bye-bye. this is "options action." tonight the ultimate apple trade. how would you like to make four times your money in apple in just one month? it ain't on the new iphone but it is dan nathan's options trade and he will show you how you can make money, too. plus talk about hitting the jackpot. teaming up for a trade that will get you long las vegas sands. for under $2. they'll break it down. and why were options traders discovering discover's financial calls? we break it down right now. >> live from the world's largest equities markets exchange, these

are the traders in times square, stocks snapping a six-week winning streak. but there is only one stock traders are watching and that is apple, the world's most valuable company making fresh highs this week. seeing huge call volume as well. how high do they see it going? tech, of course, one of the stronger sectors. apple in focus and was in focus in the options business as well. >> earlier this week, the call volume, traders reaching for short dated weeklies. they were dominating the most ak vated call and puts early in the week. monday, tuesday, wednesday. three days in a row. ironically, this all happened when some of their competitors on the pc side are giving a horrible outlook. they are giving a very murky visibility for the next quarter. this all what they expect to be a big upgrade cycle >> this a big upgrade cycle for pcs in front of windows 8 in october.

>> this week, we saw index, etfs, etns this week. open interest there, over 1.8 million contacts approaching all time highs. just over 2 million contracts. a lot of bullish activity. that was the bright spot for technology. only because of this stock. so it was about flat week on week. if it had not been for apple, you take the rest of the 54 technology stocks in the s & p, on the group, it would be down almost 1.4%. i don't think that's so great. >> scott, a big determinant in terms of what will push the nasdaq 100, or the nasdaq higher or lower is the direction of apple what were the options activity? what does that point to you? >> 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 in every put. dell had a terrible week.

this is really instructive. the biggest open interest, at the weekly $11 put, a magnet for the stock when it got down to 11.1, a lot of people worried about what they would do. i do think, though, that apple, we will talk about it a little bit more. apple is really 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. >> basically you pointed out the fact that dell and hewlett-packard, apple's competitors, are doing so poorly, you do expect dell and hewlett-packard to be beleaguered. >> apple is accideexcelling in . have you microsoft, google in the tablet space, samsung big there. and the massive bifurcation between old tech and the computers on your desk and the

ones in your pocket or small bag. to me, those guys are going the way of the do do. they are classic value traps for those stocks to be down so low after the guidance they gave, that's really bad. but a lot of money is obviously pushing into apple. i want to make one point this activity and vols spiking, it's a little giddy here in a lot of ways and makes me a little nervous. a little nervous and that's just the short term bearishness. >> and that's good for viewers to know. you can look at those spikes and read that as giddy. why don't you walk us through as to why you would interp it that way. >> especially in a name like apple which is a stock that is largely composed of cash. if the stock is rising a lot of cash on the balance sheet, implied volatility rising, people are starting to buy options. very one-sided flow. and if seven leaning one way, maybe you should start looking in the other direction. the only positive sign is the fact that with rates declining,

tell con and utilities suggest rotating out of some of the safety stocks. >> i know there are a lot of apple fans out there. appleophiles if you want to call them that. and they will say you're crazy. you think at these heights maybe it's time for a pull back? >> i'm like a broken record. it makes me nervous. it's a great company. the balance sheet is absolutely amazing. $120 billion. to me, what i want to do is take a look at other ways to play apple's exposure. you mentioned its 20% of the nasdaq 100. it's massive. i think investors should be focused at these levels. what else do they own? this is where you kind of have to get worried. that's why i want to play apple short term with xlk. the spider select technology.

>> dan is bearish on apple, using the x lk, buying a put spread on the k x lk, one of the common strategies, but it's gooed to crack open the playbook. again, a bearish strategy. buy one put and sell a lower strike put to cut your costs. how do you make money? you want that stock to fall to the short put strike. that's where your profits are capped. dan? >> picking september expiration, apple has september 12 with a lot of anticipation with a lot of different products. i think people are expecting multiple and that could set up for disappointment. i want to use the xlk. apple makes up 12 -- 20.6% of this etf. the top five names make up 50%. google, att, microsoft, ibm and apple. i want to do a short dated one point wide put spread. september. 30.55, i bought the x lk.

i bought one of the sep 30 pus and bought one of the 20 puts against it. my max risk 0 cents. between 29.80 and 29, i can make up to 80 cents. like i said 29 or below, i can make four times my money. that's the 80 cents. like i said, my max loss is 20 cents above 30. >> we are putting a put spread on apple. you might look at a historical spread. sigh how much the stock falls afterward and see where you want to set the strikes. so mike, when you're dealing with the stocks, the other stocks in there, of course, it makes it harder. >> he mentioned some of the big names in there. att is in there. i don't mind being short that stock. so i think that's a good short. he pointed out that apple makes up a big chunk of it. put spread, we like them better sometimes that indices, farther

out of the money. you look at 20 cents on a $1 spread, and that's very good basically leverage there. >> and the market -- market agrees with dan. xlk puts today four times what calls traded. implied volatility in this name is pretty cheap. i might go out further in time. i'm also completely different as far as my viewpoint in apple and this week's web extra is about apple. >> that put i sold for 15 cents, sat and debated it for a while. so to me, when i put these trades up, this is put it on and forit, if i get the 5% move, i'll be happy. >> let's wrap this up with stocks versus options here. some consider that insane as shorting stocks carries unlimited risks. dafr ago dan's put spread,

that's the magic of option. what happens in vegas stays in vegas unless you are the prince of wales. nude photos -- yes. nude photos of prince harry's wild night have been burning up the web and sending tabloids into a frenzy. it also sparked up a new campaign for las vegas convention and visitors bureaus. brian shactman, authority about vegas and adult freedom has the story. >> thank you so much. you call it the code, what happens in vegas stays in vegas, it was an epic marketing campaign. everyone follows prince harry's poor game of pool. how else do you get naked in naked pool unless you suck at it? it's also made vegas opportunity istic.

whoever took the photo clearly broke that code. at least 90,000 people have clicked so far. it's like a month's worth of people that go to excess. like one of the clubs he visited. the stock market. a basket of four casino stocks didn't fare well today. all down double digits. that's hard news, melissa. back to you. >> thanks for that. now that we know that vegas is still safe for adult freedom, let's look if it's still a good investme investment. let's meet with carter braxton worth. >> all my clothes on here. three different charts, all the same time frame. two year chart. it's important when this sold off and this is quite a sell off. 62 -- talk about a 40% decline. he has found this for the fifth time and each time it has responded quite well.

the same chart with a different way to draw the lines. same two year chart. we have now broken above the down trend since this important decline. and finally, what's the objective? we're long here? we have found support and will pull back to the torch the range that's been in effect. 48 to 50. 18%, 20% from here. time to get long on lbs. >> carter is bullish on this. mike, can you be bullish on the stock, but be fearful of what's going on in china? >> actually that's how we're going to try to play this. that actually is not where they get most of the revenues. most of the revenues come from macau and that area has seen double-digit growth for several years. over 17%. still getting double digit revenue growth.

historically low valuation for the stock. 18.5 times earnings. it doesn't seem unreasonably valued. they always have to be fearful we are 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. >> okay. so what is mike doing this week? he is simply buying a new call. this is about as simple as it gets. when you buy a call you want the stock to rise by more than the cost of the trade. that's where you see profits. below that level, you see losses by expiration. mike, walk us through the trade. >> all i am doing is buying the october 44 calls and paying 1.65 for those. expiration, need to be at 44.65 or above to make profits. i don't think the price of options is very high. i'm looking for opportunities to spread the trade. if lvs goes up, i will look for

opportunities to buy higher strike calls against it, if it declines, there may be other opportunities to spread by selling downside. >> i'm short term berish but long term bullish. part of the reason is that there was a rumor out that this would be the biggest market in history, the biggest month in macau. for the lodger term, make as a lot of sense. it means macau is coming back. mike makes sense when he says he's looking to spread this off. you always have to think about your exit strategy. i think that makes all the sense. >> using options when you think there is a rumor is a go ahead idea as well. a lot of directional activity in the networks, what happens? stocks up $3. will have doors blown off on the short side. when options are cheap, use the opportunity.

>> all right. let's do a little stocks versus options here. you can do pretty much whatever you want in las vegas, except this. except stocks versus options that you can only get here. you want to buy lvs, that will cost you $4,200678 the option will cost $165, and you won't have to apologize to the queen either. not bad. got a question? send us an e-mail at cnbc.com. we will answer it on our one-on-one web extra. we also post trade updates, check that out here is what's coming up next. so it wasn't quite a best buy. khouw and carter made a bullish bet, but this trade isn't looking so hot. can they execute a successful turn around? find out when we return. time for pump up the volume. names heating up the sizzle index this week. shall i put it on your card?

a major player in the direct banking and payment services industry. this week, investors bidding on the stock big time off news the company will be partnering with paypal. and they swiped up calls in week in hopes palling around with ebay will be good for the stock. who is it? the answer when "options as" returns.

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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? discover financial. over nine times the average daily volume for calls. time for total recall. we look at trades that are neither winning or losing and give us the next move. khaou and carter made a bullish trade on best buy. shares have cratered, but they haven't lost much money and here is why. >> on options actions, it's how we find the best deals. risk less so we can make more and that is just when khouw and carter tried to do with a bullish bet on best buy. he thought the big box retailer would be electric. >> they have discounted to much. >> better buy me some best buy mike thought but getting long

would have cost you over $2,000 at the time of the trade. instead they bought the january 24 strike call for $1.50. to make money, mike needs best buy to rise above the call strike price by more of the cost of the trade, or $25.50, by january 2013. but $1.50 doesn't sown luke a bargain to me. mike, let's do this for less. >> sell the 18 put. >> that's what we're talking about. 18 strike put for $1.75 and created his risk reversal. he did more than that. found himself a deal. >> did i hear someone say deal? >> you certainly did. and here is why. the $1.50 he spent buying and the $1.75 he earned. mike took in a 25% credit on the trade. instead of needing best buy to

trade above $25.50 to make money, he now sees profits whether the stock goes up, down, or nowhere at all. >> that's just to good to be true. >> there is a trade off. mike is now obligated to buy it for $18. even if it falls well below the level. he wouldn't see losses until best buy stock falls below the put strike price by more than the 25 cents he took in, or below $17.75 by january expiration. below that on the hook for more losses, since the time of the trade, after an initial rally, best buy shares have fallen 17%. meaning they could be on the hook for losses. now options actions biggest fans are tuned into the show and they just want to know one thing. what will these pitch men do now? before we answer this, perhaps this will make us all feel a little better. had you bought 100 shares of

stock at the time of the trade, would you have lost about 14%. mike's risk reversal netted him a $25 credit. if he closed today, he would look at a total loss of about 200 bucks. here is where it gets interesting. if best buy can stay bo the 18 strike put, mike's off the hook for losses. volatile stock making up 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 january expiration? >> this is an interesting one. it has been so volatile. the very next day up 22% and now back to below where we started. basically walking away. if one was clever to grab and it go, okay. but now it's worse than where we started. walk away. >> walk away. what would you do, mike? >> actually i'm not going to sit here and make myself feel good about this trade. this turned out to be pretty lousy and there are a couple of reasons we don't want this any more. we felt comfortable doing it

because there was a bid for the company in hand and they said they had the financing. then they came out and said it was a 75% debt deal. they haven't done since before the credit crisis. then they appoint a new ceo then they stopped the buy back. i'm not sure where the bottom is in the stock and maybe we found it but i'm not interesting in finding out. a lot of the things that gave me conviction are now gone. sometimes we have to own up that we made a bad choice. i made a bad choice and i'm going to cover the puts. >> you look shocked. >> you want to lay down here? you want to talk about this? you seem all busted up. a funny thing. for them to announce a new ceo and give the horrible earnings that they did, you know, i don't know how you expect to fend off a hostile bid that way. these guys are crewed, big box guys in general i think are going the way of the to to.

>> as a reminder, you want trades follow us on twitter. dan, of course, regular updates on twitter @risk reversal. >> coming up next pass, the final call, the final word from the options pits.

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>> how is this for a fish tale? a 28-year-old reeled in a 12 foot monster marlin in a competition in hawaii. it took exhausting four hours to haul the fish in the boat. because she had help reeling the pa beast in, she was disqualified from claiming the prize money, leaving some questioning whether the rules are a little bit fishy. time now for the final call. scott? >> mike is exactly right. it's okay to be wrong but not for that. >> i want the september xlk put spreads. >> mike? >> yeah, i also like the xlk trade. this is exactly the type of situation where you want to get a nice bit of leverage off the trade. this offers a decent bit of leverage. keep your eye out for options that are relatively inexpensive. like las vegas sands. still danger there, but this is the way to do it. >> our time is expired.

i'm melissa lee. more options action at 5:00 eastern time. "money in motion" up 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.