people first, then money, then things, now you stay safe. bye-bye. this is "options action." tonight, like facebook into earnings? options traders expect a huge move when the social giant reports next week. and dan nathan has an options trade that can turn time into money. he'll explain. a tale of drugs and money scott nations will explain. the action begins now.

these here are the traders, we're in times square. we'll get to trades in a second. let's talk macro markets first. an epic battle between u.s. earnings and a free fall in europe. today, europe won as stocks closed near the lows. is there more pain in store? in the money right now and fin out and dan, who are you backing in this battle? u.s. earnings, europe? >> well, i don't think you have to back either. to me, what have you seen the last couple of months, u.s. company's earnings be affected by a weakening europe economy. it's expecting the confirming what we already know. >> is it more optics. dow worst performing. dow comprised of the biggest multinational companies that get most media attention but do most

business globally. small caps done reasonably well. >> the part that's been doing well in the s & p, all of the safety trades, like consumer staples, soap, toilet paper, that sort of thing, and to dan's point, what we're seeing in earnings. we got decent numbers on the lowered expectations, but revenue side, not seeing the same thing. that tells the whole story. >> lowered expectations where this begins and ends. we have the amazing ability to forget about problems in europe until someone announces and they are disappointed because of what is going to on in europe. or the currency implications and we look at the s & p and we think, hey, it's in the middle of the range and vix really low. historical volatility says the vix should be at about 20. about five points higher than

where it's at. >> keeping the vix down is the dispersion that we talked about. seeing the safety names going up, industrial names coming in, that dispersion reduces volatility index and that's the reason that the vix is low. some stocks moving a lot. and people should be looking to that. >> did anybody else bring up the fact that the nasdaq is up 12% this year? russell up this year. hardly the disaster some have predicted. transfer will lead me to the braeptd of the market. we have seen a handful of stocks driving that outperformance. when i look at a month like july, s & p flat on the month. this month, so far, it is the lowest volume that they have seen since may of 2007. so they are exacerbate on light volume, low conviction. when you see something like chipotle today, this company has no international exposure, down

27%. nothing to do with fx or anything. sales growing in the u.s. lost $2 billion in market cap. what does that tell you? >> speaking of lowered convictions, we have seen a bunch of big call buyers. people want to be bullish, define risk. see it earlier this week. we saw it in ebay, q logic, take two, a bunch of energy names. people want to be bullish, but they are scared to be bullish. >> i think that's being defensive. people don't want to buy stocks, options are cheap. a big difference saying i'm okay, i'm bullish here and i need to cover upside in case we get a pop. >> another huge week for earnings. a name everybody is sure to watch next week, facebook there is your calendar. facebook going to get a lot of attention. options prices suggest that the stock could move 10% on earnings. but 10% which way? dan. >> this is a tough one. the first quarter that they are

reporting as a public company. there is no history as it relateses to stock performance and how it relateses to earnings performance. to me, this one kin of like put your finger in the air a little wit. stock at 29 today, july weekly, next week expiration, 29 straddle, 20% move. you need that sort of move to make money on that straddle this is a very stock-specific story in my opinion. i don't think it will trade a whole heck of a lot off earnings. valuations through the roof. you don't own facebook for last quarter's earnings and not likely to give a whole heck of a lot of guidance. a lot of overhangs in the name. it makes sense to play the story with options. >> such a big implied move into earnings. with everything that is facebook, about what is going to happen. take a look when they said, okay, things slowing down. people baking that in. they could affirm that, of course, but when i take a look at this situation. i find it very interesting, they

are applying 11.1% move. how much of a market cap move it would be for a stock this big. very big change. >> first time linkedin announced and the only analogous space in the name right now. down 30% over the next 5 days. it could move a ton more than expected. >> does the implied move suggest people really don't know what will happen? >> very likely to underperform that implied move. here have you a situation, where, again, not about earnings, really about what the long-term, you know, growth for this company looks like. i don't think people will make their mind up next week. >> a trade ahead of the report? >> i do, largely with a couple of factors. i want to sell that, but i want to set up in august where imply vol is a little lower, and this is the hook, people. they have an early lookup expiration. august 16th. basically unlocking 200 plus million shares. they did the ipo in mid may.

400 million shares, okay? to me, this is a tremendous opportunity for a massive overhang, and i want to do a calendar spread. >> a calendar spread? >> a calendar spread. here is the trade. die this today when the stock was around $29. i actual bought the july weekly. next week expiration. august 27 put calendar. what i did, i sold the july 27 weekly put at 5 cents, and i used the proceeds to buy one of the august 27th puts for $1.25. cost me 45 cents. that is my max risk in the trade. what i'm hoping do, the stocking to move lower to short strike. 27 strike in july. have that put expire worthless and basically owe on the august 27 put for 45 cents. at that point, i hope to keep that intact for the lockup expiration. >> this is a trade i really like for a couple of reasons. options traders love to move

that. i like the fact he chosen lower strikes, and moved to the lower strike. and the possibility that they might affirm the slowing growth they were talking about before the ipo actually started trading. and that will depress the stock. and he has that longer put. it's really one of the trades that he basically had all the key points. >> that's right. we talked about this because we loved the option map. calendar spreads. makes all the sense in the world. collecting 75 cents being short an option one week and paying $1.20 for being long an option for four weeks. how does that not work out? >> the point here, i'm looking out to the next catalyst. implied move for earnings, too high. i think this trade hits a locality of the trades. >> let's move on and hit the stocks versus options button. want to short the facebook? it could be the equivalent of losing friends. stock carries as you know carries unlimited risk, i.e. the

poor house. dan's option risks just $45. let's move on. shares of whole foods losing 7% today. investors fear it could suffer a similar fate to the aforementioned chipotle. both are high value stocks with high valuations that cater to high hif end consumers will whole foods follow chipotle? let's call to the charts and find out with the high-end name himself, carter braxton worth. >> a couple of charts here. let's take a look. whole foods one-year chart and today's weakness as you point out has left us right on the trend line that's been in effect for the last 12 months. take a look at the same chart over five years. today's sell-off, well defined lines, parallel lines, draw them without subject activity. we close right at the mid point of the five-year trend. i want to take a look at a really long-term chart.

whole foods, $7, $7, back in the late 90s, touched 7 exactly in the low, low nine. and this comes to a violent way to all-time highs. can you look at the same time frame, price per share of earnings per share. it shows volatility of share price, the overshoot is price. undershoot is price. the more stable line, of course, is the earnings. all about what they say coming up if the earnings are in trouble, the stock is not going to hold the trend. we think you make the bet, it holds the trend. >> you certainly made some point there, you need it given where you are shopping. mike, fundamental view on whole foods? >> fundamentally, a little challenging because it's one of the higher valuation stocks. we've obviously seen recently any kind of disappointment on high valuation names can slam them, as it did with chipotle. one of the risks, the reason the

stock was trading lower. they have done well with the last eight quarters. three times when the stock was up more than 7.5%. >> super value has terrified everybody in the grocery space about a week ago. >> i don't known i would compare supervalu to whole foods. which brings up another point. i think whole foods will benefit from essentially a shift in consumers' view of food essentially in the united states and riding that trend. that is also to their benefit. and the other thing, the company has almost no debt. so we're not going to worry too much about the leverage. up with of the stocks that had high valuation to it. >> mike buying a call spread, let's crack open the play building book to review. buy one call and sell a higher strike call against it to reduce the cost. you want the stock to go to that high strike. that's where you make the most money and where your profits are capped.

all right. let's button this up with a little -- oh, what is the trade there? >> no problem. >> we talked about strategies. august 87.5 call spread. pay $2.85 for the 87 1/2 and sell the 92.5ss against it for a buck and a quarter, total net of $1.60. one quick point. the stock is implying just under 7% move, and, you know, this is one of the situations where because of the high basically implied volatility into the catalysts, we've been talking about buying calls, puts, most of the things like that. i want to sell the higher strike call. i'm trying to reduce the premium. >> if you have to play these stories and i don't think you have to. you would almost wait until the earnings call was out of the way. maybe this thing gets back to $92. great. i think you want to define your risk. the high valuation stocks will get slayed.

a lot of people hanging out makes me nervous. the action of chipotle, taking out eight months of performance in one fell swoop, makes me nervous about starbucks and panera. >> that's why i only want to spend 2%. somebody trying to make a bullish bet. >> you have to buy a spread. that will -- that will make the implied volatility. not work against you. the thing is, whole foods got crushed today. got killed. rolled over a little bit. carter is braver, wanting to be bullish. >> one other point about the technicals. never fight with my main man carter on the technicals. this has been trending lower as the s & p start the moving back 1375. it was showing distribution in the name. >> good conversation. let's button this up. storks versus options. do you want to buy whole foods? well, you like the food they sell, it's not exactly cheap. 100 shares will cost you nearly

$9,000. mike's call spread, 3-1 payout and will set you back $160. and that's why we talk options. we'll see carter later on in the show. got a question? send us. we'll answer it on our website after the show on options extra. we post tradeup dates there as well. do check it out. here is what's coming up next. search no further. we've got your winning trade right here. khouw and carter made a bullish bet on google. how could they make more cash? find out when "options action" returns. and it's time for "pump up the volume." names heating up options traders sizzle index this week.

the hot new diet drug is the way to lose weight. quecemia. good news for the company and the 78 million americans estimated to be obese. and options traders ate up the company's calls this week. betting the drug will be a huge deet for the growing market. 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. thinkorswim by td ameritrade. trade commission free for 60 days, plus get up to $600 when you open an account.

where were options traders pumping up the volume this week? vivus. welcome back. breaking news. jpmorgan chase jamie dimon saying he bought $500,000 chairs of the stock. an average price around mid 34s i believe. still, you're looking at a $17 million transaction for jamie dimon into the common stock of jpm. however, also according to the forum four, he sold stock for jpm for a net gain -- maybe not a gain . but proceeds of $13.5 million.

still, 500,000 shares of jpm. $17 million. that's dan nathan kind of money there. >> you make it sound like it's window dressing. is that what are you saying? >> it's a bullish bet. >> he knows that the company -- he said this on the call last friday. they have reapplied to buy back shares again. you know, he's got some wind at his back. at the end of the day, he's got to put money where his mouth is. >> you get more upside with equity than preferred. >> different position. >> and never bad to see a ceo buying shares of his or her own stock. >> $17 million. this guy makes tens of millions of dollars. >> time for i need more cash. let's face it. let me show you how you make more money from winning trades and last week, khouw and carter

made a bullish trade on google into earnings. here is how they made much more. on "options action," sometimes risking less to make more just isn't enough. sometimes, you want more cash, and that's the case with khouw and carter's winning trade on google. shares of the internet shy ant headed higher. >> we think it will be a powerful breakout. >> time to get in google. buying 100 shares? that would cost him almost $58,000. so to subpoena less, mike instead bought the september 5.75 strike call for $29.50. now mike has the right to buy google stock at that strike price or for $575 before september expiration. but in order to make money, mike needs google stock to rise above the strike of that call by more than the $29.50 that he spent on

the trade or above $604.50 per share by september expiration. anything below that level, mike will see losses. but now instead of spending almost 60 fwrand to buy 100 shares, mike spent $300 to buy the call. that's the most he can lose on the trade as well. but it get even better. because if google shares do rise that call will increase in value faster than the stock, meaning more money in mike's pocket. >> yeah! >> since the time of the trade, google shares have jump 6%, making khouw and carter winners, now options action users are trying to answer the question, how will these tech gurus make more cash? before we answer that question, let's see how much was made. if you bought 10 shares of google, would you have spent nearly $60,000 and made 6% on

that. not bad. but mike's call purchase cost nearly $3,000, but could be sold for $4,500. that, my friends, is a return of more than 50%. carter got us in, so let's call back to the charts. carter, are you staying long, google? >> such a big name and so early in the goings, we think you stay and play for more. >> mike? >> yeah, i absolutely agree. this is just -- a small move relatively. this company is still trading about 11 times next year's earnings. what i'm inclined to do, though. take a little money off this call. it's in the money, i'll sell it from 45 bucks and use proceeds to buy the $6.25 call. i'm taking all of the money into the trade off the table, still now have unlimited upside, essentially now playing with the house's money. >> all right. good. always better to play with the

house's money. good call, guys. get to the final call from the options pits. 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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all right. this is a view of a gopher who lives under the launch pad at the russian space station in kazakhst kazakhstan. a worker spotted the goff per. he placed the camera next to the hole and couldn't believe what he found. the russian space agency up loaded it on youtube. no word yet if bill murray has been alerted. time for the final call. last word from the options pits. starting with mike. >> if you are in the hole, no way you want to do it with a call spread. only way to make a bullish bet. >> i want to set cameras in front of facebook's rocket launch. >> a time on tv has expired. i'm brian sullivan. go to optionsaction.cnbc.com. be sure to follow dan on

twitter @riskreversal. there you go. take care. 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.