>> this is options action. tonight, big bucks in starbucks? how would you like to make four times your money in just two months? it is a super trade that could right your portfolio and we will show you how you can make money, too. and talk about a best buy. a trade that could pay you to buy best buy stock in hopes of a buy out. and why were all the options traders buying steel calls. the action begins now. >> live from the nasdaq, new york city's time square. these are the trainers here. we will get to those in just a moment. but we have got talk about the market. an eu summit giving a huge boost to banks. how do you profit from the

volatility. >> it was quite gidy in a lot of ways. for them to close the quarter on the dead high of the day, it seems slightly artificial. seems slightly window dressing on what was a bad quarter overall. really good in q1. i am a bit skeptical because it did feel a little bit artificial. when i looked up on the screen. >> i think that's a great point. what was taking stocks up was a lot of hope. hope that the euros have figured out their problems. hopes that we will see the bottom of the housing prices.

>> this time the hope feels different in that she has changed her stance. as well as kb homes this is not hope based on nothing here. >> if we -- we have indeed seen the bottom of housing prices, then that is actually great news. >> midday you would have thought that the s&p was going to be stuck in a range. i think that is fantastic. one thing about the vix. option traders hate to be long this time of year. you have to be back one day in june. and before that you have to go all the way back to the beginning of may to see the vix

close this low. while it may all come undone, everyone feels good for a reason. >> there are warning signs out there. stocks rallied across the board. the two stories that are tied to international growth and slow down. >> that's the biggest point, i think. if you think about it last year, we got bailed out in a lot of ways by the u.s. strength. in the past in the last couple of years we were looking at emerging market strength. that was these rallies that we had into all of the events this week and we sold off after all of them. if you're going to be looking at the rest of the world and global consumer to bail us out, it's not likely to happen. not this summer. >> you definitely need to see

economic growth and higher unemployment. a lot of people thought this was the bottom of the housing but the fed is telling you that that's not the case. so you keep hearing people thinking maybe now is the time to buy. bot a lot of the people are not getting loans. >> yesterday, when you thought about the exposure to china. starbucks definitely came up. starbucks finished the day higher by about 2 plus%. >> i do. when i was looking at the universe here of potential names that are highly coordinated, starbucks one of the first on the list. they both made new all time highs in april and may and then

it sold off from then. they are about that's why they have 28 times. . this is one that could be very vuler inable and we get a sense of what global growth looks like. >> he is buying a put spread. always good to review the play book. this is a bearish strategy. so, how do you make money? you want that stock to fall to the short put strikes where you make the most money and where your profits are capped. >> i looked out to august, going to catch their second quarter or their calendar year earnings.

this is really a macro play. it is a little bit out of the money. i paid 85 cents for that. i bought one of the august 50 puts for 1.30. if the stock is 45 or lower. this is a well loved cult following. >> when they start falling down, people never believe how far they can go. it actually is almost behaving

like a single option. there is a lot of leverage in this trade. he is paying less than 20%. that is pretty unusual. i think basically what is happening here is you make a cheap bet. the spots where you would be willing to get back into it. >> you make a great point this costs less than 20% of the spread. >> i think what starbucks is doing, most of the initiatives are doing at home. opening 40 stores across all of india. that is what they are doing internationally. >> i think everybody needs to pay attention to one quick thing. the stock can go down to that strike. you don't have to see the stock to to $45 for this thing to appreciate in value.

this thing will appreciate. that's part of the leverage i was talking about, kind of like a single option. that is definitely true. >> quickly to the fundamental point, i think you are alluding to the consumer products group. those are the things that they sell in the grocery store. the single serve coffee brewers that will come on to the market. >> one of the things i took away is they are spending more to make more overseas. the starbucks has to do the same thing and those regions are underperforming, the stock will be revalued. >> they have done a lot of things at starbucks. but what they don't have is stocks versus options. think starbucks going to follow nike lower? dan's put spread offers a 4-1 payout and costs $85. let's move on to the next trade. best buy shares surge iing as w

head into the second half of the year. >> hey carter. good. >> let's look at the charts and see if we can figure out that way this is a two year chart, a daily. we're going to put this in so bad that it's good category. a persistent down trend, not stopping. we have gone right back to the lows when the world was ending. we have found those lows and actually at 21, we think this is where it ricochets. i want to look at a view evaluation charts. the next one is price to cash flow.

let's do price of sales. we're talking a point one this company continues to put up the numbers and the final chart, let's just look at price per share versus earnings per share. the share price is saying something different. we look at this point. >> fundamentally, is the only catalyst on the horizon the management led buyout? >> i mean, i think the critical thing that we really need to look at is evidence of weakening fundamentals. we have not seen that. we are talking about a company that is generating free cash flow. that is a 22% free cash flow yield.

we're not really seeing it come down. there is not a lot of debt here. the guy already owns a significant portion of the stock. that is certainly a reason why you might be bottoming out. i could see them saying we're not going to do a buyout. we are going to do what we have already done which is initiate more buy backs than we already have. everybody has said the worst possible things about the fundamentals of the story. 5. >> so you are bullish along with carter. mike is using a risk reversal. in the strategy buy one call and sell a put to finance it. you want the stock to trade above. >> i mean the one we are looking at here, 13, 18, 24 risk reversal.

use the proceeds to help finance the purchase. net of this trade you will collect a quarter. you would get a 34 cent dividend. the other thing is you would be buying a stock at 215 bucks. you get to participate to the upside. of course, we can do that. one of the things you are weighing. did a rabbit run out and buy a call? that's a challenge. if we do come up with a buy out. that's going to off set some of the gains. we talk about probabilities all the time. existing owner suggesting they may buy their asset back because it's too cheap. it is probably not the highest success rate. >> higher than average this week

for the very reasons that we talked about. i love risk reversals but i hate this name. which means that nobody buys anything there. the problem is that if i get the stock put to me, i don't want to own it. >> like if walton family owns walmart. if you use cash flow to buy back shares, you are buying the company slowly and steadily with the company's own cash flow. and now basically what he is suggesting is maybe i can, you know, buy the whole thing. >> i think that means best buy goes down slower. >> i mean that actually -- that means that this is more of a call option. >> let's hit the play book one more time. i want to buy best buy's stock, move by carter's presentation.

mike's option actually pays him a 25 cent credit. got a question out there, send us an e-mail. and that's right after our show on our website. option action.cnbc. so you got to check it out. here is what is coming up next. >> just short it. dan's bearish bet on nike stock has tripled his money in just a month and there is more left to be made. how did he do it and what's his next move? find out when options action returns. >> time for pump up the volume.

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>> >> where were options traders pumping up the volume?

>> welcome back. you just heard how active ak steel calls where the stock was lowered today. >> it was lower today but done pretty well lately. >> a couple weeks back, dan had a simple trade. >> that is how we do it. risk less so we can make more. >> there was a research report commenting on weakening show sales or trends in china and the u.s. and weakened apparel trends in western europe. >> but charting the stock? might as well go one-on-one with this guy.

>> but 260? we ain't got multimillion dollar shoe contracts, buddy. just spend less. reduce the cost and sold the strike put for $1.35 and created his put spread. more importantly he made making money easier and here is how. between the 260, he spent -- dan cut his costs to just a buck 25. hold these. because there is a trade off. by selling that put, dan has now capped his gains to the difference between the strike of the put that he bought and the

strike of the put that he sold. making dan a winner. now athletes across the globe are tuned into the show and they only have one question. what will dan do now? in case you tint know the show is hugely popular in the world of sports. if you shorted nike at the time of the trade, you would have made about 19%. but dan can sell it three times that amount. dan, you put a similar trade on for star bucks and you still think that nike will go lower? >> i think that nike traded ahead of the starbucks thing.

>> so there is an interesting couple of trades. one was the china trade and then also we had a downgrade from city downgrading some of the high income people feel the stock market volatility much more. at this point would you go in and look at these names or would you find the next one? >> i think it's interesting that you bring some of the names up. the ones that are not seeing improvements in employment and incomes are the ones that will make nike, starbucks, macy's. i think both are probably weak right now.

had a really good week on days when the tape was really ugly. and they have the demographics similar to a lot of the names. >> today on the news i took it all off for a triple. >> all right. thanks for reminding us what we are here for. a reminder. if you want updates on trades, be sure to follow us on twitter. dan posts regular updates.

final call right after this. >> get more options actions with our newsletter delivered directly to your inbox. this is the extra edge you need. it's free when you register or visit the member center at cnbc.com.

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next friday at 5:00. "money in motion" is up right after this break.

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