>> this is "options action." tonight, worried about a global sell off? relax because dan nathan has an options trade on ibm that can quadruple your money in one month. a big blue trade that will have you sitting in the green. would you like to buy disney stock for less than $1 ahead of earnings. they will show you how to profit too. why were the traders betting on a monster take over. the 411. "options action" begins right now. >> live in the nasdaq market at

the equity options exchange, these are the traders here in times square. we will get you the trades in a moment. let's start with the market route. stocks saving the worst day in a month and if history is any indication, the pain can be starting yet again. why is that? >> we were talking before the show, you were talking about the set up and you look back to 2011, we had similar things going on. 2011, may 2nd was the high of the year in equities. we also had a huge downdraft in crude oil that week and it was down about 10%. we are looking out at a big technology social media ipo of linked in that came may 18th. we had huge sell off and a 2.5% sell off in equities. facebook set their equities and this issan ek dotal, but the market doesn't feel that great. when you think of how the banks

have been acting, they have been acting poorly. morgan stanley is up 24% from the april high. goldman sachs off 15%. some of the leading indicators that were leaders and cannot get out of their own way, i will throw a couple in. cat tractor and procter & gamble. these are big components that broke down the testing piece. >> at the same time the past month and the month of april, stocks pretty much stalled out. is this time around different and we have been climbing the wall of worry? >> i think that is absolutely possible. the stock market had come so far from october and november of last year and today we got disappointing jobs news and to the degree that jobs speak to growth in the economy and growth will be tepid. as far as the s&p is concerned, the price action was really troublesome. it was great until about noon on tuesday. last half of the day on tuesday, they had this big rounded top and lower and really ugly today.

today there was just nothing good in the price action for that. the last ten minutes and the last half of the day inspires options and all of the big trade o trades say over 5,000 contracts. nothing good going on. they didn't try to get on the deck all day. there was nothing good going on and potential problems in europe. we will let the next show talk about that. people were pessimistic. >> it was very much a brought base. he had every sector down and crude oil trade to the lowest levels in february. they spoke about the bank stocks and it was different from other sessions. does this tell you that there true concerns about the state of the economy this time around? >> it's interesting. the jobs number obviously was a u.s.-only story, but what dan was talking about when he was talking about crude, some of

those big multinational companies as well as financials is that really that's more of a global macro disappointment. when you couple that with a seasonally weak time for stocks, you can see where you can see these pull backs and correlations start to rise and people get concerned about the risk and there is a lot of disruption as scott was pointing out. people are concerned how the elections will turn out. the resolution will not happen. those are the things that pull back how much people are willing to risk in the equity markets generally, especially in the big multinationals and financials and things like crude. >> given today's sell off and given the ig unknowns of the european and greek elections and french elections this weekend, how were traders setting up. >> yesterday we saw people get really bearish part low in front of this weekend. partly in front of the news we got this morning that paid off. again, people are just worried

in general. we talked about the fact that the options on the s&p were cheap and you should be buying protection. that was more a function of the fact that options were cheep. you can buy when you can and not when you have to. you might have to. >> in terms of seeing the greatest sell offs, look at how the mighty have fallen and stocks have been close or at 52-week highs and trading sharply lower. some might argue it's a reach for liquidity as there is concern about the markets. >> that's a great point and when you look at the three names in general, this is best of breed. there is a lot by portfolio managers or individuals that will throw in the chipotles and anything. if you turn on the tv, people are telling you buy more, buy more as they make highs. to me, those can be sorts of funds in times like this. you want to protect and you want to get the biggest gains. a lot of traders make the bad decision of selling the best performing names and don't do

much, but in markets like this, we saw last summer, guys with privates and everything. >> why are you taking a look at ibm? >> a lot of the reasons we just talked about. it's a safe name that a lot of people feel has broad economic exposure and exposure to end markets and geographies. it pays a dividend and 1.6%. here's the thing. more than 30% of the revenues come from europe and asia. this is a huge multinational. to me i think things in europe will heat up and you do think that asia and europe are slowing a little bit. all of a sudden the data we will hear in the u.s. is signalling we cannot decouple a stock like ibm, a few percent from all time highs can be vulnerable in the next couple of months. >> you are concerned and you are using a put spread. for those of you at home who are new to the show, let's hope the play back and review how it

works. you are going to buy one put, that's the easy part. here's the slightly tricky part. to reduce the cost, you are going to sell a lower put and taken cash. here's how you make money. you want the strike to fall to the low. that's where you make the most money. >> sure. i am using ibm because they reported in q1, a bit of a missed bag. there were warning signs and that sort of thing. i want to look to july that will incorporate the q2 earnings to get a lot more news. i want to buy the july 200, 185 put spread where the stock is 285. i think you want to wait and see how the market trades. you don't top the put it first thing monday morning. about in july and 200 puts for 510. i sold one of the puts at 170.

that package cost me about 340. the max gain is 1160, about 3.5 times my money if the stock is 185 or lower. the break even is at 196.60, 4% lower. the max risk is 340. the mac gain is 1160. i am isolated on the technical level around 186.5. if things heat up in europe, you will see stocks like this break down. >> would you pick ibm for a trade like this? the reason he is concerned is reasons why you might like ibm. international exposure might want that to diversify away from the united states if there true concerns about the economy. weak technicals and it's a couple percent away even though april is a terrible month and a crowded trade. there is a good dividend yield and maybe you want that to stay in the stock. >> those are all great points for sure and one of the points they were touching on earlier.

when you have stocks, one of the reasons people might be selling out of the winners and not that they don't want to hold them, but holders have to maintain limits on position size. if you have a big winner and you get up to that 5% cap, how much you can allocate to a single stock, you might have to sell out. if you are going to do it, why not in a period where there is a lot of macro economic concerns. you are in a seasonally weak period. when you combine those things, we are rarely arguing against a put spread. a lot of these companies, what we are seeing is their volati volatilities have not gone up as much. sometimes when you have the circumstances and you don't need to buy the put spreads. you don't need to buy the put and roll into a put spread. >> you all out there might be thinking if dan is bearish, why not short the stock and not worry about put spreads and all that. here's a simple answer.

it could bankrupt you. the put spread defines the risk to $330. tieing on this risk your life savings and making a bearish bet or risk $300 to quadruple your money. let's move on here. in one night, disney's avengers took in a whopping $18.7 million. this on top of disney having struggles in the film unit, but a big factor, how big of a factor could this play in disney results? julia? what was it? $200 million loss? >> that's right. $200 million. it's a big question this weekend. whether the avengers super heroes will save disney. marvels the avengers is expected to gross in the $150 million range. it grossed over $300 million overaccess. you won't see the impact until

the next earnings announcement. the fiscal second quarter results which are out tuesday will be dragged down by the $200 million write down for john carter which the media giant his an operating loss between 80 and $120 million in the studio division. in the quarterly announcement, we should see the benefit from positive trends at the parks and advertising and higher affiliate revenue from the networks. disney is expected to report 5% growth and 13% growth in earnings per share over the year ago quarter. i will be interviewing bob eyeinger followingize me in's earnings and seeing what he said about parks and trends in particular. melissa? >> thank you from los angeles. options traders expect disney stock to move about 4% on tuesday, slightly more than average move. in what direction? let's call to the charts the man

who considers the magic kingdom one of the great wonders of the world. carter, what do you see? >> three charts. here's the first. it's a two-year picture. you don't get a more well-defined moment than this. 43 level. well-defined trend and good relative strength week to week. the presumption is stock is settling down for the break down. you can see the lines. the same chart. this is if you want to see it this way, a well-defined bottom with the same tension and the same prospects. not a long-term chart. that piece there was about earnings. let's talk about it. stock is the same price it was in 2000. in 2000 they earned $1 and earned three now. in 2000, they were 40. it's 15 now. in 2000, the revenues were 25 billion. they are 40 now. they brought box 10% of the shares. that's exactly this

circumstance. we think this is up and out of here. >> up and out. mike, what do you say about the fundamentals here? >> it's interesting. julia was talking about how she thought the movie would do. when we saw hunger games, that was a big deal for them. here this movie, the revenues that they generate are not as material. 6 million is all they do in the film division, but when you put it into the context of the network television business, it's not that big. $3 billion from consumer products and royalties they get from selling things like action figures, this movie sets up nicely. that's incremental earnings and not revenue. if the movie does well, that could be a good driver on the earnings side if my 4-year-old's desire is an indication. the other thing i would say is oil prices coming down and good for theme parks and as far as the rest of their business, everything looks like it's coming along nicely.

espn, the real crown jewel in the business. >> you will buy action figures too? >> i will buy more action figures. keep my action figures. >> you are obviously positive on this and using a simple strategy and that is buying a call. walk us through. >> so i'm just simply looking at the july 45 calls and you spend about 85 cents and a couple of reasons i alluded to it earlier, in this particular instance, it's interesting. these options cost at 85 cents, 20% less than they would have. less than they normally cost at this time of year and these circumstances. they are relatively cheap at about 2% of the current price. we reflected the risk we think from the broad market and the whole market rolls over and it will be a drag for any stocks and even the better ones. it's a nice way if people concerned about putting more capital to work, that is the

movie. another potential catalyst that is earnings. this is a cheap way to make a bullish bet. >> if you are concerned about the markets, it's going to drive down the stock like a disney. it may be simple and may define your risk, you might know how much you could lose, but you can lose it. >> this earnings season has been interesting and there is a lot of big names. as we get to the end of the season, with the market the way it is, you don't have to do this in front of earnings. they are looking out to july and give himself time. i think the bullish case for the story right now is in the hands of the market. if the market can stabilize and go higher, disney will go higher. in a lot of ways, if you want to play define your risk and look out a bit. >> ort stocks versus options bit, the stock is about $4300. significant leverage cost $85. we will see carter late or in

the show. got a question? send us an e-mail and the address is options action. we love e-mails. send them in. we will answer them after the show on our website. >> you can call this trade a lemon. last month, colin carter made a bullish bet, but the stock is riding low. should they stay in the trade or plot their ford escape. find out when "options action" returns. sometime for pump up the volume.

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. >> welcome back to options action. time to get called out and take a look back on the losing trade. colin carter was ready to go into reverse. they haven't lost that much money. here's why. >> just because you risk less doesn't always mean you make more and unfortunately that's what happened with colin carter's bullish trade. carter thought the auto giant was ready for the fast lane. >> along here it plays. >> maybe i should kick the tires on this ford business, but buying a stock, one of the shares would cost you more than $1100. to spend less, they bought the stock for 20 cents. now to make money, they need ford stock to rise above the strike price by more than the cost of the trade or above 13.20

by july expiration. 20 cents, nickel here and dime there. we will have spent enough to buy these. show us how to do this for less. >> i will sell the puts. >> now we are cruising. to spend less, they sold the 11-strike put for 40 cents and created the risk reversal. he did more than that. he made the trade an instant winner. between the 40 cents he collected buying the call, he is taking the threat in on the trade. now instead of getting ford to trade above $29.20, he can make money if it goes up, does nothing or falls by less than the 20 cents he took in. by selling that put, mike is now obligated to buy ford stock at the strike price. in this case for $11, even if it falls below that level.

unfortunately since the time of the trade, ford dropped below that level meaning he could be on the hook for losses if ford stock goes in reverse. something dan actually warned about. >> i hade this trade. i look at the $10 level, there is a massive head and shoulders forming. >> now it's a brouhaha of the highest order. >> do it live! i will do it live. >> against carter cronies. >> tonight's worst person in the world. >> they all want to know one thing. what will the road warriors do now? before we answer that, perhaps this will settle the testy battles. you bought 100 shares of ford back at the time of the trade, you would be looking@loss of $100. if fik closed out, he faced half of that. fathey save above $11, he's off

the hook. carter got us in and let's see what the next move is. what do you say? >> we will stick this one out. 6% down and i would say it will stop around here. >> so carter is going to stick it out. you have time on your side. what do do you? >> i will stick with this as well. all the stocks pulled back this one as well. we had an opportunity to test drive the focus they will come out with. they have a great bunch of new cars coming out. i like ford. >> i don't know if you test drive a car. >> i haven't. what i didn't like about it, a couple weeks ago i didn't like selling this so close to the money and if we will be in a rocky period, this was a difficult situation to be in. >> this is not a name i want to own. >> as a reminder, takes two to trade. thanks to you. a reminder as we head to break. if we want updates, followous

twitter. dan does post regular updates. coming up, the final word. time for pump up the volume. feeling sleepy? this company's core product is say drink designed to get you wired. the stocks pumped up too, seeing a serious one-day sugar spike on take over talk that was frequently shot down. traders are amped giving volume a work out. who is it? the answer when "options action" returns.

where were options traders pumping up the volume? 12 times the average daily volume. >> time now for the final call, the last word from the options pit. mike, kick it off. >> busy calls. a cheap way to stay long. >> scott? >> all of the stocks near 52-week highs. >> i want to sell short multinationals on the bounce. >> our time expired. thanks for watching. for more, go to our website. see you back here next friday. "money in motion" is up after this.