money, and it is this. people first. then money. then things. now, you stay safe. bye-bye. this is "options action." tonight, priceless priceline trade. miss today's rally in priceline? relax. carter and co have a trade that can double your money in less than a month. they will explain how you can profit too. talk about a sweet deposit. how would you like to quadruple your money in three months. don't bother asking him because it's dan nathan's options trade and he will show you how. which stock are they betting on apple's earnings? a semiprecious lowdown. reaction begins right now. >> live from the nasdaq, the world's largest options exchange. forget the fed and europe stocks

going 4-4, but the real money was made in single stock stories and that is the goal to give you the home stock picker and the best names in strategies that can make you money in the next week. let's go through the list. amazon, apple, expedia and all this week having massive moves. these are not small companies. what does it say about the marks? >> it's interesting. we get a lot of new about spain and they are moving in opposite directions and they are focussed on what's going on with individual companies. we see gdp numbers and people are disappoint and think it's over. if you take a look at the 300 names in the russell or so that reported this week, there is an average of 9% growth. 200 of the 300 stocks reporting growth and 100 seeing negative growth year over year. that's interesting because one of the things that is important to remind themselves of is you are not actually buying the market.

you are buying individual companies and some are performing exceptionally well. that's what you have to focus on. >> particularly this week you were not buying the whole market. if you owned netflix, you were in trouble. netflix, i can't understand how people sell these way out of the money puts. we saw that earlier before they reported a bunch of sellers to the 85 weekly puts that. ruined your week if you sold those. the thing about the vick, it hasn't been this low since the first week in april. as mike said, plenty of problems in europe and potential problems in europe. with protection this cheap, you have to buy protection right now. >> dan nathan out there in new orleans joining us from new orleans this week. dan, put it together for us. correlations in the market are coming down that means the single stock stories are the way to play the markets. at the same time it is cheaper to play by options because volatility has as scott mentioned come in. >> that's a great point. it is cheaper and makes a heck of a lot more sense. if you had a negative bias into amazon's earnings, i owned a put fly into that. that was a far better way to

define your risks and kind of identify levels in which you can go if a or b happened. in this instance, a move up 16% is a massive move. you do not want to be caught short. a stock like that in a market like this. everything these guys are saying about correlation and the stuff come undone is a bit of a stock picker's market and you gotta get the directions and stories right. to me with what scott just said, vix at 16. there will be sing ohl name opportunities to define the risk and play things from a directional standpoint. >> for you wanted to press a bet in boeing, a name that came out with good result this is week and the stock was up, implied volatility. the cost is exceptionally cheap. it will cost less than 2% to find at the money call on these things that last a week. if you wanted to press a directional bet, that's great. if you want to hedge the portfolio and the cost is declining. that can make a lot of sense.

you have a bunch of things that work for you if you make the bets. >> even names where the options were expensive. like apple before earnings. apple options were saying there would be a $38 move and it wasn't enough. not nearly enough because it ended up being about $50. >> let's talk about one of the single stocks that had a big move. an impact in the market and results of expedia giving a huge boost to priceline. shares of priceline up 4%. is this rally going to hold, especially with the earnings coming up? there is a warning sign and let's call to the charts and find out what it is. carter, what do you see? >> a couple of charts. i think there is a tell here in the action. let's look at them. this is priceline. it shows the well-defined tops and a level, a level from which it broke out. the break out is already occurred. after this powerful move for the first time we broke trend and we

were able to get back above it, but often that's the beginning of the signs of trouble. when you start to falter like that. i want to show you a second chart among several. this will put this in context. this is apple. identical. same exact period and same break out. breaking trend. apple also surges weak, but did not get back above trend. both show signs of wear and tear. put them together with the next chart. apple and priceline together. you are talking about a 95% correlation. each broke out and is beautiful. quite extend and now each starting to show the signs of trouble or exhaustion. the last chart say long-term chart of priceline. it puts in context where we are from the lows of' 09. this is basically up almost 10-fold. when you get to the bottom or top of a channel, you throw back the other way. so we would call this risky to be long and trim longs when we are long and in this case we would go short.

>> technically apple may look like priceline and apple looks like priceline, but the story is different when it comes to valuation as well as earnings growth. >> the earnings growth thing is a situation where both are seeing exceptional earnings growth. that is the case that everybody makes for priceline. when people throw out concerns about high valuation, we are talking about a company trading 36 times full year earnings. these are rich valuations when you think a stock like chevron that pays a 3.5% dividend is rich. it mean that is everybody has to have continued faith that the 40% growth that they are sighing in a lot of market places is going to continue. the bull case tested discount europe. don't worry about it. focus on asia. you look at the results and see that china sales are not good. could cracks emerge? all it takes is a notch in the faith everybody has for the multiple. if you do see any disappointing result, that is a situation that

can compound itself not to mention that people have a tendance to want to sell stocks that had a great run like this one. >> you are bearish along with carter. let's break open the playbook. mike is using a put spread. it may sound complicated and we used this many times before. let's review it one more time. this is a bear strategy where you buy one put and decrease the cost. you sell a lower with the same expiration. you want it to fall to the put you sold where you make the most money. walk us through the trade. >> i am looking at the june put spread. $38 for the 750s and sell the 700s for a net debit of $18, 36 of the difference between the strikes. you will notice often times we try to focus on minimizing the price you pay. even though this is a $50 spread, we are talking about a $760 stock. this is a tight spread to where the stock is trading. the idea here is if the stock pulls back, we will have an opportunity to monetize this

trade quickly. the other point i would make is if the stock continues to rally non and the results are good, how much can this put spread drop? in the near term down to about 25% of the strike. that's 11% or thereabouts. that's the important thing to think about in a trade like this. >> i want to go to the man who dared to have a bearish case on apple. would you agree with this case on priceline? >> i am getting a little exhausted trying to take contrarian dues and the high flyers. in a lot of ways, you are really trading against a sort of mania here. to me i think the only way to do it as we said in that there was discussion is to define the risk and do it through options. i don't love paying $18 for a put spread, but there is few ways to express this view without really threading the needle. if you have to do it, this is a good way to do it. >> i don't know about that. carter calls the move back above

the line wear and tear and i call it the pause that refreshes. i don't want to catch the first 10% of any move and that's what mike is trying to do. he is trying to catch the first 10% back down. i'm not a big fan. >> the important thing is in general most people have longer term investments and also sentiment trades that they like to do. we are going into a seasonally weak period in terms of stock behavior. a lot of people like to sell. you cannot short a stock like this. if you are so inclined and you want to hedge it, this is probably one of the better ways to do this. >> it can be used as a hedge. >> that's right. a lot of people own this thing and will be concerned about earnings and how you handle that. >> you might be asking if mike doesn't like it, why not short it. they have stocks versus options. shorting any stock carries unlimited risk. they can go to zero. the put spread defines to $1800 and offers a 2-1 pay out and that is why you use popgzs. we will see carter later. we want to turn to the banks on

a day in the week the financials lagged on concerns about europe and the health of the economy here. morgan stanley down 3% and dan, if risk is back on, why aren't the financials participating here? >> that's a good point. the discussion we had about the high flyers and the tech names tells me that the rally is very, very narrow even with the banks that are up tremendously. citigroup is up 27% year to date. down 13% from the april high. to me in some ways, some of the mania around the high flyers that is driving a lot of the action in the nasdaq that had their best week in three months has kind of waned a little bit in the other best performing sectors of the q1, the bank stocks. for the reasons you just said, three reasons why i want to look at citigroup here. a lot of it is existing performance that has to do with sentiment and they failed the test and one of the biggest money center banks in the world and most exposed to europe.

there things going on with the chart that shows you. $32. that's a big level. if we get down to third, that is danger zone on the chart. the last is that maybe the earnings that we saw in q1 that reported 95 cents in earnings for the last two years. they have done about a buck and that's as good as it gets. in 2011 and 2010, the dollar earnings dropped to 40 cents. huh pick ups in both of those years that caused earnings to be strained. i top the look out and make somewhat of a speculative bet by july expiration that this stock breaks down and breaks $30. >> dan tonight you are using a put spread. we explained it. the gateway trade for options traders. when you use the put spreads, you might be hooked for life. why don't you walk us through? >> this is interest too. the skew situation and the downsides are big. i want to look to july. it will be the q2 reporting season. it will catch q2 and there is a

good chance if stuff in europe heats up, it will be between now and then. we will see murkier guidance. i want to buy the july 32-27 put spread when the stock was 33-60. i paid $1 for it and they bought a put for $1.55. i sold one of the puts at 55 cents. the max risk is a $1, between 31 and 32 i lose up to the dollar. make up to four between 31 and 27 with the max gain at $4, down to 27 or lower. to me, i want a leg into this thing. this is a speculative position and not a slam dunk whatsoever. if you are in my camp and think that things will heat up in europe and have a reduction possibly of last summer and retest 1300, this is the place to be. the banks are the weakest and will get hit first. >> the time frame includes a possibility of qe 3 and with

today's number a higher probability of that happening. where do you stand and whether or not the things in europe will trump qe 3 and what that can do to the financials in the same time frame. >> that's a great point. dan was alluding to this. what's happening is the wings are good. the out of the money options on the upside and downside because you have the different possible outcomes. i look at the situation and this put spread he has chosen has a good amount of time for expiration and it's tight to where the stock is trading and a favorable price when you look at the difference between the strikes. if someone is so inclined with the financials that have a lot of leverage and how stocks are not behaving and talking about how this is one of the ways to do it. you can trade index put spreads and buying on a financial is another type of a macro bet you are making and the risk-reward relationship is pretty good. >> let's go to the u.s. stocks versus options one more time. you might be seek a bailout of

your own to the tune of $1 trillion. we are exaggerating of course. the put spread offers a 4-1 pay off and beg, borrow and scream and spent $100 on a put spread. the address is "options action." we will answer it on the on one after the show options action.cnbc.com. you will find a lot of educational material as well. here's what's coming up next. so it's not the apple of their eye. last month colin carter made a bearish pet on apple, but the stock hiked higher. can the boys pair their losses and make the trade peachy? find out when "options action" returns. time for pump up the volume, the names heating up options trader sizzle this week. let's have the drug talk. this company is a big player in the field of biopharmaceuticals. the stocks saw a big pop off the top of the companies on the verge of getting bought out by bayer.

they like the diagnosis, shooting up the call volume and hopes it won't be killed by a poison kill. who is it? the answer when "options action" returns.

>> where were options traders pumping up the volume. onyx pharmaceuticals. at one point call volume was 34 times the average daily volume.

>> welcome back to options action and time for total recall. we look back on trades that are in no man's land. colin carter did the unthinkable and made a bearish trade on apple ahead of earnings. the stock soared, but they haven't lost much money. here's why. on "options action," it's an ap to itself. risk less to make more. that's just what colin carter tried to do on apple. carter thought apple was about to sour. >> a big portfolio manager is paring back exposure. >> do i dare short apple? the poor sap who did that over the last years is only down 5,000%. better go with the options. so to make a bearish bet, mike sold the june 600 call for $30.50. to keep all of that money, mike needs apple to stay below the strike of the call he sold or

below $600. above $600, profits trail off. mike won't see losses until apple rises above that strike price by more than that $30.50 he took in or above $630.50 above june expiration. mike can make money whether apple goes up, down, or nowhere at all. but there is a trade off and if the stock trades above $630, mike will be the hook for infinite losses. to limit his risk, mike bought the june 630 call for $20.25 and completed the bear call spread and here's how it makes money. between the 30.50 he collected selling the more expensive lower strike call and what he spent buying with the higher strike call, mike pocketed $10.25. that $10.25 is the most he can make on the trade, but in order to keep all of it, he needs apple stock to stay below 610.25

and above that losses kick in. they are limited to the difference between the strike of the call he sold and the strike of the call he bought minus the credit. since the time of the trade, apple shares rebooted and rising 3%. "options action"s fans taken to itunes downloading the show and the only one is one thing. what will khouw and carter do next. before we answer that, what is at stake? 4 you shorted 100 shares you would look at a loss of $1700. it's a loss of about $300. here's where it gets interesting. if apple can manage to be below $600 by june expiration, we will keep that moan. the question is will apple stay below $600 by the end of june? carter, what do you say now? >> sure. as articulated, we think it is showing wear and tear.

stock was down 15% from the high and obviously popped on the earnings. it's unconvincing to us and stay in the trade. >> stay in the trade. what's your inclination? >> i'm inclined to stay with it as well. we were short at this point and time is working in our favor. you trade for one day to the next and take a look at where it is trading. $13, i still think this is like being long and in the money put spread paying you. i like being short the stock. this is a risk way to do with it. >> you have been short apple as we highlighted before. you were short early and it didn't work out. if you were in this trade, would you stick with it? >> short with defined risk. not like i'm short for $200. i'm dumb, but not that dumb. what i thought was interesting in apple is the move from 644 at the high had meat a couple weeks ago down to 555 it closed at the mid-point of the range.

600 is a huge level and will be a battle. about this trade out to june, it will be a tough battle to be honest. a tough way to make $10 or whatever they are looking to do in that spread over the next month and a half or so. >> i think dan makes a great point. in the mid-point of the range, it's a coin flip. you don't have any edge or advantage. if you want to quit beating your head against the wall with shorting apple, i take it off and move on. >> well, is that actually true? do you have edge when you sell vertical spreads that are where the stock is and the fact is that as volatility compresses and especially if you are bearish on the market and the name, you do have edge and that's the reason you keep an eye on this. you give up the whole difference if the stock moves higher. you manage a trade. >> i am talking informational. i feel with the stock goes up or down is a coin flip.

i don't feel i have direction right now for the same reason dan pointed out. >> the next catalyst could be months away. our thanks as always. if you want updates, follow us on twitter at cnbc options. dan posts on his trades on twitter at risk reversal. coming up, the final word from the options pits.

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>> we will see you back here for more action on cnbc.