people first, then money, then things. now you stay safe. bye-bye. this is "options action." tonight, breaking the bank. financials get slammed on fears of a global slowdown. fear not because we've got a trade on jpmorgan that can make you money if the stop goes up, down or nowhere at all on earnings. plus too hot. the food prices are soaring. but a trade that could grow your portfolio in a hurry. >> and why are all those options traders sneaking a peek at limited calls. "options action" begins now. >> live from the nasdaq market

site, i'm melissa lee. these are the traders here in times square. let's begin with the market. was the action more about the u.s. economy or the turmoil in europe? as we notice, the stocks really down about 2:00 when there was a wall street journal headline that qe3 was still on the table by the fed. >> yeah. so i would say the biggest interesting thing that i saw today was more european global weakness. so if we look at tech stocks, folks, a 3.5 billion software company focused on the cloud, it reported europe is weak and that immediately had an impact. stocks started going lower on the top of that. we've seen this story before. we saw china being week, nike talking about emerging markets

and we saw procter & gamble. i see a potential global recessionary scenario. >> and we heard from ford, we saw earnings estimates come down on cat and alcoa. is the bar set too high as we head into earnings seasons which starts on monday with alcoa? >> we may see slowdown on alcoa. we did see a synthetic put buy into january '13. a lot of negative activity in the options market, intel ahead of its earnings play, eem, a trade of nearly 30,000 put there is. there's concern very short term but i don't know if i'm that negative a recession is coming. i think maybe there's a slowdown but when the market sells off, it's an opportunity to jump in and buy. >> the problem with the number today is that it was worse than expected but not so much worse than expected that everybody could start to rely on the fed

for qe12 or whatever is next. the vix was in quite a bit today. i thought that was impressive given the fact that the s&p was down almost 1%, down quite a bit in the middle of the day. there were horrible names like chesapeake and green mountain that were up today. >> i'm not saying there's a global recession immediately on the horizon but the market from 4% highs is far too complacent. >> mike, are you walking on the sunny side of the street or on the side of the apocalypse at this point? >> i'm probably closer to the apocalypse. i don't understand how can you get bad news when things are already slow and think that isn't really bad news. i think the vix is really come place ents here. it doesn't matter if we get qe4 and 5 if 1, 2 and 3 are not working.

it's not having an impact on total lending. i think we have a risky situation. this level of unemployment we're seeing is one of the most prolonged in 60 years. that's one of the things that people have to pay attention to. even if earnings are good new, you have to pay attention to what they're saying. what we're hearing is not that great going forward. >> the vix closed today at 1710. the average vix close for the last friday in july going back to 1990 is 1726. you can't say that the vix is too -- >> to mike's point about jobs data, today was the first time we've had four straight monthly misses to expectations on the payroll data since twa2008, 200. that's recessionary-type data. there's a chart that i pulled up today from google trends that shows how many times people are looking for the word recession. to me, again, this is a chart

what shows complacency. in december 2007 the market at 1490, that's when the recession started. didn't start when the market was at a thousand. >> that's because it's saying we're not in recession. >> he excluded the "not" part. how do you interpret the vix being down? >> it's been at that 20 level, its historic average. you're going to see this range-bound market. that's what the vix is telling you right now. you can continue to play that and when we see it sell off in the market, i want to be owning it. you talked about qe3 being on the table possibly, that's an inherent put in this market. when we get the selloff, you need to be in there. you want to look to stay protected. the vix is cheap on an average historical basis, add protection and get long in the market. >> next week it starts off with

alcoa after the bell on friday and we'll also get results from the financial sector, well fargo, jpmorgan kick it off for the industry but jpmorgan is probably the name everyone is watching. at this point we've got the london wale trading loss as well as libor looming over the industry. >> regulatory issues are huge issues. i have three main reasons i'm bearish, one is the regulatory scrutiny. it's the ongoing future earnings loss that's going to result from that. in addition, earnings expectations from jpmorgan are up 25% from 2012 to 2013. i don't see that given the loss of earnings power in the cio and investing in banks and spanish yields are still out there. >> in terms of sector bets,

brian, have you noticed any sector bets on the xlf, for instance? >> obviously jpmorgan is a top holding in the xlf. so that's going to have a drag on it. it's been a heck of a houtough e with jpmorgan. it's been a tough trade to stay long in that stock and the financials for that matter. really wells fargo, which has earnings next week, is the one standout i was looking at today as a way to play to the long side for financials. maybe i'll look to do that come monday or tuesday. >> that's going to be the tale of two different kinds of banks, wells fargo, domestically oriented and jpmorgan, which is internationally oriented. >> jpmorgan, if they make a lot of clawing back reserve, that doesn't count. if the quality of the earnings for jpmorgan is really good, two things -- that will be a huge

surprise and we'll have to find out where they are on this london whale trade. >> once of first of the cohorts report, what happens to the volatility of the rest of the players? >> i think it's probably safe to say we'll see some of them come in. some of them is a stock-specific story. we haven't even mentioned the fact that there's also a power trading scandal in the midst of all of this as well. i think ennis is right. there's a lot of headwinds here and i'm interested to hear scott actually reiterate some of those when he doesn't seem to be all that pessimistic. let's face facts. we're dealing with a financial crisis. if it's bad for financials, it's bad for stocks. >> ennis is putting on the trades tonight. he's bearish. he's going to sell a call spread. we have to open the play book and see how the structure works. it's a bearish strategy where you sell one call and buy a higher strike call of the same expiration. you want the stock to be below

that short triek, that's where you make the most money. what's the trade? >> earlier today when jpmorgan was trading for $34, i sold the august 35 calls at 1.15 and to reduce my risk, inmiz my risk on the up side, i bought the august 37 calls at 50 cents. net-net i collected 65 cents on the trade with a max risk of $1.35. how does this trade make money? on it trade i need jpmorgan to be below 3565 by august. i'm risking my 1.35 max loss fo a 65 cent gain but the great thing about this trade is i can make money if the stocks go side ways, as long as it doesn't go up past $35. i think this is a great way to press a short position. i'm short jpmorgan through other

trades because the stock's already down 5% and the volatility's elevated into the earnings print. we had a graphic that showed the average earnings move for jpmorgan is 2% for the last eight quarters. this is a good way to take advantage of that. >> michael, what do you think of the trade? >> the way to play these type of trades. i like making the bearish bet so i like that and typically we want to be short the lower strike option. that's why we looking long put spreads and short call spreads. the math workings for you, as scott is fond of say persian gulf. >> as somebody in jpmorgan as a trade, what do you think of it? >> i'm long in stocks and have been selling calls. his is a short bet and doesn't have the long stock component to it. jpmorgan book value is around $33. the stock is right around that level here. you have to be careful it doesn't get a bounce. the break even 3565 being on this trade -- >> i'm sorry because i'm

laughing because the book value argument, that hasn't worked for all time. that's into the a good -- >> it hasn't helped citigroup or morgan stanley. >> the book value affects yield curve. but on a mental stand point, that could be a level of support for the stock. >> let's wrap this up by hitting the stocks versus options button. shorting stocks carries unlimited risks and his call spreads sales nets him .65. interesting risk/reward there. here's what's coming up next. >> too hot. the heat has wreaked havoc on crops across the globe and sent the price of food soaring. when we come back, we're heading

down to the farm for a trade to put some of that money back in your pocket. that's when options action returns. time for "pump up the volume." this retailer is best known with its hush-hush apparel brand. speaking of intimate, these guys are in your bathroom, too, with the indulgent bath and body brands. who is it? the answer when "options action" returns. and you don't want to miss it with thinkorswim by td ameritrade. you get knock-your-socks-off tools, simple one-click orders, real-time paper trading to hone your skills, plus anytime you need it support. ♪ stocks, options, futures, and forex. get your trading on track.

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>> where were options pumping up the values this week? limited brands. >> you just heard how limited brands beat same store sales number. >> this happened on thursday just after the company announced same-store sales were up 7% more than expected. we saw people reaching to buy calls and applied volatility was up about 7%. obviously people really reaching to buy calls a lot more. >> record heat pretty much across the whole country. and that has led to an increase in the cost of food. how much longer will the heat

wave last? todd is with the weather channel. any relief in sight? >> yes, melissa. that's the easy answer to the thing. when you look at it, the scope has budge huge, 3,000 record broken this week. this gives you an idea when we start to see the relief. it starts to show up early this week. that trough will bring in cooler temperatures. certainly through the mid atlantic but still going into the weekend we have a lot of areas with excessive heat watches and in some cases warnings. that's 25 states plus d.c. metro area. there are a still a number of spots that are dealing with a lack of power. chicago tomorrow you're looking at 95 degrees. you've had nine plus days now

with 100-plus degree heat. in d.c., it has to get worse before it gets better. saturday towards new york city and towards hartford, could see severe thunderstorms. the cooler air will come with a little bit of a price. st. louis 106 for saturday, sunday is your next chance to top off below the 100 degree mark. chicago feeling some of that relief on sunday. monday a good stretch of the region getting temperatures much closer to what you'd see on average this time of year. a couple of areas we're looking for thunderstorms. those areas are for today as far as severe potential but the northeast, i mentioned it, a lot of your viewers head out towards long island and saturday may be the best chance to see severe storms. we'll see cooler air that will likely last through a good stretch of the week. >> our thanks to todd santos.

we know the weather now but certainly we've already seen the impact on soft commodities like corn and wheat. corn hit seven-month highs earlier this week. let's call to the chart the always cool carter. >> a perfect lead in to the whole story. crop conditions are decliing rapidly because of elevated heat. the issue is this. there is a record number of acres sold in corn and soybeans. those two things are in contact. corn and soybeans being the two biggest crops in the united states. we are talking about at or near all time highs. basically drought scares, the price action usually starts to top off before the crop declines. in terms of conditioning coming to an end. so here is what we're looking at. it's the dba, etf, which picks up a lot of commodities.

corn and soy beans are the two biggest components. and this rally, which reflects some of the fear going on, leaves us at a very difficult level. same chart drawing the lines. the trend this has been in for the better part of 18 months. here, too, another way to look at it, it's a big move to a difficult level. to put this in context, take a look at the dba relative to all commodities. commodities we know have spiked. this is well ahead of itself in that point of view. we would think it's right to fade it. >> time to fade it. mike, what do you say out there? being long in the corn trade is like being long drought. >> we are expecting reports that will tell us a little bit about crop yields and soil. moisture contents, things like that. but a lot of people are baking in, pardon the pun, reduced crop crop yields.

as carter rightly pointed out, 75-year highs in terms of the amount of acres of corn planted. the weather will eventually turn around. sugar is another part of the dba we're talking about here. we've got the dollar strengthing. the other thing is the demand side. if you start getting a situation with very extended droughts, you get a much higher feed cost, you might see some herd calling that could reduce the demand as well. >> you're bearish and today you're buying a put. it's always good to open the play book to see for those who are new to the show. you want the stocks to fall by more than the cost of the trade. that is where you see profits. above that you will see losses. mike? walk us through. >> i was just looking at the august 29 puts. the graph illustrates how

commodities can stay stable and then get very volatility. we have not seen as much of a pop in the applied volatility. you are only spending about 2.2% of the price. if it goes down about 5%, you'll about double your money, down 10%, you quadruple it, which is a nice risk and a way to make a bearish bet in commodities, which can go through vulnerability. >> options are cheap in the august options. i purchased the august 28 put myself. you can get it definitely falling down. carter talked about the spikes. however i think we're in dire conditions. i sold a january 27 put against that. i'm bullish on the dba, i'm bullish on corn and soybean prices. i think they move higher. it's been hot as all heck out there in the midwest right now. if you go out and look at the

farm fields, they are not doing well. yes you have a big planting season this year. but they're struggling. we need rain out there this next week. it's critical for corn. >> dba is not a name we talk about a bunch. i was surprised when i looked at how expensive these options are and found out they're not very expensive. mike is speculating on whether moderating in the mideast. that's fine as long as you understand it. i will say that eight calls in dba traded today for every put that traded. what's that saying? mike is on the opposite side of the trade from the herd and i love to be on the opposite side of the trade from the herd because when they have to get out of it, they're coming to me. >> one more time on stocks versus options. you could be betting the farm as shorting anything is just about the riskiest thing a trader can do. mike's put offers a leverage side to the down side.

our thanks to courter, as always. and you don't want to miss it with thinkorswim by td ameritrade. you get knock-your-socks-off tools, simple one-click orders, real-time paper trading to hone your skills, plus anytime you need it support. ♪ stocks, options, futures, and forex. get your trading on track. thinkorswim by td ameritrade. trade commission free for 60 days, plus get up to $600 when you open an account.

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[ male announcer ] one pill each morning. 24 hours. zero heartburn. >> with the summer olympics just a hop, skip, and a jump away, one athlete is unlikely to make china's squad. he decided traditional hurdling wasn't his style. after missing the two obstacles, he blasted through the remaining hurdles chest first. he still managed to take home an impressive sixth place finish. that's what we call optional viewing. time for the final call. scott, kick it off. >> i'm not as pessimistic as some people but if you have to buy protection to sleep at night, do that in the s&p. >> ennis. >> don't be complacent. recession fear, once everyone knows about them, it will be too late. >> i like mike's dba put buy but i'm selling a longer data put to

protect against that in case dba moves higher. >> bullish, bear, protection is cheap, you got to buy some here. and you don't want to miss it with thinkorswim by td ameritrade. you get knock-your-socks-off tools, simple one-click orders, real-time paper trading to hone your skills, plus anytime you need it support. ♪ stocks, options, futures, and forex. get your trading on track. thinkorswim by td ameritrade. trade commission free for 60 days, plus get up to $600 when you open an account. >> our time has expired. stay tuned for "money in motion."