bye-bye. this is "options action." face saver? lost money on facebook? don't worry. we have a trade on linked in that can make you four times your money in just two months. plus is green mountain the greatest short of all heading into earnings? we have a trade that can make five times your money off the event. he'll show you how you can make money too. >> and why were all the options traders pouncing on jc penney calls? scott nation with the discount. the action begins right now. live from the nasdaq market site in new york city's time square, i'm melissa lee. we will get to the trades in just a second. reports of ecb action sending

stocks into a tizzy. dow rlying 450 points in three days. that's the best stretch of the year. short recovery or the start of a bigger rally? let's go to the money and find out right now. this in spite of tepid earnings. the common story, beat or meat on the eps line and a miss on the revenue line. mike, what do you make of the move? >> first of all, revenue line lines up very well with the gdp numbers. look for kissing cousins, that's it. people have long said, you can't fight the fed and the ecb, that's what the shorts realized and decided to cover. and that's what is going on here. you know, if you are trying to buy stocks on a global macro economic thesis, what will you do when have you central banks creating a put, essentially that anybody buys financial risk assets and that's driving it higher. >> the incredible thing about this, policymakers didn't want

the market to go down 50%, 60% across the world, but it did. and it did because the business cycle turned. in this case, the business cycle turned, revenue numbers, guidance for the second half of the year, multinational companies across the xwloeb, names making new highs are defensive names. merck, amgen. >> and take a look at the options activity where did we see bullish options activity. x lu. utilities etf. and bearish things, eem. cyclical options trades were bearish and safety trades were bullish. not the kind of sentiment you want to see from options markets to suggest all is well. >> well, because of the whole beat on earnings, miss on revenue, like 2008, 2009 again. if we're muddling through, not a good thing. one thing really interesting, the trade in amazon, horrible number. terrible number. people are buying the whole

amazon, investing in the business story. i bought that a few quarters ago. now a little old. but the stock really did well, amazingly well, i do think it's interesting that the vix is not lower than it is right now. people still interested in getting a little protection. we talk about the ecb. everything is great now, but in a couple weeks, everything in europe could be horrible. >> if you apply shock to a dead body, it will still move. >> that's a terrible metto for, mike. it has been a rally of defensive sectors. utilities, tell cons, highest since 2008. despite the rally in these sectors, technology has lagged. facebook, apple, zynga, all big losses after earnings reports. a string of disappointment. where do we go in terms of technology? i think you need it as a huge market component in order to move higher convincingly? >> i think that's a great point. something that's really

important, we do also need to make a distinction within the technology space of those names. you take a look at the way apple behaved, stock not necessarily an inexpensive one. zinga, that is an expensive one. facebook, expensive. groupon, expensive. these companies not making any money if you look at zynga, groupon, pandora, no profits since their ipos. you don't see evidence that they should be trading higher when they are not making money. that's the real concern there. >> as scott mentioned on amazon, the stocks that go up, there is a faith and hope there. we'll talk about linkedin. >> and track record too. >> i would say this. on amazon, the track record for earnings is not that good. revenue numbers consistently higher, but continually will say we'll make money in the next year. >> look at google. >> groupon, up 15% today, and linkedin, i don't know what kind of track record they have, they

are doing okay. it's interesting, more puts traded than calls in all of these names today. >> google is higher. it deserves to be higher. growing at 20%, trading at less than 13 times earnings if you back cash out. so you can't -- we can't pate all of technology with the same broad brush. >> in some respects, more broader technology stocks are doing better. those with a track record. maybe not necessarily in earnings, scott, but in terms of shareholder appreciation, amazon does have that track record. what do facebook results mean for other social media stocks? and specifically linkedin because of earnings reports next week on thursday. what do you think? >> i'm not a fan. i got to tell you. and i mentioned this before. i'm actually a paying user of linkedin, and i have noticed -- >> you pay to use linkedin? you pay to use something on the internet? >> i am. i also noticed they are aggressively trying to figure

out how to monetize the platform, monetize users. offering free advertising -- first-round advertising, get out in front of your customers. figuring out how to make money on this thing. this is a company that did $189 million in revenues in the last reported quarter. trading at a valuation of $11 billion. that is just an astronomical valuation. a lot of people look to things like p.e. these are hope stocks. looking at names and what is 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, not a promising recipe. >> clearly mike is bearish. we use a structure a lot. good to review the playbook. a bearish strategy, buy one put. sell a lower strike put to reduce costs. how do you make money? want that stock to fall to a short put strike. that's where you make the most money. also where profits are capped.

mike, walk us through the trade. >> this is the september 95.75 put spread. $20. i'm going to pay $5.90. and sell to 75s for $1.30. total net debit, $4.60. so i need it to go through that 95 strike by at least that amount before i start to profit, however, i can basically quadruple my money. this is a fairly heavily shorted stock. i would never encourage anybody given the kinds of short squeezes you can see in a situation like this, in a limited float, and of course, the combined central action that will boost stocks anyway this is a way i will spend less than 5% of stock price for a stock that's imlying an 11% move. >> i will take the other side of mike's trade for argument's sake. the action we saw today, quite good. there did seem to be a differentiation between linked in and other stocks.

linkedin traded along with its cohorts in social media. and it did manage to turn around and finish higher by 2.5%. investors see the difference. >> investors clearly view it as a differentiated story. not a stock faced on youth involvement. a social media stock based on professionals like mike khouw. >> not that he's not youth. you know what we're getting at. >> put spread in august, mine is pretty much worthless, but linkedin will eventually catch up on the downside. >> it's a neat company, because it's for people who have jobs, meaning they have money. >> all right. the real reason the new-age internet stocks have done so poorly, no stocks versus options. want to get short linkedin? it carries unlimited risk. the options costs $460. not bad. and starbucks whacked to the

tune of 9%. those results have some worried about the consumers' appetite for high-end coffee and green mountain in particular. green mountain reports on wednesday. options prices implying a huge move up or down 20%, which believe is or not, less than its historical average. some have called this stock the greatest short of all time. and in is options action debut, herb greenberg will tell you why many believe that could be the case. working the midnight oil at cn bnb cnbc. herb, take it away. >> to the bears this just seems to be a business model on borrowed time. the key thing to remember about green mountain, it is a one-product company. it makes its money off k-cups and the patents are starting to run out. when the company reports earnings wednesday, pay special attention to margins and sales growth. competitors are already in the market with cheaper k-cup

alternatives, and grn 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. stifle analyst who rates the stock a sell, told his clients a few pennies of reduced pricing can have a meaningful impact on earnings. guys, we have not -- and melissa, we have not yet gotten into the longer term impact of later this year, when starbucks rolls out its own single serve brewer and coffee pods that will compete with green mountain. >> a lot of questions for you, herb. scott, why don't you ask one? >> green mountain has had a really, really tough year. when do patents start running out? what is the next step if the k-cup becomes essentially a generic product? >> in another month or two, they start running out. look, when it becomes a generic product, they have created the vue. a more expensive brewer with

more expensive pods. the problem is, it's not better tasting coffee. so if you are going out there, why would you pay up for that, and then have you all of the competition in the market? they are hoping people go to the v-cup which replaces the k-cup. unclear whether that would really happen. now you have just -- the k-cup is what is there. and the competition driving prices down substantially. >> herb, starbucks sat on their call that 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? >> to say it's a premium product, again, not talking about gourmet coffee here. we're talking about single serve, about a basic product. and so i think, you know, what you are seeing, again, in the past three months, in your grocery store, on the aisle where you will find the k-cups, you find discounting. i have to tell you something else. the jpmorgan analyst mentioned this. jpmorgan, fascinating.

in june, the k-cup, the starbucks branded k-cup went into the starbucks stores. they didn't make a really big deal about that. you can see, even starbucks getting ready to push its own product. >> herb, you mentioned yesterday from the starbucks call, 22% of this market now, correct? >> yes, and part of that is, yes. and that's a big part. because it's starting to eat into green mountain. >> herbert greenberg, a fine debut, as expected. >> thank you, melissa. >> what's your view on the stock? >> herb lays out a much better case than i do, but the -- the k-cup issue, the patent issue is the most important, like you mentioneded. they will run out in september. competition will really pick up here, so that's -- that's one area, and then the second thing is management is done a very poor job of the last couple of yeefrz, in terms of accounting building shen an begans, inventory mishaps, i don't think they can handle formidable

competition like starbucks. >> enis, a one by two put spread. it's good to hit the playbook. bearish strategy. buy one put, offset by selling not one, but two lower strike puts with the same expiration. the goal? you want it to go just above the strike puts where are you short. that's where you make more money. since are you short more puts than long, you may have to buy stock at the low put strike price. below that level, profits trail off. enis, walk us through the trade. >> earlier today, when i looked at the options, i bought the gmcr -- sorry, doesnecember 7, spread, paying $1.80. and i sold two puts for 50 cents in total. i start to make profits when the stock goes below $12.70. how does this make money? it will make max profits of

$5.30 if the stock is at $7. and the -- at $7, your profits start to trail off, because you will get long in the stock, but, fortunately, you cannot lose more than your premium of $1.30 on the trade, even if the stock goes to zero. that's what i like about it. i will say this, i don't think gmcr is at a good short at lows of the last four years. >> i hated this stock since it was trading in the 90s. and david einhorn basically called the thing a fraud. they are in the business of trying to sell coffee at $ 30 a pound. they won't be able to continue to do this. no way, no how. people won't continue to buy coffee at $30 a pound. their business is toast. plain and simple. normally, i wouldn't want to do a one by two. since -- this is one of the situation where is it actually worked. look at this, down 50% where you make the most money. one of the few cases where i absolutely hate a stock and don't mind being net short puts. >> you make me ashamed of buying

k-cups. $30 a pound? no more. and shorting green mountain stock could put portfolio in the red with big time losses, enis' trade, a 5-1 payoff. he could be forced to buy green mountain stock for 7 bucks, even if it falls below that level. this trade could tie up cash. got a question? send us an e-mail at optionsaction@ optionsaction@cnbc optionsaction@cnbc.com. we'll offer it in the options extra after the show. now there is a healthy trade. last week, khouw and carter made a bullish bet on whole foods, and the stock is on a natural high. they're not just on the green, they doubled money in a week. how did they do it? what's the next move? find out when "options action" returns. time for pump up the volume. names heating up options trader sizzle index this week in need

of retail therapy? head to one of this company's department stores. over 1,000 across the nation. their shares saw a nice pop this week after a fashion maven tweeted that the company's new style would be a game changer. and options traders went on a shopping spree, betting the stock is a bargain. who is it? the answer, when "options action" returns. there's nothing worse than going to the post office and waiting in line. i don't have to leave my desk and get up and go to the post office anymore. [ male announcer ] with stamps.com,

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where were options traders pumping up the volume this week? jcpenn jcpenney. at one time, average was three times the daily volume. we take a look back at winning trades. last week, we said buy whole foods into earnings. stock ral eddie more than 10%, they made a whole lot more. here is how. on "options action," it's our recipe for a tasty rae y trade. risk less so you can make more. carter bought shares of whole foods looked healthy. >> make the bet it holds the trend and rebounds. >> opportunity in aisle five, mike thought. but buying the stock 100 shares will set you back over $8,000. >> wow! >> but to spend less, mike bought the august 87.50 strike call for $2.85. now mike needs whole foods to trade above the call strike

price by more than the cost of the trade. above $90.35 by august expiration. but $2.85, might as well go to whole foods and drop $20 on organic mushroom pesto. mike, mike, mike, show us how to do it for less. >> i want to sell the higher strike call. >> that's more like it. >> mike sold the call for $1.25 and created his call spread. what does that mean? it means he made profits come quicker. here is how. between the 2.85 he spent buying one call and the $1.25 he collected 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 start to see profits if it trades above the call strike price by $1.60 or above $ 89.20 before august

expiration. mike has capped his gains between the difference of the strike of the call that he bought and the strike of the call that he sold and since the time of the trade, whole foods ral eddie 11%, making khouw and carter winners. now shoppers have spotted a bargain and only want to know one thing. what would khouw and carter do next? before we answer that, let's see how much money was made. had you bought whole foods into earnings, you would have made 11%, a whole some return in any take. but mike's call can be sold today for $3.50 more than double your money. carter got us into the trade, and you can see, he's not here today. much more pressing matters, like the beach. but good enough to drop us a note. here is what he said. greetings from bridge hampton. whole foods, we got involved in the long side for a perspective quick tasty little snake and not a meal. we are well satiated and exiting

the trade. become to the beach, ta ta for now. right back at you carter. mike, what are you doing? >> take the money and run on this thing. we talked about valuation, i expressed my concerns about the market. we got a little bit of profit. what we were looking for. great. >> up next, final call from the options pits.

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a little accident with the bell after today's three minutes of bell ringing after summer games while giving a tv interview, he showed off bell the ringing skills, but the bell broke off, flew toward a group of people. no one hurt, except perhaps the minist minister's ego. there she goes. the final call. last word from the options pits. scott kick it off. >> getting long and getting paid with less risk on web extra. >> and gmc volatility high. the one by two put spread the cheap way to do it. >> taking a look at social media stocks, a pretty disgusting process. linkedin up 64% on year-to-date.

and you can't short it not with your worst enemy's money. inclined to make a perish bet, a good way, use long put spreads into earnings. >> our time has expired. here at "options action" on hiatus for the next two weeks so cnbc can broadcast olympic games. check out any of the nbc stations for the olympics. go to the website, optionsaction@cnbc.com. money in motion, right after this. like a high-speed train.

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.