this is "options action," the ultimate apple trade. how would you like to make four times your money in apple after one month? it's not the new iphone but dan nathan's options on the tech trade. talk about hitting the jackpot on lvs. they're teaming up for a trade and get you to las vegas sands for under $2. they'll break it down. why were all those options traders discovering discover's financial call. live from nasdaq market site, the world's largest equity exchange. these are the traders in

sometimes square stock despite having nice gains interday today. only one stock traders are watching, apple, the world's most valuable company making fresh highs this week, seeing huge call volume. let's get in the money right now and tech one of the strongest sectors. apple in focus. certainly was in focus in options pit as well. >> early in the week, short day just exploded and the call volume, traders reaching for short weeklies. they were dominating the most active call and put volume early in the week, monday, tuesday, wednesday. three days in a row. ironically this happened when their competitors, hewlett and dell, on the pc side, are giving basically a horrible outlook, very murky visibility for the next quarter as it relate to pc sales in front of what people expect to be a very big upgrade cycle for pcs and windows 8. >> apple call volume represented 5% of all options that traded in

the united states this week. >> that was the bright spot for technology. technology was the biggest performing technology because of this stock. it was about flat week on week. if it had not been for apple, you take the rest of the 54 stocks on the s&p, you are talking about a group that would have been down almost 1.8%. i don't think that's so great. >> a big determinant in terms of what will push the nasdaq higher or lower is the direction of apple. what were the option activity? what does that point to? >> first of all the activity today was about a third higher than you would expect which is surprising that it is a friday in august. we saw 1.6 calls trade for every put. it still remains a little bit bullish. mike and dan both mentioned dell, which had a terrible week.

dell, the biggest open interest is that the weekly $11 put. that was just a magazine nenet week. i think we'll talk about this a little more. am was interesting. because the stock is so expensive, people want to express their point of view a little more cheaply and they are doing that with options. mostly call options. >> dan, basically you pointed out dell and hewlett-packard, apple's, quote/unquote, competitors, are doing so poorly. you do expect them to be beleaguered. >> it's interesting to me. where is apple really excelling here? it's in mobile, tablets, smartphones, a category dell and hue let have been left in the dust. all of a sudden microsoft in the tablet space, google, samsung is big there. there's a massive bifurcation.

to me, i mean, you know, those guys are going the way of the dodo. in a lot of ways they're classic value traps for those stocks to be down with expectations so low after the guidance they gave, that's too bad. a lot of money is pushing into apple. this activity, call spiking, it's giddy and makes me nervous. that's i short term bearishness. >> that's good for viewers to know. you can look at options activity and see spikes and read that as giddy. walk us through exactly why you would interpret it that way. >> one of the things you are going to see, especially in a name like apple, a stock largely composed of cash. if the stock is rising, a lot of cash on the balance sheet but you see implied volatility rising that suggests people are starting to buy options. it's all very one-sided flow. if everybody is leaning one way, maybe you should look in the other direction. the only positive sign i saw in equities in general is with rates declining, telecom and

utilities also declining, meaning they're rotating out of safety stocks. >> you're bearish on apple. a lot of apple fans out there. apple philes, if you want to call them that, they'll say you're crazy. but you're saying at these heights maybe you should have pull back. >> when it's all-time highs is makes me nervous. we know the balance sheet is amazing. $120 billion in cash. i want to take a look at other ways to play apple's exposure within the broad market. you mentioned it's 20% of the nasdaq 100. it's 5% of the s&p 500. that's massive. to me what i think investors should be focused on at these levels, if he he they own apple, what else do they own? i want to play apple short term with slk which is the spider technology -- >> all right. dan, is bearish on apple, using

the xlk, buying a put spread on xlk, one of the most common strategies for making a bearish trade. it's good to crack open the play book. bearish strategy. how do you make money? you want that stock to fall to the short put strike where you make the most money. also where your profit are capped. dan walk us through the trade. >> sure. i'm picking september expiration. there's a lot of anticipation about a whole host of products. generally, only one product announcement. people are expecting multiple and i think that can set up for disappointment in the stock. apple makes up 20.6% of this etf. top five names in this etf make up 50%. google, at&t, microsoft, ibm and apple. i want to do a short-dated one point one put spread in september. today when the stock was 30.55 i

bought it, bought one for 15 cent. my risk is 20 cent. i could make up to 80 cents. if the stock is down 5% only, 29 or below, i can make four times my money, that's the 80 cents. max loss is 20 cents above 30. >> this is trickier to put up. mike, when dealing with a basket of stocks, other stocks in there, of course, it makes it a little harder. >> it does. he mentioned other big names. at&t, i don't mind being short on that stock. i think that's a good short. he pointed out apple makes up a big chunk. put spreads, we like them better than index because the farther out, more expensive relatively, we see that, take a look at how much he's paying.

20 cent on $1 spread, that's one-fifth of the distance between strikes. very good basically leverage there. >> market agrees with dan because xlk puts traded four times what calls traded. implied volatility is pretty cheap. i might go out further in time but i'm also completely different on my rue point on apple. this week's web extra is all about apple. we revisit a bullish trade from july is what to do if you're bullish on apple. >> scott makes a good point. that 29 put i sold for 15 cents. i sat and debated it for a few minute because it's dollar cheap in a lot of ways. to me when i put the trades on i'm defining my risk. this is put it on, forget it. if i get the 5% move, i'll be happy. >> let's wrap this up with stocks versus options. short the xlk or etf for some matter, some considered that insane as it carries unlimited risk. dan's put spread offers a four to one payout, just 20 bucks.

let's move on. what happens in vegas stays in vegas unless you're the prince of wales. nude photos of prince harry's wild night in sin city suite have been burning up the web. sparked a new ad campaign for the las vegas conventions and visitors authority saying las vegas is about, quote/unquote, adult freedom. brian shactman, first rate authority on all things vegas, particularly adult freedom, has the story. >> reporter: thank you very much. now, you call it the code, i guess, what happens in vegas, stays in vegas. it was an epic marketing campaign. everyone seems to follow prince harry's poor game of pool. let's face it, how else do you get naked in strip pool if you don't stink at it? made world news, getting tabloid treatment in uk. whoever took the photo broke that code and there's a need to make sure it doesn't happen again. visit lasvegas.com having people

say they won't tweet, tag, write about anything that happens in vegas. 90,000 people have clicked so far. the stock market, that's right, this is what the show is about. sands, wynn, caesars down 6% in the last six months. that's hard news. >> brian shactman, thanks for that. now that we know vegas is safe for adult freedom the question going forward, is it a good investment? let's call to the chart and get answers from the man known to tear up the strip himself, carter braxton from oppenheimer. we're kidding. >> all my clothes on here. three different chart, all same time frame. lvs, two-year chart. what's important is when this sold off, this is quite a selloff, 62, 40% decline down to 35 plus/minus, found this level for the fifth time. each time it's responded quite

well. the same chart with a different way to draw the lines, same two-year chart. what's important is we've now broken above the down trend since this fairly important 45% decline of the last four, five months. finally, what's the objective? we're long here. the idea is that we have found support and they were going to throw back to the top of the range. we're looking at 48 to 50. that's about 18, 20% from here. time to get long lvs. >> time to get long. carter is bullish on this. mike, can you be bullish the stock but fearful of what's going on in china? >> yeah. that's how we're going to try to play this. we were talking a lot about las vegas. las vegas is the name of the company but that actually is not where they get most of their revenues. most revenues come from macaw. that area has been seeing double digit growth for three years. over 17%. they're still getting double digit revenue growth. this is a historically low

valuation of the stock, 18 .5 times earnings. doesn't seem unreasonably valued but when you have a situation like, this you always have to be fearful. we're hearing a lot of negative news. if that turns bad, it would be extremely bad. much worse than what's going on in las vegas. >> what is mike doing this week? he's simply buying a call. you think options are tricky. when you buy a call you want the stock to rise above the strike of the call by more than the cost of the trade. that's where you see profits. that's all it takes. anything below that level you'll see losses by expiration. walk us through this trade. >> all i'm doing is buying the october 44 calls and paying $1.65 for those. at expiration the stock would need to be at 45, 65 or above to make profit. i think what i'm trying to do is because i don't think the price of options is very high. i'm looking for opportunities to try to spread this trade. if lvs goes up, i probably stick with these calls and look for opportunities to sell higher strike calls against it.

if it declines, depending on the kind of news that drives that decline, there may be other opportunity to sell downside. >> short term bearish but long term bullish. part of the problem is -- i guess part. reason mike's trade might work out is there was a rumorer out this week that macaw, this will be the biggest month as far as revenue in the casinos in history. longer term, this makes a lot of sense. means macaw is coming back. mike is looking to spread this off. if ma macaw does great, you have to think of spread, that makes sense. >> we saw a lot of directional activity into some earnings this week, like aruba networks. up three bucks today. this is really one of those situations which options are cheap, use them and look for opportunities after the stock begins to move. >> let's do a little stocks

versus options. as prince harry attests, you can do pretty much whatever you want in las vegas, except stocks versus option. 100 shares of lvs will cost you over $4 00. call offers leverage up, xu won't have to apologize to the queen as well. got a question out there? send us the e-mail. address is optionsaction.cnbc.com. we'll answer it after the show. and we also post trade updates. check that out. here's what's coming up next -- so it wasn't quite a best buy. koehn and carter made a bullish bet on the beat down take joef, but with it on ice this trade doesn't looking so hot. can they execute a successful turn around? find out. time for pump up the volume. the names heating up options traders sizzle index this week. should i put it on your card? this is a direct player in

banking and services industry. this week investors were bidding on the stock big time off news the company will be partnering with paypal. options traders swiped up the company's calls this week in hopes of palling around for ebay will be good for the stock. who is it? the answer when we return. like a high-speed train.ads

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plus get up to $600 when you open an account. skofr financial. call volume was over nine times the average daily volume. welcome back. time for total recall as we take a look at trades neither winning or losing. they made a bullish call on best buy after hopes of buyout. they haven't made much money and here's why. on "options action" it's how we find the best deals. that's just what they tried to do with their bullish bet on best buy. carter thought the big box retailer would be electric. >> this selloff has discounted too much. play for a better rebound. >> better buy me some best buy, mike thought, but getting long

would cost you over $20,000 at the time of the trade. so he bought the january 24 call for $1.50. to make money he needs best buy shares to rise above that call strike prize by more than the cost of the trade or above $25.50 by january 2013. but $1.50, doesn't sound like a bargain to me. mike, let's do this for less. >> sell the 18 put. >> that's what we're talking about. to spend less he sold the 18 strike put for $1.75 and created his risk reversal. we did more than that. he found himself a deal. >>dy hear someone say deal? >> you certainly did. here's why. between the $1.50 he spent buying that call and the $1.75 he collected by selling that put, mike took in a 25-cent credit on the trade. now instead of needing best buy to trade above $25.50 to make

money, now he sees profits if the stock goes up, down, or nowhere at all. >> that's just too good to be true. >> there is i tradeoff. by selling that put mike is obligated to buy best buy stock at $18, even if it falls well below that level. even if he does, he wouldn't see losses unless it falls below that put strike price by more than the 25 cents he took in or below $17.75 by january expiration. below that he's on the hook for more losses. since the time of the trade, after an initial rally, best buy shares have fallen 17%. meaning koehn carter could be on the hook for losses. now "options action" fans are tuned into the show and they want to know one thing, what will they do now? >> perhaps this will make us feel better. had you bought 100 shares of best buy stock at the time of the trade you would have lost

$300 or 14%. mike's risk reversal netted him a $25 credit. in order to close out the trade today, he would look at a total loss of 200 buck. here's where it get interesting. if best buy stock can stay above $18 or $18 strike put by january expiration, mike is off the hook for losses. volatile stock making for very tough choices here. carter got us into this thing so we turn to you. do you see more pain for best buy between now and jan expiration. >> the next monday, up 22%, and back to where we started. we're walking away. if one was so clever and decks tearty to grab it and go, okay, but it's back to where we started. walk away. >> what would you do, mike? >> i'm not going to sit here and try to make myself feel good about this trade. this turned out to be pretty lousy. there's a couple fundamental reason we don't to want stay

short those puts. one reason we felt good doing it, there was credit suisse had the deal in hanld. then they appoint a new ceo. disappoint on earnings. stopped the buy back. i'm not exactly sure where the bottom is in the stock. maybe we found it. i'm not interested in finding out because a lot of things i had in place that gave me conviction are gone. sometimes we have to own up to the fact we made a bad choice. i made a bad choice and i'm going to cover those puts. that's that. >> you look shocked. >> should we talk about this? you want us to lay down? you seem all busted up. here's the funny thing, the earnings derek for them to announce a new ceo and then give the horrible earnings they d it's just -- i don't know how you're expected to fend off a hostile bid. at the end of the day they're screwed. big box in electronics are going the way of the dodo. >> as we head to break f you

want updates, follow us on twitter @cnbcoptions and dan posts regular trade trades @riskreversal.

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how is this for a fish tale? 20-year-old pull-p ul -- pulled up the marlin. because she had help reeling it in she was disqualified from netting the prize. leading to some wondering if the rules are fishy. the last word from the options pit. >> mike is right to close this best buy trade because it's okay to be wrong but not surprised. >> dan? >> i want to use september xlk put spreads to play reversal on apple next month. >> i also like the xlk trade. you want to look for those opportunity to get a nice bit of leverage on those type of trades. also, keep your eye out for options that are relatively inexpensive for how much stocks are moving around. like las vegas sands. if you want a bullish bet, still danger but this is the way to do it. >> our time has expired. more "options action" next

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