things. now you stay safe. bye-bye. >> this is "options action." tonight, liking linked in. forget facebook because we have a trade on linkedin that can quadruple your money by august. it's not online, but it is options trade on the social giant and how you can make money too. call them two cool cats. khouw and carter gets you on caterpillar for just $4. why were the traders looking at the lineage on ancestry.com. a story tale only scott nations can tell. "options action" begins right now.

live at the nasdaq, the world's largest exchange. i'm melissa lee. you are in times square giving way to greed as stocks post the best week of the year. a fail out of spain, rally or time to get in. let's get in the money and find out. what did you make of the market action this week? >> i think no more bad news equals good news with the stocks that are trading at such big discounts for the averages. when you look at the financials whether it's goldman sachs or morgan stanley or the money center, all are trading at discounts and that makes them spring loaded. what's going to happen? there is a lot of potential upside. when they see cheap valuation what they are hoping is that

presents opportunity and nobody wants to sell the cheap valuations either in the absence of a good reason to do it. since they didn't have that, that's what we got. >> a market mover here based on the news that potentially there could be a bailout of spain over the weekend. do you think that is founded or are we setting ourselves up for decline on monday? >> the price action is definitely reflecting that. european banks are very strong and not many mentioned the strength in spanish and european banks in general. that carried over to the u.s. financials. the issue is that the greek elections are sunday, nine days away. spanish bailout or not, that's the crucial point for the market right now. >> i think greece leaving the euro would be good for the euro. greece is fairly small, not a big part of the euro zone. leaving would prove that the euro zone could survive. a deal in spain is rocket fuel for the financials and we saw that today. it was really impressive because thursday afternoon was disappointing. the s&p rolled over a bunch and you could have come into the day and they opened lower. you could have come in disappointed. the vicks on the other hand didn't come off and there is something for everyone. >> whether or not the greek exit would be good for the euro, it

is not good for stocks. no chance. what's interesting is that the options market was discounting the possibility. how did they do that? we can see that in the vix. the vix was down more than you might have expected week on week based on the increase. the s&p is up 3%. you probably see it come in about 2 1/2 on that. >> greece and the eurozone is like a drunk at a dinner party. everybody wants them to leave and no one knows how to show them the door. when they get out of the eurozone, the greeks can do what they want. >> from get out of the eurozone to out of the eurozone is a big gap in terms of market uncertainty. >> the bottom line is there enough stocks and corporations telling us about signs of weakness. regardless of what happens, mcdonald's with disappointing same-store sales with particular weakness out of china.

>> that's a better point to get to. >> of course we have a lot of data this weekend. >> i do think that people should focus on that. for example, you look at chinese pmi that inched up over the course of the last three months. that's okay. every time you hear about a slow down, where does that bleed into? back to the multinationals. >> the big buyers and the 29 calls this week, people are worried about china. >> to the point after the chinese rate decrease yesterday, i would have expected fxi to be one, but it was down 2 1/2%. chinese growth may be weaker than we are thinking. >> the global story will take center stage when china releases a slew of data. sure to be a catalyst for caterpillar, but in what direction? carter from oppenheimer, what do you see? >> we have three charts.

stock hit a high of 116 and the nine-week selloff leaves a low of 83, close 87. importantly, right on trend. the issue is having sold off for nine weeks, 2 1/2 months from 116 to 83, how much of so-called slow down is being discounted in the price? take a look at a longer term chart where the sell off leaves us. to show you in perspective going back 15 years or so, 116 to 80, but more importantly it leaves us at the top. take a look at the third chart of the last prior peak before the swoon of 2009. this is a well-defined stock and the selloff close at 87 discounts whatever slowdown is coming from anywhere else. they are right to buy from those who are selling it. >> all right. it is discounted at this point. is that what you assemble? >> on a fundamental basis it's cheap.

less than nine times eps of about $9.84 a share. that's a huge discount from where it's traded. it has been a growth story and we are looking at a stock that trades 17 to 18 times earnings. 7.5 times. it looks good and the other thing is we continue to see eps growth. the only worrisome sign is that last quarter over quarter, sequential decline in revenue from 17.2. it goes to the point you were making before. that is about china. you take a look at how much of the sales come from asia. it's a big percentage over 20%. the truth is it's bigger. take a look at how much they get. how much of that activity is fuelled for chinese demand for south american goods. that is really a big part of the story. >> you are bullish on the name at this point.

mike is buying the call and let's open the playbook. when you buy a call, you want the strike to rise above by more than the cost of the trade. that's where you see profits, but you will see losses and probably the simplest trade we have run. you have done it a punch. >> i am looking at the calls paying $3.65. a couple of reasons why. the price of options is higher than it normally is, but for a good reason. the reasons that we just articulated for concerns and the global growth story. we will still see pressure on the names that are closely linked to oil and copper and the global gdp. this is a hedged way to make a bullish bet. the stock is trading at a cheap valuation and easy to imagine if you have good news, they can propel through 30 or 40.

>> where is the one we know? he is doing something more exciting. the problem i have is this stock has to rally 7% for this to get back to break even. the part is caterpillar options in general are expensive. this has to rally. >> i will say this. i don't like caterpillar. they have an indication that mining in general is an area under distress. you see prices like copper that is down 7.5. >> with coal mining. >> exactly. i like the structure because if it breaks that trend line, you need to see -- >> $3.65 to buy this? >> i would rather buy the calls than the stock. if it breaks that line, you will see a steep fall. >> why not do a spread. >> one of the -- the primary reason is what we saw this week. in the absence of bad news, the market is going to take that as good news.

the stock will move sharply. this is a high beta name trading at a discount. there is a lot of optimism. if you take the lid off, there is a lot of room. >> you can sell the call. >> i will wait for that opportunity if the stock does get a lift. that's when you will try to guilty a lift. >> put your money where your mouth is. >> 100 shares of cat will cost you nearly $9,000. you have future leverage to the upside and set you back $365. thanks to carter braxton worth of oppenheimer. score one for facebook after getting a boost after the com score defended the marketing model and shares are down 28% from the ipo, but could it put the stock back on track? julia boorstin joins us with more. julia? >> com score said that facebook ads work.

previewing the report they will release on tuesday with time to change the discussion on measuring facebook effectiveness. facebook gained 3% on the com score that more people spend on the site than six months ago and they have a statistically significant lift on purchasing of a brand. that translates to they work. com score attacked the methodology behind a poll that found that facebook users ignore ads that slammed the stock earlier this week. the report comes out as facebook announces a number of steps. facebook introduced a mobile only advertising allowing them to buy mobile ads and facebook is making it easier for users to make payments within mobile aps and charge their mobile carrier. facebook launched a center with 600 local aps. this could impact the way people use facebook mobile and drive revenue. a lot of this hinges on ap developers.

better aps will lure users to spend more time on facebook and more time spent means more money for the service. back to you. >> thanks so much julia boorstin. we saw in the price action in today's session, but it's far in one. not just from the social media, but on banks. i want to touch before we get to the specific trade that took a beating. the report that ubs is facing $350 million on the face of losses. a lot of them say they face losses in the capital for one. the ubs number is very big. >> it's a big number. >> it tests and that's one way to put it. if you back out, it means you will lose $5 a share, that would be a lot to have been exposed to. think about how many shares that is. 70 million times. how many different ways could they have lost is hard to imagine.

did they sit on something for days and days without realizing it? it doesn't -- it's not right at all. >> if they did lose $350 million, i don't think it was nasdaq. >> human error. >> you have to quit pushing the buy button. didn't mean they are not filled. take a break and quit pushing buy. >> the street is feeling the impact and social media stocks have gotten killed. linkedin is one. >> absolutely. it's interesting if you look at the performance of linked in since the may 18th ipo whereas facebook is down 30%. facebook trades near to a 50 pe where linkedin is 130 to 140 pe name doing a similar business. in linkedin's defense, they are the network that connects employers to employees. but in reality google was the name and i think the valuation

is stretched in linked. >> they are using a put spread. we use the strategy often and always good to crack open the playbook since it is new and improved. you buy one put and sell lower with the same expiration. you do this when you are bearish and you want it to go to the short put strike. that's where the profits are capped. walk us through the levels. >> sure. i am buying the august 8070 put spread. one of the august 80 puts and paying $4.95. the levels that i looked at and i'm selling one august 70 put for $2.60. the net premium is $2.35. the break even point is $77.35. below that level in the stock -- $77.65, sorry. below that i will see profits on the trade and i'm risking $2.35 to make $7.65. august reported earnings august

3rd and i think linkedin has about 15 to 20% of catch up for what we have seen. >> i don't like linkedin stock. i use linkedin, but i'm probably one of the few people. >> you pay to use linkedin? >> i do. i'm a paying user of linkedin. you can give them money if you want to. the fact is, the stock's valuation is insane and given the fact that we are living in a high volatility environment and way out of the money puts are expensive if you are inclined to make a trade, this is the best way. >> the one point is i would not buy outright premium and use spreads. >> facebook wants to write itself. maybe they should add stocks versus options. you risk certain social dips.

shorting any stock carries unlimited risk. this is a 4-1 payout and risks $235. interesting risk reward there. got a question? send us an e-mail. we will answer it in our one on one web extra after the show. optionsaction.cnbc.com. here's what's coming up next. >> call him a city slicker. dan made a bearish bet on citi and he is up 500%. how did he do it? find out when "options action" returns. time for pump up the volume. the names that are heating up and the sizzle index this week. who's your daddy? maybe this family history website can tell you. starting as a publishing company, it's a bustling dot-com. they put together more than 34 million family trees and cultivated the call volume on hopes a sale will nurture the stock. who is it? the answer when "options action" returns.

where were options traders pumping up the volume? ancestry.com. four times the daily volume. >> we want to go back to julia

for news about comcast. >> that's right. comcast responds to reports speculating they are exporting a bid by saying this is complete rubbish. total speculation and inaccurate. shooting the reports. it said they are not interested. back to you. >> thanks for updating the story. time now for the call that they take a look at winning trades. dan had a plan and made a bet on citi. straight money in the bank. here's how he did it. on "options action," it's a motto you can take to the bank to make more. that's what dan did with the bearish bet on citi. dan thought shares were going lower. >> this stock breaks down and breaks $30. >> shorting the stock? not unless you are counting on a government bailout. to define the risk he bought the july 32 stock put for $1.65. he needs citigroup to fall below that by more than the cost of the trade or below $30.45 by july expiration. $1.55?

>> we are have to resolve the issues. >> show us how to do it for less. >> i sold one at 55 cents. >> dan then sold the 27 strike put and created his put spread and instantly put the odds in his favor. how's that? between the 1.55 he spent buying one put and the 55 cents he collected selling the others, he reduced the cost to $1 and now instead of needing citi to trade below, they will see profits of citi falls by more than the $1 he spent on the trade or below $31 by july expiration. >> today is a good day. >> relax because there is a trade off. by selling the put he did cut the cost and limited his potential profits to the difference between the strike of the put he got and sold. since the time of the trade citi

plunged 20%. now dan is a big winner and the biggest fan just wants to know one thing. what will dan do now? >> before we answer that, let's see how much was made? you would have faced unlimited risk and made 18%. dan's put spread cost $100 and sold for $400. as you might have noticed he is not on the desk. he is in china and dropped this postcard. greetings from china. when i put this trade on, i had a couple of concerns given the large relative exposure in the u.s. and europe. in particular between april 27th and may 18th, they dropped 23% i used this weakness to take off piece as the stock approached the put spread. it's not often that i'm early and right, but the stock sold too far too fast on not a lot of news. if you are long on the trade,

close it out as i did about a month ago and reshort this name on the bounce. back to the far east. xoxo. dan is so cute, but he makes a good point in terms of resorting bounces. here we are, the best week for stocks. this could be an opportunity to consider putting on another short. >> without question for a lot of reasons we talked about. it doesn't take a lot to push the market back down. if you are inclined to think it will take time to resolve the issues or if you are concerned about the global economy, that's a good reason. some of the biggest stocks are moving much more than the s&p itself. up 3%, that's nothing. some are up 10 to 15%. >> to your point about the global economy being the issue, with china, today the two

strongest names in the top 100 are walmart and target. they are concerned about global growth. >> coming up, the final word from the options pits.

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[ 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. time for the final call. the last word from the options pits. >> it's cheap, but a long way from home. >> linkedin, too rich for my blood. >> i think the puts on linkedin, i was spending there and on the put spread instead. >> our time has expired. thanks for watching. more "options action," go to our website. we will see you back here next friday at 5:00 eastern. don't go anywhere. "money in motion" is up after this break.