bye-bye. this is "options action." tonight, morgan's pain, your gain. bank shares getting battered. but dan has an options trade on morgan stan that will could make seven times your money, ahead of earnings. talk about a hot trade on chipotle. this could make four times your money in just two months. they'll break it down. and why are all those options traders showing down on dunkin' donuts calls? scott nation with the 411. the option begins right now. live from the nasdaq market site, the largest options equity exchange. these are traders. welcome to the show, welcome back to volatility.

stocks finishing its worst week of the year. lows of the day, our goal? find new names that could turn volatility into opportunities. banks, tech, materials, getting clobbered. where is the money going? seems like they are going to momentum stocks that continue to set fresh 52-week highs. >> when you think about it, we've seen a rotation. a lot of bank stocks down. apple, believe it or not, down four days in a row. down 5%, off the all-time highs. starbucks, all-time highs. panera bread, yum, some of the other things. look at that. microsoft, stock raging, 30% up on the year at one point. down 8% on the year. investors are hitting the pause button. the momentum names still working. >> i think it's really interesting. if you take a look at the fact that tech and financials have declined, two areas that haven't necessarily risen for the same

reasons. for example, financials definitely more of are we back in safe harbor type of situation? and when you see widening credit spreads and widening sovereign debt spreads, those things cause concerns that will cause financials to crumble. the tech space, that's a different story. results have generally been pretty good. you start to see that kind of concern, i wonder whether other areas -- i don't know necessarily we're seeing rotation. could the next ones be ones that could crack? >> backs and financials, got killed today. part of the problem, so far, so fast, done so well. a lot of them are really undervalued. we talk about bank of america. completely rejected the $10 level. an important level. something for everybody in the broad market. monday and tuesday, looked horrible. wednesday and thursday, looked good. it finished ugly. the market in general closed really ugly today, and on its low, vix closed the week. and the day on its high, never a

good thing. >> that's a great point. the vix usually does go up and this particular case, up more than the decline that the s & p indicates. it does suggest people are turning up numbers. friday, normally expect it to be lower and it would maybe take it higher on its own. >> we take a look at the changing of the guard. continuation of the momentum in the momo stocks, does that signal a market change? you mentioned apple. not just apple down for the week. take a look versus the s & person 500, losses for the past week are double that for the s & p 500. >> it looks frothy when you look at panera, yum, where tech is concerned, we saw google. looked like decent numbers. apple, we saw sandisk too two weeks ago, not an up day since it announced. awe supplier to apple. everybody thinks the apple

supply chain, best thing ever. it's not. look at nokia, squeezing the heck out of suppliers and it's sucking the life out of market caps over the market. >> financials, two great barometers from jp gorman. the space battered across the board. concerns out of europe. we saw banks sell into the european close and u.s. banks take their lead from that sell-off and dan, next week, you take a look at march gone stanley, the most correlated to european banks of late. >> we had wells fargo and jpmorg jpmorgan. as good as it gets. at the end of the day, morgan stanley down 8% on the highs here. really tough to press short in a very uncertain market. the implied move is higher than a lot of its peers. a little under 5%, and i'm not

really looking to make a move, just on earnings here. i want to look out to may. moody's told us they may down grid this company, the credit rating by three notches. going to increase their cost, and make them less competitive with pires. i want to look for a low premium structure, have a bearish bet, that could be the sovereign debt stuff. i want to make a low premium defined risk that this stock maybe goes unchanged on the year on the next five years. >> dan is barryiearish, using a play. you buy one put, sell two lower strike puts of the same expiration. but you then buy one even lower strike put. want the stock to go to the two strikes are you short. so a thread the needle trade. you want it to land just right. walk us through. >> definitely thread the needle this is not cheap to put on. four legs. what i am going to do here and use limits in a four-legged trade. stock was 17.5, i bought the may

1 16, 14, 12, put flies. i bout one for 45 cents, sold two 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 is 77 cents -- excuse me, $1.77 between 15.77 and $14 i will. payoff trails off between 14 and 15, and my max loss is the 26 -- 23 cents above $16 or below $12. a massive range and a massive profit potential between those three strikes. >> yeah, really interesting. trades like this, trying to thread the needle. two bucks on 14, 16. those types of strikes, a good range to have there. and the other thing, i haven't

seen anything fundamentally really good for these businesses. declining volumes in almost every potential asset class if you are taking a look at trading is going, for example. ipo issuance, seeing things come out. and if you are going to be anywhere, be on the buy side, not the sell side. not much of an appetite. we clearly saw that. look at those types of things, okay, the trend hasn't been that positive. we need to see revenue turn around. >> chart is ugly. europe is a problem again. the thing about butterflies, you have to thread the needle. that he hadding the needle, closer to expiration. one thing you can do, take it off earlier, sometimes that works, the math is not really working for you if you do that. but that's how you alleviate the problem, take the tradeoff earlier. >> a go ahead point. stock goes down 5%, probably the at least break even, maybe have a double. what i like to do in these situations, expensive to get in. sometimes i take half off and let the other ride and play out.

>> let's hit the stocks versus options button. shorting any option carries unlimited risk. dan's put fly, 7-1 payout, defines risk to $23. interesting risk/reward. and banks not the only group reporting. chipotle reports earnings next thursday. the consumers know for the fabulous tacos, but traders know about big earnings. 7% the last couple of quarters, stock hit an all-time high in today's session. let's call to the charts with the original. elmar afternoel mariachi. >> the daily chart over two years and one of the principles, when you get to the top or button, you response to the channel. top, back away.

you just response by bouncing. at the top, it's not good risk/reward here. take a look at the same circumstance on a five-year basis. same principle. 40, 50 to $4.50. a massive advance. aa level where it's priced for perfection and often not the situation you want to be in. let's look at what we're talking about. next week, earnings, and the last six quarters and they have miss missed on two, deep on four. the important thing, the last two misses in the last three quarters. look at the price action. the response of the stock from two days before to one day after. very little upside. down, down. not a good situation and finally, as a little appendix this is one heck of a rradar sk juks ta possessed against the king. a five-year chart of chipotle

and apple. the king broke today. take your chances by being long chipotle. if you don't do it, i would say sell. >> not a very pretty picture carter is painting. what is your picture on the stock fundamentally? >> a couple of things you have to take a look at. a very richly valued stock. 64 times earnings and you can justify that if you see explosive continuous growth. it's growing at a good rate. take a look at the last couple of quarters, growth starting to decline somewhat, where a lot of expectations and analysts trying to stay in front of it, and they lowered the stock and keep up upping their estimates and what you need to do is keep up with the fundamental action, it justifying the high action, we are at the upper end of the valuation range. 64 times the earningsory the

past four years. >> put strategy, but good to look. let's crack open the playbook. you buy a lower strike put to lower cost, and you make the most money at the lower strike put. walk us through. >> capture the earnings event and capture a little more time than that, and what i'm trying to do here is by the june 4th 20 puts, trading on $15, and sell the june 3.90 for 7.5 bucks, and $7.50, and you have to pay attention to where the stock is when you look at this monday. we want to spend less than 25%, and it seems like this, and you have to look at it on a percentage basis. 20 bucks away is not that much when you deal with a >> it's very interesting, dan,

that you compare it to apple. >> i'm such a sucker. i go into names and try to short them. i probably do another show. last year, trading pattern very different. pretty volatile. trade when the stock was a $300 stock. trade in 30, 40-point ranges. i think if you take a shot, take it here. and i have tried to do this, it gets expensive. >> try to do it with amazon. all-time high. i will say, mike is buying a put spread, the thing to do rather than selling the call spread. >> but i do love their tacos. >> the burritos are quite nice. >> subpoepend your 11 buck ther. don't buy the stock. >> when we make the comparison to apple, do you think apple has the bearish chart here? >> they are equally steep, yes. equally crowded, equally high.

it closed at 6.05. not so good. often that's how things come apart. >> okay. we'll see you later in the show. meantime, one more time on to stocks versus options. short chipotle. it could cause you a great deal of discomfort. the put spread offer, 4/1 payout and the advantages of using options many becomes so much clearer when we use food. got a question? options action@cnbc.com in our web extra after the show. you will find the recap of all of our trades and them centering on next week's earnings, check them out. here is what's next. talk about a blockbuster trade. last month, a bullish bet on

lion's gate that turned time to money and put cash in their pockets. how did they do it? find out when "options action" returns. time for pump up the volume. the name heating up the sizzle index this week. craving something sweet? thinking ice cream or doughnuts, this company can hook up. they are also known for their coffee and tasty plans for global growth. an options traders scarfed down the calls, betting the new deal with coke will make them serious dough? the answer when "options action" returns.

where were options traders pumping up the volume this week? dunkin bransds. eight times the average daily volume one time this week. welcome back. you heard how options and dunkin brands very active. what did you make of the activity? most of this on wednesday. a lot of buying in the april 30 calls. dunkin, a new deal with coke and people wondering if that won't help their business if there's not more to the story. >> time for the upside call. take a look back at winning

trades. everyone knows about the smashing success of "the hunger games." people may not know that khou and carter had an equally successful trade on lion's gate. how we make blockbusters, risk less, so you can make more. what coe and carter did. the studio behind "mad men" and hunger games" too far, too fast. >> we think you fall back to 12 either way. >> shorting the stock -- >> are you out of your mind? >> could mean unlimited losses to define risk, he made 13 strike put for 90 cents. now mike needs lions gate to fall below 12.10 by may expiration. but 90 cents? >> you're breaking my heart. >> mine too, don. show us how to do this for less. >> i'm looking to sell the april

13 put. >> hand him the oscar now. and then mike sold the 13 strike put for 60 cents and created a put calendar, but did something even better. made making money even easier, here is now. between the 09 cents he spent buying one put and the 60 cents he collected selling the other, he cut costs to just 30 cents and instead of needing lion's gate to fall below $12.10, mike announced if the stock falls month 30 cents or below $12.70 by may expiration. but it gets even better, that's because the value of the near data put will decrease faster, allowing him to do something that only happens in the movies, turn time into money. but a tradeoff and in order to make the most amount of money, we need the lions gate to stay

above $13, but below the strike of the longer dated put he bought by more than the total cost of the stock, or below $12.70 by may expiration. and lions gate stock, falling 15%, making this trade a winner. khou and carter, the toast of tins tins tinseltown. guys, don't forget about the trade. because options action 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. shorted lions gate, would have made 12%, but the options trade can be sold for a total of 40 cents, a return of about 30%, why not more? they might have gotten the direction a little too right with the stock below the short of the put. so to make the most money, they need lgf to be above 13 bucks

but below 13 by may expiration. carter braks tob worth got us in. what do the charts say now? >> take the money and run in points of the chart. the stock doubled over 12 weeks and pulled back to the 50% mark, and 12. >> okay. so take the money and run. mike is that what you did or what you plan on doing? >> interesting, of course, because with the calendar trade, the near dated option is still decaying. the extrinsic premium is still in it. that's how much decay if you stay in until next friday. i think you monitor these trades carefully. i would stay in on expiration day, cover the short option and at that point if you don't feel bearish, then you can cover the other one as well. >> dan, what is your relief in the stock overall? >> when this manna ended this

production or ended the release of the movie, a lot of options traders were looking at vertical spreads, didn't make a lot of sense. and mike and carter spot on with the calendar. a tough one. risk to reward, the stock may continue to move around and may be a difficult one to get out unchanged at least. >> the interesting thing about calendars, mike needed this stock to go down when he put it on, now he needs it to go up. sometimes calendar spreads do that. become bearish and bullish, so i think mike makes a lot sense. time value left in the short option. probably try and collect a little more of the. >> overall, do you think there is some concern about the director of the hunger games leaving before the next couple of movies shot. cowriter on the movie and a period here where the story might be in question. what concerns me, when managers of the business start leaving. that is the first warning sign. if you think the stock will

rocket back up, take a look at what they are doing. they clearly don't think that that's probably the best there is. >> if you want updates on trades, follow us on twitte twitter @cnbcoptions. and dan is @riskreversal. a grease piece on his site about how to calculate implied risk. there is your answer. carter braxton worth, thank you. up next, the final call.

time for the final call, last call from the options pick. >> buy a put spread in chipotle. >> monday, if morgan stanley opens up, i think you can look to put in may. >> the longest calendar spread, manage very carefully on exper ration week, that's when the near dated option is expiring most quickly. take advantage of that, but keep an eye on expiration day. >> well, it looks like our time has expired. for more, go to our website. we'll see you back next friday

at 5:00. meantime, "money in motion" up right after the break.