then money. then things. now you stay safe. >> this is "options action." tonight, a whale of a trade. dan nathan has an options trade on battered jpmorgan that can trichle your money in one month that can turn dimon's pain into your gain and we'll explain. plus, call it a zinger. how would you like to buy zynga stock. it may not be farmville, but it is on the social media giant and show you how you can get paid too. and why are those options traders wading into the digital river. >> we have the lowdown. "options action" begins now. welcome to the nasdaq

markets. these are the traders here in new york's times square. jpmorgan is taken to the wood shed on the $2 billion loss. fitch downgrading the long-term credit rating and the stock is falling in the after hours. the question for you tonight is there a new breast in breed in financials? let's get in the money and find out. dan, this is eerily similar to what happened not too long ago to another financial out there. >> it's an interesting point. when you think about goldman sachs, they came out of the crisis and goldman was reaching some precrisis levels in the stock in april of 2010, and then the s.e.c. makes these charges about this and all of a sudden the stock got slammed. there's the chart right there. the thing that's interesting to me, it had less to do with the fundaments of goldman sacks and more into a pr war against the company and a sediment trade stuck in there and since then, you know, it's never recovered there, it's actually had a lot

of issues on that front. it's just a p.r. front. >> before we get to -- david gregory just spoke to jamie dimon just this afternoon. essentially he said the regulators are looking into this. so that gets to the point, dan, when goldman went through, when you take a look at the chart, they just stuck there. because there were shoes that dropped and dropped and dropped. >> the thing about the regulatory look, they're trying to see if they disclosed this at the promote time and if this is something that should have come up sooner than later. that's still undetermined. what's interesting to me in particular is actually what's going on at jpmorgan can have very big implications for goldman sachs actually. they get 32% of their revenue from fixed income and earnings and savings. you think this can't be good from a regulatory agency. >> there's a problem. there's a difference. it's that goldman sachs was seen as taking advantage of outside customers, people who didn't know better, people who were

relying on goldman's guidants, and from all appearances, jpmorgan simply shot themselves in the foot. they were the cher customer. they were the ones that lost the money. so i think there's a huge difference. also as far as p.r., jamie dimon is about as teflon as warren buffett so, he can get away with it. >> that remains to be seen. i mean i think you're going to see this guy in front of congress. i think you're going to see a lot of the same stuff you saw with goldman. to kind of lay out the play book right now, you know 24rks hours after this revelation, i think, is way, way too soon. to me, i think, again, we've been talking about it at this desk this is a really dicey time for these business models because they've been staring down the face of regulation. this hurt as great field. >> lloyd blankfein was never able to go in front of congress. lloyd blankfein had to hem and haw and say, well, maybe people slould noun better.

>> the fact of the matter is jamie dimon said in a conference fall the stock got battered in the lows of the session. the afternoon session, giving up what? another 30%. so it's being whipsawed around there. the question is not just do i invest in jpmorgan stock. and my guess, dan, you would say no, but that's beside the point. wells fargo, pnc, u.s. bank corps, they all closed day nicely higher be a percent apiece. do we make the differentiation? these are the less complicated bangs out there. >> that's what i'm alluding to. to real question is how are they going to make money. if they're going to be pressured, then you obviously have to say, okay, this is a concern for everybody who makes money. that way, everybody else who wo's in a more conventional lines of banking that's not going to face the same scrutiny are going to be in better bets. you're going to see a better

migration of risk assets, one that's not going sit in front of congress and try to answer this and say, no, we should be allowed to do business and here's why. it's hard to make that case right now. >> to your point, it was about 10:30 in the morning when jpmorgan was making lows and wells fargo was going up. it doesn't have a lot of the issues that jpmorgan would have. >> he said it would not have violated the rule. >> it sounds like you would be willing to take a flyer on the stock. >> i think it's a great stock and we're going to talk about this. i would actually be selling put spreads on jpmorgan because of implied volatility of the name was up as much as 25% and it ended up 20% higher. we're going to have that discussion later. >> and you're going to discuss that trade. >> if you think in the mid-30s that jpmorgan is a good long-term investment, get in there, have a ball, they're going to have a buyback and i

have to assume it ooh goes doing go lower, there's going to be a bid for the stock, that being said, i'm looking at it from a trading perspective and i think there's an opportunity to see it over 35 in next month, not dissimilar to what i say in 2 0 2010. i'm going to see a nice risk reward payout. >> so dan tonight is using a put spread. for those of you used to the show. it's a common strategy that we use very often but it's always good to review the basics and open up the old playbook. so, dan, walk us through the trade. >> shufrm i'm yuting a put spread. normally jpmorgan doesn't have that high implied volatility relative to the other names like citigroup and bank of america but because it was elevated i want to use a put spread. with about an hour left to go in the day, i bought the june, 3634

put spread. it was a $2 wide put spread for 1 a dollar. i sold one of the june 24 puts for 50 cents. it cost me 50 cents. my max gain is $1.50 between 35.50 and 34. i make the full 1.50. that's a risk reward trade that i want to make right now. i think these guys are going to have a whole host of problems over the next month and i think that's how i'm going to play it. >> mike? >> i like the risk to having a trade of 2 bucks. when you take look at how stocks perform when the negative news come out, a lot of people catching the falling night. what happens next? then you start getting more and more news coming out and people start to silt off for a couple of days. the last thing i'm really interested in doing, when you don't have all the facts, sit

there and purchase stock. you're going to see more declines. more facts come out. think this is a very good risk adjusted weight. >> it's been a long time since we've had a divergence like this. one loving the stratdy, the other hating it. implied volatility, you can't buy spreads. i would -- i disagree with dan because i think jpmorgan's a great brand and i think it's going do well. >> some people out there might be thinking, oh, i want to do a play on the xlf. here's why you have to be careful with doing anything with the xlf. just as jpmorgan is a component in this thing, so is wells fargo. what was the options activity? >> it was pretty much all of if financi financials. but i think one of things you have to deal with is index is going to decline when you see the die very subsequents. when one's going up and one's

going down? guess what happens to tin dex? very little. that's why if you're trying to get lever language to the downside. you're still paying a quarter of the distance. that's exactly the kind of reward/risk you're looking for. >> that's a great point she makes. that i just showed the list. berkshire, wells fargo. they make up 17% of the index. trading was down at less than a percent when jpmorgan was down less than .5%. >> they forget the most basic rules of all, stocks versus options. that could mean a whale of a loss. dan's put spread offers of 3-to-1 payout, unlimited losses worth 50 bucks. no word on whether he'll reduce it but i'm sure a lot of investors hope he does. the hottest ips is one week away. cnbc's julia boorstin is in palo

alto with the very latest. julia, there's a question as to whether it will actually happen on friday. >> reporter: well, facebook came out and they spoke to us. they said that the s.e.c. has not officially signed off on the latest one yet, so they can't confirm that's i got going to go ahead and tried a week from today, friday, may 18. but they won't say. i think facebook just wanted to make sure they didn't make it sound like they were getting ahead of themselves. i would be surprised if it didn't happen a week from today. melissa, it's been kind of a crazy day here. mark zuckerberg, cheryl sandberg and the third executive. they just finished a q-and-a session that took about 45 minutes talking about the model and the advertising plan. investors were in there carried

their marked up s-1s and about the dozen, dozen and a half investors want to by the ipo and get stock and be significantly oversubscribed. if this ipo is as huge as many expect it to be, this could benefit the entire sector and it certainly could open up the ipo market to more ipos. i want to bring in the linkedin chart. they're an analysis. that stock is up about 75% year to date. so linkedin has had a great run. in contrast both groupon and zyngas have really suffered. zynga is up about 27%. they've been making motions to try to diversify on facebook. groupon, social buying service, the deal-a-day service, groupon is down 52%. now, one thing we need to keep in mind here is a lot of

investors have told me they have invested in some of these other social media names in order to have exposure to the social media sector. the big question is did they buy into facebook themselves and they won't need that other exposure and will they shift their investments from facebook to others. that's something to watch. guys back,ing over to you. >> julia boorstin, thanks very much. it dwiengs be a very busy week, so get some rest. will it give boost to the names like zynga and groupon and pando pandora, for that matter, which have not done so well after their debuts. mike, what do you think here? >> it wouldn't surprise me. say, groupon, i don't see the link right there. linkedin, i don't know either. zynga has some pretty close ties to facebook. the mafia wars which is nothing something i would play. >> i thought you were a big fan

of mafia wars. >> i'm also not on facebook. people on facebook are involved in wars so there actually is a pretty close connection between these two and it wouldn't sur prison me if people think maybe zynga is in for a bounce here. face it. if you're not going to get an allocation of the ipo, there's no reason to trade it now. >> that kind of chart, dan, do you think it gets a bounce off the facebook ipo is if it hasn't already? >> it's funny. i watched it a couple weeks ago when they clis disclosed that. they came down from 19% before. zynga, like julia said, they're trying to diversify away. they're trying to get people off of facebook and playing farmville on their own site and capture a lot more of the revenues. listen to me. this is a challenge. these games are very faddy.

they're a fad. >> p-h-a-t-t-y or -- >> f-a-d. >> word with friends. >> listen to the stewardess when she tells you to turn it off. >> mike, you're bullish so far on zynga. you expect some sort of a balance. >> i think it could create some support for the stock at the very least and it could give it a mild boost. i don't like to have to look at the chart but i would also say the options market is expecting a whole lot out of zynga in light of this. they don't have earnings coming up until july. but if you tack a look at the prices, these things are near jacked through the roof. we is sometimes talk about implied moves on earnings and i would say there's an implied move on zynga. when i look at that, i would say i ooh want to tay advantage of what that's showing me. >> mike is selling a put. most people are familiar with

buying a put but selling is a very common strategy. here's how it works. you sell a put when you're moderately bullish on a name. specifically you want to sell it out of a money put. meaning it's below where the stock is paying right now. you get paid for doing this because you're silling it, but there's a trade-off. you have to be willing to buy the stock at that put price. so think of this as a limit order for which you get paid. it will up the margin though. so, mike, what do you think? >> specifically i'm looking at the june 7 puts. itz was trading at $7.65. as you pointed out, if the stock declines below the strike, you may be forced to buy it, which netted a premium, which would be about 6:30. that's nearly a 15% din count from where the stocks are currently trading. one way you might try to look at it is because of the way the chart looks. this is exactly what i was talking about before. i'm not exactly sure i want to give myself a little boift a

cushion. if the stock is supported for a month, i'd take my 7% and go home. >> would you bother with this? >> i think it could be a cute little trade here. in some ways -- i don't see the option unless you want to sell a put for the very reasons that mike said. i think if you want to take a shot for a week into next friday's facebook's ipo you can buy it. >> it's not on facebook yet but it could be soon. we're talking stocks versus options. do you want to buy zynga? that will cost about $7. got a question? send us an e-mail. the address is option optionsa@cnbc.com. check it out. here's what's coming up next. now, that's a hot trade. last month he made a bearish bet on chipotle. the stocks are cooling off.

will they eat and run or hold off for more dinero. >> times to pump up the volume. the sizzle index. hawking some software online, maybe they can help you out. their biggest client, none other than mr. softy himself and news of a microsoft deal itself has powered this stock higher. now options traders elevated the call value in hopes that it will soon send the stocks to cloud 9. who is it? the answer when "options action" returns.

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where were options traders pumping up this week, at one point call volume was over nine times the average daily volume. >> time for an upside call, and we look at the winning options trade. my thought shares, looking a little bit bloated. bearish options and made 50%. here's how. >> on "options action," there's one recipe for a tasty trade. risk less and make more.

and that's what khouw and carter did on the bearish bet on chipotle. the part about the shares were too spicy. >> taking your chances by the launch and they wouldn't do it. >> the shorting in the stock is about as painful as eating ten of these. so to define the risk, they are between a 420 put and they might fall below that put strike price by more than the cost of the trade or below $404.50 by june expiration. but $15.50? ♪ this ain't some fancy french restaurant, my friend. >> i weep for the future. >> show us how to do this for less. >> sell the june 3.90 puts. >> now we're stuck in the spend less from the june 390 strike put and completed his put spread. he did something even better. he made making money easier and heres how.

between the 1550 he spent buying one put and the 750 he collected selling the other, mike cut the cost to just $8. now instead of needing chipotle shares to fall below $404.50, mike announced more than the $8 he suspect on the trade or below $412 by june expiration, but there is a trade-off, and by selling that put, mike has capped his gains to the difference between the strike of the put he bought and the strike of the put that he sold. and since the time of the trade, chipotle shares have simmered down, falling some 6%, making khouw and carter winners. now "options action" fans from cancun to taiwan are tuned in and they want to know one thing. what will they do now? before we answer that, let's see how much was made. if you short the chipotle stock, you would have made about 7%. it can be sold for $1200 and a return of 50%.

carter got us into this name. but he's off the desk tonight on vacation. and he sent us this postcard. we are staying the course with cmg on the short side, having appreciated too far, too fast is now $30 off its high three weeks ago, judged to a further downside risk. i wonder if all of this postcard talk about trades. mike, what do you do at this point? >> i like the tacos and the trade, and i don't like the stock. i will stick with this one. you don't want to linger too long. it's falling through that right now because otherwise you would be paying decay. keep an eye on that. when the stock gets down, that will be a good opportunity to look at taking it off. >> all right. carter, hope you're having great time on vacation. coming up, the final word from the options pits.

careful, pringles are bursting with more flavor. [ crunches ] mmm. [ explosion ] ♪ [ explosion ] [ explosion ] ♪ [ crunches ] [ explosion ] [ crunches ] [ explosion ] [ crunches ] [ explosion ] [ crunches ] [ explosion ] [ explosion ] [ explosion ] [ explosion ] ♪ [ male announcer ] pringles... bursting with more flavor. [ crunch! ] scott? >> bullish or bearish. define your risk. >> i want to sell rally. >> i like the put spread too. >> wow. looks like our tiemt has expired. i'm melissa lee from "options action." for more go to our website. we will see you back here next

friday at 5:00 eastern. meantime "money is motion" is up right after this break.