. >> sure. this is one i didn't put on today but i'm looking at next week. i want to look out to april, the q 1 earnings event here. if you have this stock, i'm thinking about taking some profits and getting long exposure with risk. i wanted to buy the april 120, 130, 140 call butterfly. i'll tell you what i'm doing here. with the stock around 115 you can buy one of the april 120 calls for about $4. you would sell two of the april 130 calls for a total of $2.60. that's $1.30 each. then the higher april calls for about 40 cents. that costs you $1.80. that is your max risk there. then you can make up to 8:20 and

then your payoff trails between $1.30 and $1.38. your max risk is $1.80. that's below and above 140. it's a pretty wide range to make good money with defined risk over that profit. >> do you like the fundamentals of this trade? do you like the trade structure? two separate questions. >> i like the fundamentals. we all thought that goldman sachs was going to have trouble because of the ban on prop trading. they showed it's great. that's fundamentally. technically i like the trade because it makes sense. dan's not risking a lot of money. another way to look at it potentially, maybe understand it better is look at it like this. you're selling a 130, 140 call spread. neophyte options traders, that's how we teach them to look at butterflies. because there are a bunch of legs, watch the execution. >> you hit it when you said you're threading the needle here. one thing about butterflies, and dan has used these effectively in the past.

this is longer dated. he often trades short-dated ones. the longer dated they are, the less likely it's going to run right to the full maximizing value of that butterfly. if it goes to the number. that's one of the trickier elements. the other quick thing i would say is i don't think the issue on trading profits has been fully resolved yet. i think they have challenges trying to restore that in terms of their revenue stream. i'm a bit skeptical there. that said, the stock is still trading at less than one times. that has been a great time to buy. just not lately. there's been two periods of time when you haven't been able to own the stock there. this is one of them. the upside, that might be a better way to play it. >> dan, would you consider the structure for another stock that has had a tremendous run. for what you would want to replace that stock with maybe options? >> i think that's a great idea. maybe i would look to a butterfly with these other guys. bank of america is more than 40%. goldman's up 27%.

so to me what i was trying to do was isolate this 130 level in gold man where i think that would be a very healthy gain in the next few months. but i do think it makes sense to replace some long stock positions for people who were looking to take a punt on some of these bank stocks and maybe get some call or call spread exposure over the next couple months. >> i don't know about you guys, but i can't start my weekend especially a long one without playing this. we are talking about stocks versus options. buying 100 shares of goldman will set you back about $11,000. interesting risk reward there. let's move on to the next trade. earning season may be nearing a close, but a number of key momentum names have yet to report including priceline.com. bill shatner may be gone. but the stock owes mojo is not. reaching a decade high this week. will the good times continue this month. calls to the charts with the man

rumored to be spok's muse. charter braxton worth. >> the daily and it shows what is so powerful about this. we have a huge range for over a year. 550 at the top, 450 at the bottom. when you have a period of shocking equilibrium. it gives way to disequilibrium. at some point the debate ends and someone gets the bag. and the presumption is it will break out in a big way. we're a buyer here. it close add the 582 today. now, just to put this in context, this big debate. look at the long-term chart. this is what's happening. it's ready to go again. and we're nowhere near the epic highs up at a thousand or thereabouts when the dot-com bubble burst.

buy price line. >> compelling case on the fundamental basis, you have to believe in a bounce back in travel. >> you do. this is one of those situations people know i'm usually not that much in favor of high multiple stocks. at 30 times earnings. seven times sales. one of the remarkable things is this is a company that just continues to deliver every single time. if you take a look at their revenue and earnings growth, it is accelerating. that actually helps justify the multiples it's trading at. that said, you wonder when does the party end. that is one of the things that give you pause. the stock is an expensive one to buy if you're reaching for a $576 stock after it's had this kind of move. that's the scary part of it. >> mike is bullish, too, on this stock. he's using a call calendar structure. let's open the playbook once again. this is a mildly bullish strategy. you sell a near dated call and buy one of the same strike.

you want the stock to rise to that strike price by the first expiration. there is an element of time management here. with that said, what is the trade? >> this stock -- they're going to have earnings coming up. the options market is applying an 8% move. carter has articulated why we might see that to the upside. i chose a strike about 8% to the upside. selling the march 620 calls. and then using those proceeds to help finance the purchase of an april 26 call for $20.50. the nice thing about this, we said this before. when you have a catalyst like that, you're trying to take advantage of the accelerating decay that takes place in the front month option. that's what we're trying to do here. if the stock rises to 620, push then i'm really going to capitalize because my longer dated option is likely to appreciate. the nice thing also is i'm spending relatively little. a nice way to make a bullish bet without a lot of capital. >> dan, do you like being mildly

bullish and like the trade? >> i like the trade structure. especially in a name like this where the implied vol is elevated into this earnings event. here's the thing. you got to get the direction right. technically i was looking at that chart earlier. i don't have the mojo that charter worth does. that's one of the most beautiful bases i've seen. it broke out on good volume. any good news and that's going higher. so i like the direction and i like the trade structure. >> one of the most beautiful bases i have ever seen. >> stunning. >> we necessarily talk about these as far as going to the first expiration. you don't have to do that. you can do this, it's a directional trade. get out of it well before that first expiration. then it's just a bullish trade. >> let's hit the stocks versus options button one more time. buying 100 shares of priceline, that's pricey. like $57,000 pricey. or the cost of a new porsche.

puts time on your side offers huge leverage and costs about $700. drive around in a fancy porsche potentially make a lot of money on mike's options trade. interesting choice there. we will see carter braxton worth later in the show. got a question? send us an e-mail? we'll answer it after the show on our website. we also post trade updates too. do check it out. here's what's coming up next. so maybe it wasn't a swish. made a bearish bet on nike headed higher, but with time left on the shot clock, how will they save the trade? find out when "options action" returns. time for pump up the volume. the names that were heating thup the sizzle index this week. this name got hot 100 years ago after offering a corny way to start your day. on thoughts of recent

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where were options traders pumping up the volume? kellogg. at one point call volume was over 18 times the daily trade volume. time for total recall where they look back at a trade not winning or losing.

last week khouw and carter bet against shares of nike. so far they got the direction wrong. but they haven't lost much money. here's the reason why. on "options action," it's as iconic as this logo. just risk less so you can make more. that's what khouw and carter tried to do with their bearish bet. thought it was running away. >> nike's overbought too far, too fast. but shorting nike? >> no, no, no. >> you said it, mars. so to define his risk, he bought the put for $2.25. now to make money mike needs nike's stock to go below that. below $97.75. but $2.25. mike is there a way to o do this for less? >>

>> sell the 90s against it. >> well done. so to spend less, mike then sole the april 90 strike put for 90 cents and created his put spread. but he did something even better. he made making money easier and here's how. between the $2.25 he spent buying one put and the 90 cents he collected selling the other, he cut his cost to just a buck 35. now instead of needing nike to fall below $97.75, he will see profits if it's below $98.65 by expiration. of course there's a tradeoff. by selling that put, mike limited his gains to the difference between and the strike of the put that he sold. good thing he did cut his costs because since the time of the trade, nike shares have continued to run. now they must make a choice. stay long the trade and hope nike stumbles or get out. and "options action" all want to

know one thing. what will these two do now? >> yes, it is true. "options action" is one of jeremy lin's favorite shows. before we get to mike and carter's next move, we've got to drill down on why we expect these strategies. let's play options versus options. if you bought the one put you would only get a $45 loss. mike's put spread cost $135 and sell today for $120. that's a $15 loss. why? because the lower of the lower strike put he sold has offset the val you of the put that he bought. that is called risking less, trying to save some more. so the question now is is nike still a short? let's go back to carter. what do you say? >> articulating that piece, nothing's happened. stocks up a dollar or 1%. the premises is still this. when you come off trend like this, 80 to 106, 35%.

this is a big large stock. you reach a point where you're due for short selling. so this is crowded. and we're sellers. >> still a seller. all right. are you? >> yes. the market was up today. this stock held up a little bit by that. we only have 1% of the current stocks on this put spread. absolutely. we stick on the short bet here by keeping the put spread on. >> our thanks as always to carter braxton worth. and if you want updates, follow us on twitter. at cnbc options. dan posts regular updates at risk reversal. coming up, the final word from the options pits.

i was 18. it was on my 18th birthday. and so they sent me on my birthday to sports illustrated and they hired me and there i was. then i was rookie of the year. >> catch more of the very lovely kate upton as she sits down tonight in a business of the sports illustrated swim suit issue.

that's must see tv. tonight 7:00 p.m. eastern on the nbc sports network. time for the last call from the options pits. dan nathan >> consider stock replacement in the bank stocks. >> we love calendars like mike's on priceline. but don't hesitate to take it off before that march expiration. >> mike. >> >> 8 to 1 payoff in the nike put spread. i'd stay with it. our time expired. i'm melissa lee. >> for more go to options action.cnbc.com. see you next friday at 5:00 eastern. don't go anywhere, money in motion is up after this break.