this is options action. tonight, morgan's pain, your gain. bank shares getting battered, but a plan that could make you seven times your earnings. plus a hot trade on chipotle stock that could make four times your money in two months. why are all the traders chowing down on dunkin donuts? scott nations with the 411. the acts begion begins right no. i'm melissa lee. these are the traders here in times square. welcome to the show and welcome

back volatility. worst week of the day. our names and strategies that can turn volatility into opportunity. where was the money going? in to momentum stocks. >> when you think about, financials and tech led us here and so we've seen a rotation out of them. a lot of bank stocks down about 10%. apple down four days in a row. 5% off of the all-time highs here. but what's working right now, starbucks is making all-time highs. panera bread, yum. microsoft, this this stock was raging. up 30% on the year at one point. now down about 8%. so i think as we get into q1 reporting season, i think investors are hitting the pause button. those momentum names are still working. >> about yif you take a look th and financials have declined, they haven't rich for the same

reason. for example, financials are definitely more of are we back in say farber is a situation. and when you see widening credit spreads, widening sovereign debt spreads, those cause concerns that cause the financials to crumble. the tech space, that's a different story because results have generally been pretty good. so i wonder whether some of the other areas that -- i don't know that we're necessarily seeing rotation. i wonder whether those next ones could be the ones that could crack. >> yeah, they got killed this week, but part of the problem is they've come so far so fast, they've done so well. a lot of them are still really undervalued. but we talk about bank of eof america which recorrected tject but monday and tuesday it looked horrible. wednesday and thursday looked pretty good. it finished ugly, though. the market closed really you goly today. on its low. vix closed the day on its high and that's never a good thing.

>> that's a great point. the vix usually does go up when the s&p decline, but today it was up more than the decline would indicate. which actually does suggest that people are turning up those -- that's right, friday you would normally expect to be lower. maybe that could take it a little higher on its own. but it was up much more than you would normally expect on a friday. >> so this continuation of the momentum, and what do you make of that, does that signal some sort of a market change? especially you mentioned apple. it's not just that it's down, but versus the s&p 500, its losses are about double that of the s&p 500. >> it seems frothy when you look at panera and yum and starbucks with all-time highs. but as far as tech is concerned, we saw google, looked lie ke decent numbers. apple hasn't had an up day since it pre-announced. everyone positions the whole apple supply chain is the best

think ever. it's not. nokia is squeezing the heck out of their suppliers. >> let's focus on some of the financials. we have two great barometers. we saw the space, though, completely battered across the board. part of it was concerns out of europe. we saw the european bank sell into the european close and the u.s. banks take their heed from that selloff. and next week you're a taking a look at morgan stanley which has been probably among the most corrolatesed to the moves of the european banks of late. >> and one thing that's interesting, wells fargo and jpmorgan this morning, that's probably as between as good as . morgan stanley down almost 18% off march highs. it's tough to press shorts that are down this much in to events especially in what's becoming a very uncertain market. the implied move is higher than a lot of its peers. maybe a little under 5%.

and i'm not looking to make a move just on earnings. i want to look out to may. moody's has already told us they may downgrade their credit rating by three notches. that will increase their costs of funding. so i'm going to look out to may and i wanted to look for a low premium structure to have a bearish bet assuming that maybe the sovereign debt stuff in europe heats up again. so i want to make a low premium defined risk bet that this stock maybe goes unchanged. >> so dan is bearish here. he's using what's called a put fly. we have to open the playbook. it's a bear strategy where you buy one put, sell two lower strike puts against it of the same expiration. but you then buy one even lower strike put, you want the stock to go to those two strikes that you're short. so this is a lthread the needle trade. >> and this is not the sort of strategy for everyone. it's not cheap to put on. you always want to use limits in a four-legged trade like this. but when the stock was 17 1/2, i

without the may 16, 14, 12 put fly. and i paid about 23 cents for it. so one for 45 cents, sold two of the may 14 puts for a total of 26 cents. and then to cover my tail, i bought one of the may 12 puts for only 4 cents. my max risk is 23 cents. and my max gain 1 is $1.77 between $15.77 and $14. is $1.7 between $15.77 and $14.is $1.77n $15.77 and $14. and so my max loss is the 23 cents above $16 or below $12. that's a massive range. and a massive profit potential between those three strikes. >> it's really interesting with trades like this, you are trying to thread the needle. of course two bucks on like a 14, 16, those types of strikes is a pretty good range to have there. and the other thing is i haven't seen anything fundamentally

that's really good for these businesses. we see declining volumes in almost every potentials asset class if you're just taking a look at how trading is going for example. ipo issuance where we are seeing some things come out like oak tree, if you were going to be anywhere, you'd probably want to be on the buy side, not the sell side. we not much appetite for that ipo. so you say, okay, the trend hasn't been that positive. you need to see revenues in these companies turn around. >> and the chart is you ugly. the thing about the butterflies, threading the needle becomes more critical as this gets closer to expiration. so if you don't feel like you can thread the needle, you can take it off earlier. sometimes that works. the math is not working for you if you do that. but take's how you alleviate the problem is you at that time trade off earlier. >> if the stock goes down 5%, ibl probably at least break even.off earlier. >> if the stock goes down 5%, ibl probably at least break even. sometimes i take half wioff and

let the other half ride. >> shorting morgan stanley or any stock carries unlimited risk. dan's put fly has a 7:1 payout. interesting risk reward here. let's move on to our next trade. momentum favorite chipotle will also report earn hei inearnings thursday. about 7% over the last couple of quarters. the stock hit an all-time high in today's session. so where is it heading next week? let's call to the charts with carter braxton worth. >> i have four graphics here. and i think the story is quite compelling. one of the principals about being in a trend is when you get to the bottom or top, you respond to the channel. so when you get to the top, you back away. get to the top, you back away just as you respond by bouncing.

we're at the top. it's not good risk reward here. but take a look the same circumstance on a five year basis. it's the same principal. 40 to 450. we're at a level where it's priced for perfection and that's not the situation you want to be in. next week you have earnings. these last six quarters, they have missed on two, beat on four. but the important thing is the last two misses, the only misses has been in the last three quarters. so of the last three, two of them misses. and is this the response of the stock from two days before to one day after. very little up side. in fact down, down. not a good situation. and then finally, just as a little appendix, this is one heck of a radar stand juxtaposed against the king. a five year chart, chipotle and

apple. a 99% correlation. the king broke today. was down 5% off its high. apple. take your chances by being long chipotle here. wouldn't do it. opposite side, sell. >> not a pretty picture. michael, what's your take fundamentally? >> there's a couple things. it's a very richly valued stock. trading about 64 times earnings. and of course you can justify that if you see explosive continuous growth going on. and in fact this was a company that was agreeing at an extraordinary rate, still growing at a very good rate, but actually if you take a look at the last couple quarters, growth rate is starting to decline somewhat and analysts keep upping their estimates, what you need to do is keep up with the fundamental action. is that growth rate still justifying the high valuation. we're at the upper end. >> so bearish, as well.

mike is using a put strategy. let's open the playbook. you buy one put and then sell a lower strike put of the same expiration. you want the the stock to fall to the lower strike put. walk us through the trade. >> i want to capture the earnings event. i also want to capture a little bit more time than that. so i'm trying to buy the june 4-20 puts. they were trading on or about $15. and then sell against it. a net can he be bit of about $7.50. you have to pay attention to where the stock is monday.he be $7.50. you have to pay attention to where the stock is monday. obviously you have to look at it on a percentage basis. 20 bucks away is not that much when you're dealing with a $440 stock. >> the analysis carter laid out is very interesting because you have recently put on a bear strategy on apple. >> had to bring that up.

>>s of the timing on that one. >> it's funny, i'm such a sucker.the timing on that one. >> it's funny, i'm such a sucker. i try to short them. last year the trading pattern was very different. it was actually pretty volatile. it was trade when the sock was up $300 stock, traded in 30, 40 point ranges. now it's a one way trade. so i think you take a shot here. but i've tried to do it and it gets expensive. >> it made an all-time high. i don't understand trying to pick a stock when it made an all-time high. mike is buying a put spread which is the thing to do rather than calling a call spread. >> i do love their tacos. spend your 11 bucks there, don't buy the stock. >> carter, when you you make a comparison and you say chipotle has a bearish chart, does that also mean that you think apple has a bearish chart here? >> meaning they're equally steep, equally crowded, and then

apple is now broken. the high was 636 earlier this week and it closed at 605. pot so good. often that's how things come apart. >> we'll see you you later on in the show. meantime, one more stock on stocks versus options. short chipotle is equivalent of eating 20 hjalapenos. the advantages of using options become so much clearer when you use food to illustrate the point as we just did. got a question, send us an e-mail. we'll answer it in our 101 web extra. options action.cnbc.com. you'll also find a recap of all of our trades. and you'll want to check that out. talk about a blockbuster trade. last month, cohen car a bearish

trade put cash in their pockets. how did they do it? find out when "options action" returns. time for pump up the volume, the names heating up options trader sizzle index. craving something sweet? this company can hook you up. of course they're also known for their coffee. and hair tasty plans for global growth. an option traders scarfed down the calls this week betting the company's new deal with coke will make them some serious dough. who is it some the answer when "options action" returns.

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where were options traders pumping up the volume this week is this dunkin brands. at one point call volume was almost eight times its average daily volume. you just heard how options in dunkin brands were active. what did you make of the activity? >> most was on wednesday. implied volatility up about 10%. dunkin has just reached a new deal with coke. so people are wondering if that won't help their business. >> time for the up side call where we take a look back on some of our winning options trades. everyone knows about the success

of the hunger games. but they were able to turn time into money and here's how. risk less so you can make more and that's exactly when they did with their trade on lions gate. carter thought the studio had gone too far too fast. >> we think you fall back to about 12. either way, sell. >> but shorting the stock? >> are you out of your mind? >> that could mean unlimited losses. so to define his risk, mike instead bought the may 13 strike put for 90 cents. now he needs lions gate stock to fall below that put strike price by more than the cost of the trade by may expiration. but 90 cents? >> breaking my heart. >> mine, too. show us how on do this for less. >> sell the april 13 put. >> might as well hand him the

oscar now. so to spend less, mike then sold the april 13 strike put for 60 cents and created his calendar. but he made making money easier and here's how. between the 90 cents he spent buying one put and the 60 cents he collected selling the other, he cut his costs by two-thirds. and now instead of needing lions gate stock to fall below 12 chlt $10 to make money, he can now see profits if the stock falls by more than that 30 cents he spent by may expiration. but it gets even better. that's because the value of the nearer dated put that mike sold will decrease faster than the value of the longer dated put that he bought. allowing him to do something that only happens in the movies. turn time into money. but there is a tradeoff and in order to make the most amount of money, mike needs lions gate stock to say just above the shorted dated put that he sold by the first expiration, or

above $13, but break the strike of the longer dated put that he bought by more than the total cost of the vad trade by the second expiration or below 12. $70. and since the time of the trade, lions gate stock has fallen 15%. making this trade a winner. now they're the toast of tinseltown. but between kicking can cloon any and can, don't for get about the trade because options actions oig fans across the world only want to know one thing. what will these two leading men do now. before we answer that, let's see how much money was made. had you sorted the stock at the time of the trade, would you have made about 12%. but mike's option trade cost 30 cents, can be sold today for a total of 40 cents. a return of about 30%. why not more? well, they might have gotten the direction a little too rate wig. so they need lgf stock to be

above 13 bucks by april expiration, but below $13 by may expiration. so carter, what do the charts say now? >> take the money and run. which is to say stock went from 8 on 16, it doubled over 12 weeks. and now it's pulled back to the 50% retracement mark. >> okay. so at that time the money atake. mike, is that what you plan on doing? >> with the calendar trade, there's about 25 cents worth of ex-rin sick premium still in it. i think what you want to do with these types of trade, monitor them carefully, but basically i would actually stay in on expiration day, that's when you cover that short option and if you also don't feel bearish, you can cover the other one, as well. >> what would you do, dan? what's your belief in the stock

overall. >> when this released the movie, a lot of traders were looking at the options. vertical spreads didn't make a lot of sense. and i think mike and carter were spot on with the calendar. but what you're risking to your potential reward, the stock may continue to move around and it may be a difficult one to get out unchanged. >> the interesting thing about calendars is mike needed the stock to go down when he put it organization now he needs it to go back up. sometimes calendar spreads do that, they become bearish and then bullish. so i think mike makes a lot of sense. there's some time value left in that short option. i'd probably try to collect a little bit more of it. >> overall, mike, down there was some concern about the director of the hunger games leaving before the next couple movies are shot some he was also a co-writer on the movie. so there's a period heresome he co-writer on the movie. so there's a period here where the story might be in question. >> what concerns me is when managers start leaving. when they start selling shares. and if you think will stock will

rocket back up, why don't take you a look at what they're doing because they clearly don't think that. that's probably the best tell there is. >> if you want updates, follow us on twitter. dan posts regular updates on his trades. and he has a great piece about how to calculate implied moves. you'll want to check that out. we get a lot of those questions all the time. carter braxton worth, have a great weekend. coming up next, the final call.

time for the final call, the last word from the options pits. >> if you you do the trade in chipotle, buy the put spread. >> monday i think if morgan stanley opens up with citibanks earnings, you look to put flies. >> when you're long, you want to manage them carefully on expiration week because that's when the near indicated option is expiring the most quickly. so you want to take advantage of that, but keep an eye on expiration day. >> well, it looks like our time has expired. for more options action, go to our website. we'll see you back here next friday at 5:00.

money in motion is up right after this break. there's nothing worse than going to the post office and waiting in line. i don't have to leave my desk and get up and go to the post office anymore. [ male announcer ] with stamps.com, you can print real u.s. postage for all your letters and packages. it gives you the exact amount of postage you need the instant you need it. can you print only stamps? no. first class. priority mail. certified. international. and the mailman picks it up.

i don't leave the shop anymore. [ male announcer ] get a 4-week trial plus $100 in extras including postage and a digital scale. go to stamps.com/tv and never go to the post office again.