this is "options action." tonight, crude's pain, walmart's gain? carter and khouw are teaming up on the world's biggest retailer that could mean cash in your wallet. they'll explain. plus, talk about imagination at work. enis tanner has a trade on ge that can make five times your monday in just two months. we'll tell you how you can make money, too. why were all the options traders trading buying arena pharmaceutical calls? it's a tale of drugs and money that only scott nations can explain. the action begins right now. >> live from the nasdaq market site, the world's largest equity options exchange, these are the traders here in times square.

financials stabilizing the market today. and volatile selloff yesterday. closing near the highs of the day with crude nearing one-year lows. stocks are finding a base right here. let's get in the money and find out what stood out to you today? financials had a nice snap back after yesterday's tarnish. >> i think that morgan stanley didn't get the -- got the two. that caused a little bit of a bounce. it was up sharply this morning and then it gave back a lot of the gains. that is troubling. you either have to believe we are in a contracting economic environment that's. folks, if this doesn't tell a good story, i don't know what does. you want to call that a correlation right there? >> we will see bull market cheer leaders point to lower crude prices.

>> what you should be worried about, throw up the chart of the correlation between crude oil and the s & p 500. folks if this doesn't tell a good story, i don't know what does. call that a correlation there. look what crude has done in the tremendous pullback in the commodity space, ennis. >> we'll see bull market cheerleaders point to lower crude prices as beneficial. >> if they are going down for the right reason. >> exactly, stock. that's exactly what we're talking about. lower crude is showing lower global demand. it's the first time really that we're talking about a global recession. not just a european problem. and global recessionnary forces are much stronger than monetary policymakers. >> scott nations, the pocket square, and he is ready to rock and roll. >> i look at that, and i say look out below. it's terrifying.

volatility is what you get when you buy options, we've had a boat load of it. vix, just above $18, right at the average for june 22 know, going back about 20 years, so i think options are actually fairly priced here. probably lower than they should be, given all the problems we have in europe. one thing is that the crude oil, you had to go back to may to find a day when more puts traded the calls. break in crude oil is a big surprise to a lot of traders. >> crude broke below $80 for the first time since 2011. if you look at reports from across the street, mikey, people say where is the bottom? pick a number. >> where is the bottom in crude? you have the contracting economic growth, you also have record supply. right, so we're pumping 91 million barrels a day on 89 million barrels of demand. very bearish for crude. what's bearish for equities, it isn't only crude dropping.

a broad basket of commodities trading lower. the dollar level off. a long-term trend of treasuries. all bad for equities in the long run. >> one other issue we'll get to when we talk about walmart, luxury goods, retailers like coach, for example, negative on the year for the first time. tiffany's down 20% on the year. meanwhile, have you dollar general up 25% and walmart up 12%. >> talk to me about general electric, former parent company. as a way to get short on the market here, and why ge? >> the largest global company in the world. if we are talking about global recessionnary forces, interestingly, it has been quite strong. it has a 3.5% dividend. 50% u.s., 50% international. it has a bit of a u.s. buffer. global pmis are showing that recessionnary forces are spreading.

philly fed at negative 16 this week, shows potentially u.s. is getting infected as well. >> not to mention the fact that the ceo has done a great repair job on ge capital. in some most recent comments he has not been nearly as bearish as other ceos have been regarding china. elsewhere, perhaps. but china he has not been nearly as bearish. >> to your point, scott, if you look at caterpillar, which has a heavy focus on china and china related situations, they have take an huge hit where ge has held up. in reality, they are both tied to global industrial demand. i think ge follows caterpillar longer. >> buying a put spread, a common way to make a bearish trade, but let's review by opening up the playbo playbook. you buy one put and sell a lower strike put. of the same expiration to reduce

costs. how do you make money? do you want stock to fall to the strike put. that's where you make the most money. what's the trade? >> in this trade, i will buy the august 19.17 put spread. stock closed around 19.81. when i look at it, august 19 puts were 45 cents. i will buy one of those and i had sell one of the august 17 puts to reduce my cost. so my total outlay will be 30 cents. break even level is $18.70. below that level i start to make money. i make max profits below $17. the important thing to note is volatility on ge is quite low. if you want to do just a put as opposed to a put spread, that would make sense. i sold the 17 put spread to reduce cost. >> what do you think of this

move, scott? >> i like put spreads, not on ge. i think ge capital is a bufferer, the dividend is a duffer, i don't think ge gets down to 17 bucks in the time frame. >> how is capital a buffer if we run into another crisis. if anything, that's going to be the anchor that drags it to the bottom. >> if we run into crisis, everything will go down, and i would express this by doing the spike. >> the one benefit, the august expiration, will report july 1 th. we'll see weak frns global demand come into play. >> let's wrap this up with stocks versus options. short ge? better have a lot of money in the bank. shorting stocks carries unlimited risks and a 5/1 payout and only risks $30 bucks, that's why we're talking options.

let's move on. the sell off in crude has give an boost to one particular retailer, walmart. cross-suit has fallen 28%. walmart shares have rallied 15%. will the run continue? let's make a call to the charts with the one and only cbw. the brainstorm, pocket squares looking pressed and looking ready to go. >> a bunch of charts. we would fade this rally in walmart. here we go. a two year chart. the whole conversation going to focus on this move from 58 to 68. there you are a bit above trend if you will. let's look at others to put this in context. now this is the stock in relation to the smoothing mechanism. how far above trend can you get or how far below before you have mean reversion. take a look at the ten year chart and how far above or below can you get? here is the answer. in the last decade, this only happened 15 times that the stock

has been 12% which is what it is now. if you look at how walmart behaves, it's done every time. long term chart, this is since the big run up when they were taking over the world. we have now approached the all time high. when you first get back to a well defined epic high, you respond to it, you don't exceed it. sell walmart. >> right now, it's trading at a premium. 15 times earning versus 13.5 for the s & p. that's kind of interesting. it's also interesting, they have seen a growing percentage of revenue from overseas. there might be some risk. they will almost 9% revenue growth overseas, u.s. for the last three years it has been completely flat. what is going on overseas begins to affect that growth there is

no growth. it's a yield trade, because it has over .5% dividend. and people start seeing treasury yields dropping, that serves essentially as a tail whippind the stock, if it happens because of the contraction, the tail wind could seize and turn into a headwind. >> mike has a bearish view and buying a put. the simplest trade you can do >> let's open the play book and see how it works for those new to the show. when you buy a put, you want the stock to fall below the price of the put by more than the cost of the trade. that's where you see profits. above that you will see losses. >> august puts paying 90 cents. the stocks traded below the multiple, the volatility below market on this. this name typically trades 10% to 15% discount. these options are cheap, one of

the reasons i'm not looking to put a put on. if the stock drops down, as carter thinks it will, i would possibly look to spread and press my shortcut there. >> that makes all the sense in the world. sometimes you have got to know when to be long options. there is no reason to get cute and add a leg to get a spread. this makes all the sense in the world and mike lays out the fundamental case really well. i don't think this can maintain this level it's achieved. >> actually, i am generally bearish on the markets but i disagree on walmart and i will tell you why. if you look at the 2007 and 2009 bear market, s & p went from 1,570 to 1566. that period, walmart was one of the few large cap stocks that was actually up. i think what's moving it to new highs global recession ear forces. >> they had buyback programs going on. i think that -- it isn't

necessarily going to help prop it up here. >> i think people who fled say nordstrom to go to walmart are going back to nordstrom, names like that. >> let's do stocks versus options one more time. whether you short any stock, you have limited upside and unlimited downside. mike's options purchase defines risk to just 90 bucks. our thanks to carter worth. send us an e-mail at optionsaction@cnbc.com. we'll answer it after the show. please check it out. and here is what's coming up next. >> that should earn him a friend request. dan made a bullish bet on face book, and the stock is a social climber. can dan wait for more gains or just log out of the trade? find out when we return.

u.s. time for pump up the volume. the names heating up sizzle index this week. need to lose weight? no need to jog, this pharmaceutical company is trying to help you out. they've developed a new weight loss drug and are just waiting to hear back from the fda and options traders gobbled up the call volume, making a hefty bet that aprofessional will bloat the share price. who is it? the answer when "options action" returns.

>> where were options traders pumping up the volume this week? arena pharmaceuticals. call volume was 5.5 times the average daily volume. >> you just heard. how arena pharmaceuticals saw heavy volume this week. what do you make of the activity? we talked about this particular stock on the halftime show. it has huge move. >> huge move, huge call volume. they are expecting an fda decision later this month. call volume crazy with binary decisions, options are insanely

expensive. i think they will get a good result. i think the way to play this is buy a spread. in arena i like buying the august $111 august $11 1 spread. i like to make 3.5. i make above that $16 for the august expiration. >> what do you think of the trade? >> you need to use spreads, you will see the most sophisticated traders in pharma space do these things. they really have to frame up their these, though. figure out what is this drug going to be worth, where could the stock go and set limits and time frames. it can be very tricky. if you do it, outright options not the best way to play it. >> time for the upside call where we look back on winning trades. a couple weeks back, dan "the man" nathan made a bet on facebook. he has been able to do what few have been able to do, and that's

make money and even save some face. on "options action" it's how we make friends, risk less and make more. and that's what dan did. dan was look for a way to get money back on facebook shares. buying more stock after that beating? not unless have you money like this guy. so no try and make lost money back, dan bought the august 30 strike call for $2.10. now he needs facebook to rise above the call strike price by more than the cost of the trade. or above 32.10. shelling out $2.10? >> right now, this all seems like a big deal. >> that's because it is a big deal. something we're going to get our money back, we have to spend less. how do we do that? >> sold two of the august 31st calls. >> dan sold not one, but two strike calls for a total of $2.

and created his one by two call spread, and he did something else, he made profits come quicker and here is how. between the did 2.10 he spent buying one call, and the $2 he spent buying the other strike calls, dan reduced the cost of his trade to a mere dime. instead of needing facebook to rise above $32.10. dan can see profits if it raises above the strike call by more than the 10 cents he paid, or above $30.10. >> we think that's amazing. >> it is, mark. but there is a tradeoff. by selling those two calls, dan not only capped profits with the difference between the strike of the call that he bought, and the strikes of the two calls that he sold. but he could also have his facebook stock called away from him if shares rise to the $34 level. bye-bye, facebook. bye-bye, additional profits. what has facebook done since the time of the trade? made friends a plenty.

rizing 20% and leaving dan with a tough choice. take profits now, or hold out more more gains and risk having to sell facebook stock for $34? "options action" biggest fan -- >> a really cool experience. >> is tuned into the show and only wants to know one thing. what will dan do now? ♪ i wear my sun glasses at night ♪ >> look at nathan. before we can answer that, let's see how much money was made. if you bought more shares, would you be looking at a 20% gain. not bad, but dan's options trade cost only a dime and can be sold today for 40 cents, four times your money. gets even better. that's because if facebook can settle below the $34 level by expiration, dan can make an additional $3.50, so lots of choices, so what's he --

♪ ♪ want to buy more stock, ratchet gains up to the short strike, you definitely would want to leave that trade on, no question about it. takes a while for verticals, especially ratio spreads to maximize them. >> are you going to bleed a lot more money in the next couple months. >> you guys believe facebook story at this point or what?

>> no, and i don't think he does either. every single bit of news we get from facebook is bad. >> look, there was a whole big thing about the advertisers dumping on facebook, and this past week, coca-cola and ford, two big names, standing by their guy, if you will. >> on thursday, the only name on my screen in the green bay, everything else got killed, facebook up a little bit. you have to be more careful here. the goal was not to make a little bit of money in addition to long facebook. the goal was to get out of facebook, and you made a bunch of money back. don't be a pig. >> the stock everybody loves now the stock everybody hates. i don't get it. >> at 60 p.e., growth rates only 10% to 20% this year. you need to see an earnings cycle that shows growth is sustainable. >> before we go to break, keep the e-mails coming at options $action@cnbc.com. final call, next. careful, pringles are bursting with more flavor.

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take a look at this video, these two bears had early access to the chart between crude oil and the s & p. they are apparently duking it out. which bear will win? very interesting video there. time for the final call. last word from the options pits. scott, you can comment on the bears fighting. >> i want to know this week, i want to see who wins. vix at 18, turmoil in europe if buying protection is wrong, i don't want to be right. six sigma won't help ge in the global recession. buying the put. >> you take the options trade and the stockoff if you start to see the stock reverse again. right now, relative. >> mr. ennis.tanner. all right. looks like our time has expired. i'm scott what happen scott wha

motion" after the break. i'll see you a little further down the set.