this is "options action." tonight, space saver. lost money on facebook. don't worry we have a trading on linked in. mike will break it town. plus is green mountain the greatest short of all. kirk things so. and we have a trade that can make five times the money off the event. why are all those option traders pouncing on jc penny calls? the action begins right now. >> i'm melissa lee. these are traders here in typewriter.

reports of potential ecb action sending stocks into a tizzy. the dow rally over 450 points in just three days. that's the best stretch the year. short covering more of the start of a bigger rally. this of course comes in spite of tepid earnings, common story for this earnings season is it beat or a meet on the eps line and a miss on the revenue line? >> first of all the revenue line basically lines up very well with the gdp numbers we see. so you have to try to look for kissing cousins. people have long said you don't fight the fed. you can't fight the fed and the ecb. that's what the shorts realized. that's what's going on here. if you try to buy stocks on a global macro economic thesis the evidence is not there for you. of course what will do you if you have central banks around the world creating this put. that's what's driving it higher. >> the incredible thing about

the energy bank policy buying to me is in 2007 and 2008 policymakers didn't want it to go down but it did because the business cycle turn. the business cycle has turn, the revenue numbers, the guidance we're seeing for the second half the year for multinational companies across the globes. merck and amgen were names that were high. >> where did we see option, bullish options activity. the utilities. then where do you see bearish things? cyclical option trades were bearish and safety trades were bullish napts not the kind of sentiment you want to see from the options markets to suggest all is well. >> because of this whole beat on earnings and miss on revenue, it's like it's 2008 or 2009 again. if we're still muddling through that's not a good thing. one thing interesting today was the trade in ama stone.

horrible number. people are buying the whole amazon, investing in the business story. i bought that a few quarters ago. the stock really did well, amazingly well. i do think it's interesting the vix is not lower than it is now. people are inned in getting a little protection. we talk about the ecb. everything is great now but in a couple of weeks things in europe can be horrible. >> if you shoot a dead body it will still move. >> a terrible metaphor. it's been a rally of the defensive sectors. you mentioned utilities. telecom hitting highest levels since 2008. there's one sector that has lagged and that's technology. facebook, apple, zynga all seeing some big losses this week after their earnings reports, a string of disappointments here. where do we go from here with technology? i think you would need technology as a huging market component to move for us to move

higher convincingly. >> that's a great point. something that's important we do need to make a distinction within the technology space of those names. take a look at the way apple behaved. the stock is not an inexpensive one. look at how zynga behaved that's expensive. facebook isn't expensive. groupon isn't expensive. these companies are not making movie if you look at zynga, groupon and pandora. they have not had any profits since their ipo. you don't see evidence that these companies should be trading higher when they are not making any money. that's a concern. >> amazon, the stocks that -- >> track record too. >> well, i would say this on amazon the track record foerngs is actually not that good. they continually will say we'll make money. >> google. groupon has been horrible. up 15% today.

linkedin i don't know what kind of track record they have. they are doing okay. it's i wanting more puts traded than calls in all of these names. >> google is higher. it deserves to be higher. they are growing at 20%. trading less than 13 times the earning if you back the cash out. we can't paint all of technology with the same broad brush. >> some of the more defensive technology stocks are doing better. a lot of cash in their balance sheets. maybe not in earnings but shareholder appreciation amazon does have that track record. what do facebook's results mean for other social media stocks and specifically linked in. they report earnings next week on thursday. what do you think, mike? >> i'm not a fan. i got to tell you. i've mention this before, i'm a paying user of linked in and i've noticed as a user of linked in they have been very aggressive -- >> you pay to use linked in. you pay to use something on the internet?

>> i've noticed they are very aggressively trying to figure out how to monetize that platform. they are offering free advertising to people who use it. they are really trying to figure out how to make money with this thing. let's not forget folks it's a company that did $189 million revenues in the last quarter. a lot of people look at pe. these are hope stocks. we're looking at these names and saying what's the future bring? in my view a combination of a limited float and that hope which has been dashed by the zyngas and facebooks of the world is not a promising recipe. >> mike is bearish. he's buying put spread. it's always good to review the playbook. bearish strategy where you buy one put, sell a lower put to reduce your costs. how do you make money. you want that stock to fall

short. that's where you make the most money. that's where are you profits are capped. walk us through the trade. >> i'm looking at the september 95, 75 put spread, $20. i'll pay $5.90 and sell at 75 for $1.30. total net is 6.30. in need it to go through that 95 strike before i start to profit. however i can basically quadruple my money if it runs lower. this is a fairly heavily shorted stock. i would never encourage anybody given the kinds much short squeezes you can see in a situation like this in a limited flow and of course all the combined central bank stocks, but this is a way where i'll spend less than 5% of the stock price to make a bearish bet. >> i'll take the other side. in terms of linked in the action we saw today was quite good because there did seem to be a

differentiation between linked in and some of the other social media stocks. then in the middle of the session with all this ecb talk it managed to turn higher. investors see the difference. >> investors clearly view linked in as a differentiated story. it's not a social media stock that is based on youth involvement. it's a social media stock that's based object professionals. >> not that he's not huge. you know what we're getting at. >> i'm in a put spread in august. mine is worthless. i still think linked in will catch up on the down side. >> it's a neat company because it's for people who have jobs meaning they have money. >> the real reason all those new age internet stocks have done so poorly no stocks versus options. get with the program. short linked in better have a lot of friends. shorting any stock could mean big loss. it most mike $460.

shares of starbucks get whacked to the tune of 9% off of earnings. those results have investors are worried about consumers for high end coffee. green mountain in particular. green mountain reports on wednesday. option implies a huge move. some have called this stock the greatest short of all time. in his "options action" debut, herb greenberg is here to tell you why many believe it's still the case. he's working the midnight oil. herb, take it away. >> to the bears. to the bears this just seems to be a business model on borrowed time. the key thing to remember from green mountain is that it is a one product company. it makes its money off k cups and the patents on those k cups are starting to run out. when the company reports earnings on wednesday, pay special attention to margins and sales growth.

competitors are already in the market with cheaper k cups alternatives and green mountain is believed to be slicing prices just to protect their share. all of that is leading to widespread k cup discounting. this is important. clients have been told that a few pennies of reduced green mountain can have a meaningful impact on earnings. guys we have not and melissa we have not gotten into the longer term impact of later this year when starbucks rolls out it's own single serve brewer and coffee pods that compete with green mountain. >> scott? >> herb, specifically about green mountain they've had a tough year but when actually do these patents start running out and what is their next step if the k-cup becomes essentially a generic product. >> in another month or two they start running out. look when it starts becoming a

generic product they created the vue. it's not better tasting coffee. if you're going out there why would you pay up for that and then you have all the competition in the market. they are hoping people go to what they call the v-cup and replaces the k-cup. it's unclear whether that will happen. the k-cup is what is there and the competition is driving the prices down substantially. >> herb, starbucks said on their call the u.s. premium consumer has become an issue in the u.s. do you think green mountain will talk about that on the call in terms of demand? >> i have no idea. to say that's a premium product again we're not talking about gourmet coffee. we're talking about single serve. we're talking about a basic product. so i think what you're seeing, again, what you've seen in the past three months in your grocery store, on the aisle where you find the k-cups is you fine discounting. i have to tell you something else because the jpmorgan

analyst mentioned this, i think it was jpmorgan, fascinating in june the k-cup, the starbucks branded k-cups went into stores. even starbucks is getting ready to push its own product. >> herb you mentioned that they got 22% of this market now. >> yes but a part of that is -- yes. that's a big part because that's starting to eat into green mountain. >> herbert greenberg, fine debut. >> herb is on a much better case than i do. the k-cup issue, the patent issue is the most important. they will run out in september. competition will pick up here. so that's one area. then the second thing is management has done a very poor job in terms of accounting. inventory mishaps. i don't think these guys can

handle formidable competition like starbucks. >> using a one to two put. this is a prayer strategy. buy one put offset that cost by selling not one but two. the goal you want the stock to go to just above the strike to the puts you're short. that's where you make the most money. since you're short more puts than long you may have to buy that low stock price. >> earlier today when i looked at the options i bought the gmcr, sorry december 14, 7 one to two put spread. i'm buying one of the december 14 strike puts and sold two for 50 sense in total. my cost was $1.30. i make profits when the stock

goes below $1.12. it makes money at $5.30 if the stock is at $7. at $7 your profit drops off. you can't lose more than $1.30 on the trade. i will say this. i don't think this is a good short one. it's at lows for the last three years. >> i hated this stock since it was trading in the '90s. they are in the business of trying to sell coffee at $30 a pound. they can't continue to do this. people won't buy the new machine and continue to buy coffee at $30 a pound. so their business is toast, plain and simple. normally i wouldn't want to do that. because -- this is one of those situations where it worked. look at this. down 50% is where you make the most money. this is one of the few cases where i hate a stock and don't

mind -- >> you make me ashamed of buying k-cups. $30 a pound. no more. >> shorting green mountain stock could put your portfolio in the red. this is trade risk versus 130 bucks 5-1 payoff. he could be forced to buy green mountain stock for $7 even if it falls below that level. got a question out there. send us an e-mail. the address is optionsaction@cnbc.com. we love getting emails so keep them coming. here's what's coming up next. here's a healthy treat. carter made a bullish bet on whole foods. positive earnings sent the stock on a natural high. they doubled their money in a week. how did they do it? what's their next move? find out when "options action" return. time for pop up the roll.

names we're heating up. in need of some retail therapy. head to one of this company's department stores. there's over 1,000 across the nation. their shares saw a nice pop this week after a fashion maven said their fashion will be a game chaerng. the stock is a bargain. who is it when "options action" returns. like a high-speed train.

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where were option traders pumping up the volume this week. jc penny. call volume was three times the average daily volume. time now for the upside call where we take a look back on some of our winning trades. carter went against the grain and said buy whole foods into earnings. the stock rallied more than 10% but they made a whole lot more and here's how. on "options action" our recipe for a tasty trade risk less and make more and that's what carter did with their bullish bet on whole foods. carter thought the high end grocering looked healthy. >> you make the bet it does hold the trend. >> opportunity in aisle five mike thought. but buying the stock 100 shares will set you back over $8,000. is to spend less mike instead bought the august 87.50 strike call for $2.85. to make money mike needs whole

food strike to go above that price or $90 possible'7" by august expiration. 2.85, might as well go to whole foods and drop 20 bucks on some organic mushroom pesto. mike, mike, mike. show us how to do this for less. >> i want to sell that higher strike call. >> that's more like it. to spend less he sold the usa 92.50 call for $1.50 and created his call spread. what does that mean? it means he made profits come quicker and here's how. between the 2.85 he spent buying one call and the buck 25 he made selling the other he cut the cost of the trade to $1.60 and now instead of needing whole foods to trade above $90.35 to make money mike will see profits if whole foods trades above that call price or above $89.10 by

august expiration. of course there's a trade off by selling that call mike has capped his gains between the difference of the strike of the called bought and sold. whole food shares have rallied 11% making them winners. now shoppers across the aisles of america have spotted a bargain and they only want to know one thing. what will cohen and carter do next. let's see how much money was made. had you bought whole foods into earnings you would have made 11%. mike's options trades cost about 60, can be sold today for 350. that's more than double your money. he's not here today. he has much more pressing matters like the beach but he was good enough to drop us a note. greetings from bridge hampton. whole foods we got involved on the long side for a prospective

quick tasty little snack and not a meal. as such we are well satiated and are exiting the trade. back to the beach. now we know how carter feels about the trade what are you doing? >> take the money and run. got a little bit of a profit. what we were looking for. great. . >> coming up next the final call from the options pits. >> comingl from the options pits.

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>> the culture minister had an accident with his bell after three minutes ever bell ringing in honor of the summer games. jeremy hunt decided to show off his bell ringing stills. nobody was hurt except for perhaps the minister's ego. there she goes. all right. time now for the final call, the word from the options pits. >> it's about getting long while getting paid with less risk. >> volatility is very high. so spread are a cheap way to do it. >> taking a look at the social media stocks it's been pretty

disgusting process. linked in is the only one that held up. 64% year-to-date. if you're inclined to make a bearish bet, use long put spread. >> looks like our time has expired. here at openings action we'll be on hiatus for the next two weeks so cnbc can broadcast the olympic games. check out the action and check out any of the nbc stations for the action. .

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