this is "options action." tonight, how would you like to buy bank of america for just 15 cents? it isn't a bailout, it's just our options trade on b of a. plus, talk about a blockbuster. we've got a trade on liongate that can turn time into money. we'll tell you how you can make money, too. and just short nike? what's his next move? the action begins right now. live from the nasdaq market site, i'm melissa lee. these are the traders here in new york times square. all three indices reverse losses and finish in the green. let's get in the money right now

and find out. if you're bullish on the money you have to like the price action we have seen in the banks this week. it may -- we may have snapped our weekly gains here, mike, for the s&p 500, but banks actually did fairly accidentally. >> the banks did fairly well. you know, it's interesting to me because, of course, usually what happens if you're in a show like this, you get a situation where the market rolls over a little bit and everybody's sentiment turns negative and positive news sort of feeds on itself. i think everybody was expecting that the market was not going to go up in an unabated fashion without some kind of pull back. some of that i view to be somewhat healthy. the fact the banks were holding up well i view to be healthy. when i look at what's going on and i see implied volatilities in the options market continue to be pretty stable, i don't really see a whole lot of reason to be concerned. people have to focus on the

long-term trends for stocks and the u.s. economy. >> i think it is positive, this rally is broadening out. in december we saw some of the risk on type trades, the industrials, materials, energy stocks start to move higher. why? because people were upping their estimates on gd p growth. when you do that you start to play toes types of stocks. we have seen this rally extend. i think that's why the market is sort of transitioning sideways because you saw this rotation into financials. a lot of positive news after the fed reserve had their bank requirements and stocks like bank of america saw nice pops over the last couple weeks. so this rally is broadening out. >> i think this is what a rally looks like. this sort of week is part and parcel of a rally. it's not going to go up all day every day and i think that a lot of people wanted some extra beta. we talk about how i got long some of the banks in the november. it works as long as the stock market is going up. you think that the xlf will have done really, really, really well. it's interesting right now all it's done is a big round trip over the last 52 weeks from 16 way down back up to 16. but i actually think there's still good news. monday was kind of tough for bank of america, but that all came back with the market closing almost back at $10.

this is what a rally looks like. it's pretty healthy. >> the other thing is a little bit of strength in treasuries was also needed. we had seen a huge decline, and the other thing we do expect to see somewhat higher interest rates, indicative of a healthy economy. seeing some stability arrive in treasuries was helpful and look at the stock that started to see weakness, the big beta plays, some of the industrials, names like caterpillar where you have high valuations, great results, of course, but, you know, when you're basically trading on the highest valuations on the highest returns they have ever had, those are the types of things where you say maybe i'm going to do a little profit taking. >> but those moves in interest rates are great for banks. banks have really been punished to by low rates for a long time. this is actually great for them. >> it certainly didn't help that the one data point we got out of banks in terms of rather

that was a positive one. jeffrey was a pretty good quarter. it was still another sort of little bright spot within the financial sector. in terms of the xlf activity, have we seen it become more positive or more protective perhaps in positioning? >> well, what we have in terms of the xlf, we have seen it, and we talked about this rotation and we have seen positive moves into the xlf, but we have seen some bearish activity, especially today. we saw 32,000 puts trade in fxi and we got some quirky little news out of china. some bearish bets out of there on the june 32 puts. it's not all rosy picture. you have to use a little protection out there if you're going to get into this market. i would just be using hedge protection here if i'm going to stay long this market. >> it's gotten relatively cheap because nobody is really hedging. look at xlf put open interest. it's plummeted since over last october. over 6 million contracts back then, more than 70% decline since then. >> so generally if you're a

holder of a bank stock that's run a lot, morgan stanley, bank of america, it's a good time to buy protection. >> there isn't a lot of demand and it's a lot less expensive. we often say you want to buy it when you can, not when you have to. >> you're concentrating on bank of america, brian. what's a fundamental take. >> they released data. this is an important key message i think for all of america. they released they're going to potentially run a pilot program that basically ends mortgages, forgives mortgages, people in distressed foreclosure situations and turn them into renters that they could stay in their house. it has a potential to unlock a huge amount, millions of dollars of negative equity and turn them back into the positive, getting them flat. feeling good about themselves, and i think this is why you have seen rallies in consumer discretionary and the financials because of this reason, and bank of america has had a huge run over the last couple weeks. >> this week you're doing a risk reversal. it's good to hit open that playbook. it's a bullish strategy where you buy one call, sell a put against it to finance the cost.

the goal, you want the stock to trade above the call strike price. because you're short the put you may have to buy the stock at the put strike price or lower. >> this is my don't cry about it. we have been hearing guys on the floor saying i wish i would have gotten into bank of america. what you can do is look to sell a may 9 put. that's a level you're comfortable getting in the stock and you want to allocate money to and you roughly would collect 40 cents. you still want the upside. i'm pretty bullish on bank of america, what i do is buy a may 10 call with it for 55 cents. i have only outlaid 15 cents, 1.5% of the value of the stock here. above $10 i have all the upside potential in this stock. and below $9 that's where i wanted to get in anyways, so i'm happy to own the stock at that level. all the volatility between 9 and 10, you can forget about that because all you're outlaying 15 cents. earnings coming up in mid-april so you get a chance to play into

that. that's why i went out all the way to may to have a chance to play on that earnings front. >> would bank of america be the stock that you put this sort of trade on? >> yeah, i think it is. here is one of the things about this, it looks like it's very tight but notice, of course, that it's still 7% -- actually a little bit more down to that lower strike. it seems like they're only $1 apart. in percentage terms that's a notable discount. instead of buying a stock, it gives you an opportunity to trade around what happens in the market. if the market does rally, you'll probably have an opportunity to potentially sell an upside call, buy that downside put back and be locked into a trade for no money that gives you upside with limited downside. >> i think the key here is that brian says that he wants to buy bank of america if it gets down to 9 bucks. this makes all the sense in the world and gets the option math in your favor. if you put this on and you end up having the stock put to you, you have to remember why you did it.

don't have buyer's remorse because now it makes a lot of sense to get long that stock at 9 bucks. >> let's hit the stocks versus options button on this. want to buy bank of america stock that will cost you $10 a share. b of a is no longer a $5 stuck. he could be forced to buy the stock for $9, which is 10% discount. let's move on here and talk about "hunger games," one of the most anticipated movies of the season. it's grossed an astounding $19.7 million in one night. the performance of that franchise and the release of the season's "mad men" is propelling shares of lionsgate. but has the move been a little too fast and furious? only one way to find out and that's calling to the charts. find out with the man who has been practicing his oscar acceptance speech since he was 7 years old, carter braxton worth of oppenheimer. >> just as you say, this has come to life obviously. the issue is has it come to life a little bit too much. so let's look at it. and what a base or what a period of equilibrium, two-year chart. history shows that this is the kind of thing you look for as a buy juncture when it's looking to break out.

a two-year base and then explosion. but now it's happened, it's a perfect example how you will have a fake out, fall back to the top line, and then explode. 8 to 16 this week. a double. year-to-date, close at 1453. by all accounts whatever good things are coming for this business is priced in. take a look at the next chart just to put the context. again, year-to-date, 8 to 16 this week, it backed off to 1453. we think the backoff is the beginning and you're heading down to like 12. now, look at the all-time long-term chart i guess since inception, if you will. it shows the breakout where it occurred. just falling back to 8 would be a wipeout of course. we think you fall back to 12. either way sell if you've been so lucky as to be in this on the long side. >> potentially a fall back to 12.

mike, fundamentally i don't know if you've had the privilege of seeing "hunger games." i saw it on tuesday. i thought it was pretty good. i don't know where you stand on the stock. >> i think a lot of shareholder think it will be well liked and well attended. the expectations potentially for the weekend coming in was $115 million which is a very big number. and it's especially big when you consider how much this company actually does in theatrical revenue each year. we're talking about in the u.s. probably $206 million last year. they're talking about doing $115 million in one weekend. $250 million to $270 million in the u.s. overall. that's why people are having such a frenzy about this thing. you can see that this is one ever those situation where is if this really was a blockbuster it would be a material impact to how well the company is doing. that said it's trading at a high valuation.

sometimes in the movie business that's not what happens. you see big numbers and somehow at the end of the day it never turns out to have been as profitable as everybody expected. >> so you're skeptical. mike is doing a put calendar. let's refresh and hit open the playbook once more. review this structure. and the strategy you're selling a near dated put and using that money to buy a longer dated put of the same strike. it requires timing. you want the stock to be above the strike of the put you're short by the first expiration but below the strike of the longer dated put that you're long by the second expiration. walk us through this. >> what i'm looking at doing here is selling the april 13 puts. i can collect about 60 cents for those and using those proceeds to help finance the purchase of the may 13 puts which will be 90 cents. all in i will spent 30 cents for this trade. what i'm trying to do is capitalize on the frenzy for "hunger games." after the weekend i think the price of the options drop maybe sharply because they rose 33% in just the lost month. we're trying to capitalize on

the accelerated decay, the fact that the news will be out, and i'm leaning slightly bearish as we indicated with carter's charts and that's why i chose the 13 strike. >> would you use -- you own the stock, would you be -- >> this is an outright trade. >> mike and i talked about it earlier, the relationship between corporate bond market and the price of options. what we have seen in lionsgate is we have seen the bond prices get bit up and yields come in hard and strong going from 9.8% to 4.5%. i see why mike is trying to play this trade, sell some volatility here and play, you know, a price point somewhat bearish on the trade. >> i think is a great point. i think one of the things you have to look at is the bond market price is risk and puts price risk and they're not agreeing right now. >> mike is being skeptical. good traders have to be skeptical but i think the company has changed completely.

clampetts. they have found oil in their backyard. this may make a ton of money but i understand why mike is doing it. >> let's hit the stocks versus options button. you could literally have your head spinning as you end up in the poor house here. mike's put calendar risked 60 cents and offers leverage to the downside. risk 60 cents to make a speculative trade. or run potential ruin. the choice is yours. got a question, send us an e-mail. the address is optionsactions@cnbc.com. you also find a lot of educational material there as well so you got to check it out. here is what's coming up next. call it a slam dunk. two weeks ago dan made a bearish bet on nike with the stock down will dan hold out for more gains or take the money and run?

find out when "options action" returns. get more "options action" with our newsletter delivered directly to your inbox. packed with exclusive information and analysis, this is the extra edge you need. it's free when you register or visit the members center at cnbc.com.

welcome back to "options action." a harsh warning to any investor looking to play volatility through etns. an exchange traded note blew up after it's underwriter said it would create more shares. credit suisse stopped issuing shares. the problem here is that people will trade these things thinking that it's going to be correlated to the vix and there isn't much of a correlation. >> i think you have to be very careful. it created a whole uproar in the vix options pit causing vix futures to rise when the market was moving the other direction. really kind of sketchy. credit suisse said they will start recreating but on a limited basis, so, you know, it's a tough product. >> there needs to be better products created. >> it's etfs, too, and the issue is these levered products can be very, very challenging. any levered product may not do

exactly what you think it will. >> we take a look back on our winning options trades. a couple weeks back dan looked at nike shores and said just short it. he made a lot and here is how. on "options action" there's just one way to just do it. risk less so you can make more and that's exactly what dan did with his bearish bet on nike. dan thought shares were heading lower but shorting the stock, that could cost you. >> $1 million. >> so to define his risk, dan bought the april 105 strike put for $1.80. now, to make money dan needs nike stock to fall below that put strike price by more than the cost of the trade or in this case below 103.20 by april explanation. but $1.80 you keep spending money like that and he will end up like this guy. show us how to do this for less. >> i'm selling one of the april 100 puts. >> well done. so to spend less dan sold the april 100 strike put for 90 cents and created his put spread.

but he did something even better. he made making money easier and here is how. between the $1.80 he spent buying one put and the 90 cents he collected selling the other, dan reduced the cost of his trade to just 90 cents. now instead of needing nike to trade below $103.20, dan can make money if nike falls by more than that 90 cents he spent on the trade or below $104.10 by april expiration. before we sign dan to some massive shoe contract there is a trade-off. by selling that put he cost his costs but he also limited his potential profits to the difference between the strike of the put that he bought and the strike of the put that he sold. and since the time of the trade, nike shares stumbled falling 4%. now he has to make a decision. hold or just get out. "options action" fans wanted to know just one thing. what will dan do now? before we answer that question, let's see how much money was made.

had you shorted nike two weeks ago you would have made 2%. dan's put spread today can be sold for $1.10. that's a return of more than 20%. so even better. now, dan is obviously off the desk. he's actually at the beach, but the caribbean queen was gracious enough to call in and give us his next move. hey, dan, how are you? >> hey, guys. you know, i was called a muppet last week and now i'm a caribbean queen? >> is that an upgrade? what's your next move? >> the stock was actually up in the premarket. it sold off, it was down at one point 4%, 4.5%. to me the issues here, and this is why we entered the trade, the stock was near all-time highs at the time. material costs, labor costs, freight costs are going up. they said inventories were high in emerging markets. a lot of things that really have

to go well here for this stock. 4% off the all-time highs, you know what i mean, to continue to go up. so to me i think you need to see a consolidation or a retrace of this move. so i'm still sticking to that $100 level. i think we see it over the next couple weeks. i think it's going to be really important for u.s. multinationals to demonstrate that input costs are not hurting them, that currency head winds are not hurting them. i think we will see it in the next couple weeks. >> the test is whether or not we see that consolidation. we have carter braxton worth. what do you see in the nike chart? >> 100% with dan. it broke badly today on heavy volume news related, obviously earnings that were quite good but not good enough. in principle one day did you see not make the end of the trade. this should deteriorate over time. stay short. >> stay short. now, a while back didn't you put on a bearish bet on nike? the timing was off but the fundamental reasons were pretty much the same. >> right.

it was a little premature. i'm glad he revisited the story opportunistically as he did. i'm in the same camp. typically when you see stocks roll over you get a few days for it to play out. you never want to try to say i'm going to cut and run on the first day. i think you continue to lean on the short side. >> dan, what would be the one thing you would be looking at in terms of nike in the next couple weeks? >> well, technically like what carter just said, the volume was one of the biggest volume days since the fall, and to me this could kind of be the signal. i actually was taking a look at oracle earlier in the week. they beat, the stock opened up, down about 8%. it's closed down the last three days since a beat and a slight raise. so to me i think you want to see a continuation of this weakness and i think you impress it, but about 100 i think with the catalyst the company has laid out with the olympics and european soccer championships in the summer, i think you want to look to cover the shorts around $100. >> i would probably cover because time is working against you now. this is still out of the money and now time is just going to cut this every day.

>> okay. dan, have a great vacation. see you back here hopefully next week. our thanks to dan nathan. if you want updates, be sure to follow us on twitter @cnbctwitter. don't go anywhere. we've got the final call. that's up next. what's your best option? following us on twitter. get trade updates, breaking news and analysis. follow us on twitter @cnbcoptions.

time now for the final call. the last word from the options pit. scott? >> you might want to use some of these volatility etns. fight that urge. >> rather than owning bank of america, buy an upside call. my hunger play is to put that put spread on, pay 30 cents. >> thanks for watching. for more "options action" go to our website optionsaction@cnbc.com. we'll see you back here next friday. don't go anywhere. "money in motion" is up right after this break.