>> this is "options action". tonight, weakness at tiffany's. they are teaming up for a trade that could make six times your money in just three months. >> plus, talk about a yummy trade. dan nathan has an options trade on yum brands that could make you seven times your money by october. and why were all the options traders hunting for calls? the action begins right now. live from the nasdaq markets, i'm melissa lee. these are the traders here on this desk. the only thing hotter than the weather here is the stock market. the dow hitting lows not seen since 2007. how much longer can this rally

run? let's get in the money and find out. we start with a tesk skeptic. he is the most skeptical on the desk. everybody is skeptical. home builders, oil stocks and more. what's wrong with that, dan? >> listen, everything is great. to be a skeptic of this market is a bit exhausting. i'm pretty much ready to throw my hands in the air. you know, when i look at the s&p 500 and i look at the con trags of the top ten names, they make 20% of the waiting of the entire intex, ten names. seven of those. a small amount of stocks driving a great bit of performance.

all are at major lows relative to where the s&p was. if you look at the highs back in 2007, the readings were much,much higher. to me, the rally is getting narrower and narrower. >> to some extent, past rallies, haven't they also been led by a handful of stocks? i mean, yes, we're used to it being financials, technology and energy, but so what. it's consumer staples this time. >> utilities, there is a sector i would sell outright. i can't understand why someone wants to own a duke energy trading at 20 times earnings and zero growth potential. the only reason people plowed into the stocks is they served as an inflation adjusted bond. i think the other thing that really worries me is that you see the vix as very long term lows right here.

in both trexs out to the end of september. those kinds of things are an implied correlation. all the single stocks came down. for the first four hours of today, the only thing i saw were options sellers. nobody is concerned about anything. i think they are asleep. >> it's a friday in august. dan said that being a permanent bear has been exhausting. it has also been expensive. and mike was right on the money. the vix has just gotten killed. a lot of realized volatility which is what you get when you buy options. it was interesting on monday that the vix was lower on a

monday with the s&p lower. that only happened about twice a year. >> people talked earlier this year about a performance chase and how much cash there was. that little put that you have has declined. we're close to all time lows. >> that can cause cracks. >> if you are worried about the stock market. >> we're going to to talk about mike in a bit. that's on the high end. a lot of the stocks are already cracked. i want to focus on a name that has not cracked.

>> i want to focus on yum. here is a name we haven't mentioned yet. they will get a lot of their growth goeing forward here and the chinese market is telling us something. the data does not get any better. >> we use a strategy a lot. it's always good to review the structure. the same expiration. how do you make money? you want the stock to fall to

the short put strike. that's where you make the most money. that's also where your profits are capped. dan, caulk us through the trade. i wanted to look down a little bit. i bought one of the october 62 half puts for a. >> that 40. my max risk is 1:10. i make money between 61, 40, and 55. i can make up to 6.40 on that. and my max gain is at 55 or lower and i can lose up to 110. >> do you like this trade? do you buy the notion? to buy chicken legs and pizza hut? >> yes.

yes, i do. >> first of all, look. when you have rapidly growing economies, they tend to move in fits and starts. the data that we are getting is suggesting that things are not that great. you have to factor that into expectations. the other thing i would say and it's interesting. we are probably going to talk about strategies similar to the one that dan has here. that doesn't mean -- the can come in a great deal but the puts. that makes the math work even better. >> that tells you as much about china as anything. maybe that means things in china are not as bad this one really sings in that regard but this

one does have to break a bunch. >> that seems to be like perhaps not enough time. . that will lift all boats. >> that's a great point. i am expecting the ecb stuff baked in. they have cut rates twice. they have lowered bank reserve ratios. to me, if nothing happens, october may be the perfect time. >> it catches the next quarter's earnings. >> good point there. let's button this trade up. want to short yum, the financial equivalent of food poisoning. i forgot how me low dramatic we are on this show. >> moving on. the high end consumer will come

next week with the release of tiffany earnings. current options prices imply a 5% move on earnings. that is less than the historical average. the question, of course, is in what direction. let's try and get some answers. the man who still harbors a crush on holley go lightly. hi, carter. >> hi, there. so three charts all five year time frames. let's have a look. this is tiffanys. 15.85. take a look at the skd chart. it's the same five year chart. what makes it interesting as a sale here is the recent strength. the stock has bounced from about 50 to 61 in today's close. up 20% since the june low with

the market bounce. but this puts it fwens the down trend line. >> would you agree, mike? >> i think i would. it is trading to the broader market multiple. a lot of people have looked at the name as a little more immune. they tend not to have the same lumps and bumps that the rest of us might. but one of the things i would point out, some of their costs actually relative. >> back in may they actually talked about the fact that they were having trouble renegotiating that. that represents 10% of tiffany's

net sales and probably the highest margin business that they are doing. all of those things do put a little bit of pressure. >> that is is the only reason that dan goes into tiffany. using a one by two put spread. let's crack open the play book and review the structure. you buy one put and offset the cost by selling two lower strike puts of the same expiration. you want the stock to go to just above the strike of the puts that you are short. since you are short more puts that you are long you may have to buy more at the low stock price. mike, what's the trade? >> i am looking at buying the november 60 puts and selling the 52.5 strike puts for $1.10 a piece. my net deb debit, i make the most profit at 52.5 bucks.

if it declines too much more, i could own the stock at about 56.5 bucks. that is a pretty significant to where we are right now. >> in this environment, do you want to be short that extra put? >> i don't. to me, here is one thing, i can't agree with these guys more. china is a big fwroet air ya r ya for them. >> marginal? i absolutely agree. a great point earlier. talking about the ecb and other monetary policy. being a put to the marngt. it was something we were talking about to the desdk today. who wants to go out and buy insurance when the central banks are already providing you something for nothing. that combined with the fact that we have not seen significant

decline in revenue will protect it. >> in general, you make the most money when the market goes to a short strike. we talk about how put spreads can make the math work for you. it has to drop so far and a great name that you would be willing to buy at a discount. >> they certainly do have lots of beautiful items at tiffanys. great jewelry, under rated handbags and nice shades. shorting tiffanys or any stock carries unlimited risk. he could be forced to buy tiffany's stock for $52.50.

>> so we want to check it out. here is what is coming up neck. >> well, this trade could use some social work. last month mike made a bearish bet on linked in but the stock is going nowhere fast. with money on the line, will he hold out for gains or just log off? find out when options actions returns. >> time for pump up the volume. can you feel the chemistry? this company makes chemicals and chemical formulations. it could be bought by the company romney used to run. in the hopes that they will elect to make the acquisition. who is it? the answer when options action returns.

>> where were options traders pumping up the volume. call volume was 13 times the average daily volume. welcome back. time to do something we haven't done for quite some time and that is get called out. the trade has gone against him but he is not losing out on much money and here is why.

>> just because you risk less does not mean you will always make more. mike couldn't believe how expensive linked in shares were. >> it's trading at a valuation of $11 billion. >> but shorting the stock? this ain't facebook and shorting linked in could put you out a lot of cash. so to define his risk, mike bought the strike put. then mike needs the stock to fall below that put strike price by more the cost of the trade or below 89.10 by september expraegs. let's find a way to do this for less. >> sell the 7$75 for.30.

and created his put spread. but he did something better. he made profits come sooner and all it took was simple math. and now instead of needing linked in shares to fall to make money, mike can now see profits if linked in falls below but there is a trade off. and by selling, mike has capped the gain. good thing he did cut those costs. linked in shares are flat, making this trade a loser. they all want to know the same

thing. what will mike do now. >> before we answer this question, perhaps this might make us feel a little better. where we drill down on why we talk at these strategies. had he just bought the strike put, he would have lost 60% of his money. but by using a put spread he was able to reduce put costs. he would be looking. not as bad. of course, linked in is a volatile stock. what do you do? >> one of the things, we have expressed real skepticism here. especially the high flying stocks, the thing about the lower strike put is it's offered around a dime. >> i think this thing has a great chance. let me tell you something. they managed their lock up expiration pretty well. the stock is more than doubled

from their ipo a year ago. i would be raising cash because their equity currency is funny money. so to me, that poses potential risk. >> if they are looking around and looking at every internet ipo that has gotten te stroied, i want to protect my balance sheet. $19 even. dan, is there any point at which you would say this stock is a buy? >> to me there is one specific thing and that's it. we have 400 million shares coming on november. they are going to be sold again. so to me, i think there is one thing to get the stock higher.

>> if you're convinced this is going to move lower, would you put like a put spread on? >> i think you got to wait. >> there is a lot of head winds on the stock, a lot of volatility on the stock. there is some preem wrum to the options. a significant discount to where it is trading right now. >> they actually make money. they are getting tarred. >> all right. speaking of social media this is a reminder as we head to break. be sure to follow us on twider. post regular updates. got the final call right after this.

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the 2012 radio city christmas spectacular. they kicked off a display of costumes worn throughout the years. the celebration took over new york's sixth avenue. a little early to be thinking about that, but whatever. time for the final call. >> this week's web extra is all about jc penney. the way you want to play the upside and get back-to-school. >> the market is real complacent here but i want to look to something where they are telling us something. to me, i like tiffany's. >> mike? >> i'm definitely inclined to try to make bearish bets. one of those to insure that they are so cheap you will be glad

you did. >> for more, go to our website. see you next friday. money in motion is up right after this. 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. the markets keep moving.

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