remember, and it is this. people first, then money, then things. now, you stay safe. bye-bye. this is "options action." tonight, amazing apple trade. how would you like to turn time into money? it ain't on iphone 5, but it is dan nathan's trade on the tech giant and he'll show you how you can make money, too. an options strategy that can quadruple your money in bank of america in just one month. he'll break it down. and why were all those option traders gaga for gilead calls? the action begins right now. live from the nasdaq market site in new york city's times

square, i'm melissa lee. these are the traders here in times square and in beautiful los angeles. think the market was quiet? think again. huge moves today for banks and materials. the rally is finally broadening out. central banks seemingly in the bag, how long can this last? let's find out. of course, among the big gainers of the week, bank of america, up 10% this week. freeport, caterpillar all having some huge days. are you finally a believer? have you come around, dan? >> i mean, listen. the price action this week was amazing. to me it's the technical setup is what really happened about. we talked about it earlier in the week here. you know, guys were gunning against this double top. you know, it acted like a coiled spring. it didn't take a heck of a lot of news. one point here. what did the ecb do? they announced one of the most telegraphed bond-buying plans that were helping to stop systemic risk to the system, okay? >> uh-huh. >> so today we have this -- we basically the market consolidated a little bit, and we saw the names that you talked about. >> right. >> we saw the broadening out of

financials, commodity-related names, but it didn't have a whole heck of a lot to do -- >> i'm going to push back. because when we heard dragi yesterday say we're going to do exactly what was telegraphed in the market yesterday, you can look at it your way or mario dragi has delivered on the promise. they finally got what they wanted. >> take the systemic risk out of their banks and sovereigns. to me it's a very different story. you had china, what did they do? stimulus overnight. the shanghai composite was up 3.7%. and those commodity names were ripping. they're two separate things. the jobs report this morning didn't speak to any sort of growth. >> all right. scott nation, i'm going to go to you -- >> melissa. >> mike, go ahead. >> i was going to say, i think you have a good point because what's happened in the past when the ecb and everybody has stepped in and said we're going to do something is they've chronically disappointed. light on details or everybody says that's just not enough. basically we've heard in the

past don't fight the fed. are we also going to fight the ecb and the bank of china? it doesn't make much sense to do that, and i think that's what equities were telling us this week. i've been highly skeptical. even the trade stocks were up. there was no rotation, i think less than 10% of the s&p stocks were not up week over week. i think that's pretty extraordinary. even bad news is treated as understood news because that means the fed is going to step in and dormer as well. >> the market can really do no wrong here. dan says there wasn't a heck of a lot of news. i think that this was the news that everybody was waiting for. i think it was huge. and i do think the broad markets told you that that was the case. >> right. >> the s&p settled on the absolute tick yesterday. and it did exactly the same thing again today. i don't know how much more bullish you can get. there was huge call volume and some pretty speculative names. we're going to talk about bank of america. but the xlf, the financial sector etf, saw five calls trade for every put.

five calls trade for every put. incredibly bullish. bunch of call buying. a bunch of bullish ratio spreads. it's huge. >> there was massive call selling today. we saw bank of america byers, morgan stanley buyers. and we saw people coming out of them today in massive size. so it's kind of like, you know, listen. some guys are gaming this sort of stuff. there's been a lot of data points to get in front of. i would just make one last point as we head into this fed announcement. i mean, let's be perfectly clear here. the market is up 15%. the s&p at four-year highs. and the fed is a politically charged environment. they're going to go into a qe3, that sounds crazy to me. >> the only call selling i saw was part of a bullish spread. >> and last point here, dan, if you think that's crazy, you think most of wall street is crazy right now after today's jobs report. let's go deeper into the bank of america trade. talk about that massive call buy. where do you think bank of america is headed at this point? >> well, one thing i think that

dan just hit on, he is right. i think a lot of people were selling some calls. but let's not forget that a lot of people were buying them earlier in the week. i think you probably saw short-term profit taking on a lot of those trades. as scott just pointed out, we saw a lot of call spreads trading. i think it's hard at this point -- i would not with my own money sit here and say i think you ought to short financials here. i think that would potentially be suicide because it seems to be a one-way train. on the other hand, i also am concerned about macro economic factors. when i look at a name like bank of america which really we're not forecasting great results out of them next year. we're probably trading 14.5 times he wetime times earnings. you have to be careful if you want to try to press your bullish bets. >> it's a fairly simple strategy. but we should open up the playbook just to review the structure. it is a bullish strategy in which you buy one call, sell a higher call against it to reduce the cost. how do you make money? you want the stock to go to that high strike. that's where you make the most money and also where your

profits are kept. why don't you go ahead and lay out the trade for us. >> i'm looking at a $1 call spread, the october 9 call spread in bank of america. i'm going to spend 30 cents and then sell the other ones against it for a nickel. that's basically going to be a 25 cent debit to me which means that that $1 spread, i'm paying a quarter of the distance between the strikes. i think that's about where these options will be trading. this stock will announce earnings on the 17th. so you obviously have that catalyst built in. you know, this is a situation where if you've been in the stock, you've seen a heck of a rally. i think if you own the stock, you might want to consider selling some and putting it into something like this. this is one of those situations i'm also doing a spread here because what we've seen is index volatility. the price of index options has dropped more than it has on single names. it's one of the reasons why you can still use spreads despite the fact that you've seen the vix drop as much as it has. >> mike brings up an interesting point in terms of earnings coming in just a matter of weeks or so. but bank of america still has had a massive run even just this

week. week to date, the stock is up more than 10%. the top performer on the dow jones industrial average. at this point, dan, would you be more inclined to actually do what mike said you should not do, and that is short or effectively short the stock? >> yeah, it's a tough one. bank of america is a classic beta trade. you see investors pile into the stock and the options when you think you can get a big move. i was staring at the stock at 8:10 yesterday morning saying it was going straight to 9. the stock went up 30 cents yesterday and today. mike is suggesting a call spread that costs 25 cents. to me that makes a lot of sense to define your risk especially as you head into earnings. >> real quick, i'd do a completely different trade, bullish trade in the web extra on bank of america because the stock is below $10, you have to change it up a little bit. >> all right. let's wrap this up with a little stocks versus options. 100 shares would set you back about $900. mike's call spread purchase which is basically a stock replacement strategy meaning you sell your stock and use a portion to buy options. that costs much less as in $25.

and it could triple your money by october. let's move on here. seems like we've been talking about it all year. now it's just days away. we are talking, of course, about the unveiling of the highly anticipated iphone 5. after the iphone 4s was released, it was met with lackluster reveals. what can we expect this time around? cnbc's john fortt covers the name better than anyone. he's also making his "options actions" "debut. welcome to the show. >> thanks, melissa. this has probably been the worst-kept iphone secret ever. we've been seeing leaked parts all over the internet for months now. everything i've been hearing is that those parts are legitimate. expect a phone that's longer but not significantly wider than the 4s. expect redesigned earbuds, smaller dock connector. more significantly, expect the iphone 4s to stick around the 99 bucks and the 4 to be free with a two-year contract. that's important because for the first time, verizon customers

are likely to have the option to buy a free iphone. earlier this week i talked to verizon wireless cmo tammy irwin who said the new share everything data plans they've got are enticing parents to buy their kids more smartphones instead of those keyboard data phones they had before. and a free iphone gives verizon -- she didn't say this but i'm drawing this conclusion -- an opportunity to upsell teens and tweens into those family plans. she wouldn't touch the iphone. doesn't want to piss apple off, of course. i'd say don't completely dismiss the ipod news coming next week. ipod touch design hasn't been updated in a couple years. some of the leaks suggest it's more iphone 4-like maybe with a longer screen, too. then there's the ipod nano. that's probably the biggest remaining mystery here. rumor is it's getting redesigned, too. and my question is, has apple figured out how to squeeze a touch screen, an ios into the nano? if so, we could see our first devices below 50 bucks which

would pull a lot of young people into stores. and a couple things to like about that, apple's got the opportunity in the low-end smartphone market to attack with a free iphone 4 and new ipods and the other thing is ecosystem. i got to hold the new kindle fire from amazon yesterday. and it's impressive. but the best defense apple has against it isn't actually the ipad or the mini ipad, it's the iphone and ipod. if you've bought into apple's ecosystem with those products, you're less likely to want to switch and invest in a whole new amazon ecosystem, guys. back to you. >> dan, you got a question? >> you mentioned the new iphone is kind of the worst-kept secret out there. there's been a lot of rumors about the ipad mini and some potential press event in october. are you picking up anything on that especially in a week where we saw massive tablet introductions like you just mentioned from amazon? >> yes, expect it. apple's not trying to knock it down at all, and there are supply chain indications that it's coming. >> jon fortt, our thanks to you. have a great weekend. dan, what's your view on where apple goes from here and

what the true catalyst is? even though we're all looking for the iphone 5, maybe it's not that p >> that guy just nailed it. he laid it all out there. to me, i think that this phone, based on what the leaked photos we've got and some of the details, i think it's going to be disappointing. remember, the iphone 4 in the current form factor came out june 2010. last year they did the refresh of the 4s. and it was their better screen and the siri. it was a very evolutionary upgrade. what's going on right here is they're actually finally going to step into 2012 and give us a 4g-compatible phone. i don't get it. it doesn't really excite me. i've owned all of them. i'm not sure i'm running out to get it especially if the battery is going to stink. what i asked jon about, i'm more interested in that ipad mini and how they'll compete with lower-end tablets. >> near-term volatility potentially but longer term bullish based on the mini. >> like anything, when there's mystery about this potential

product, i think there's going to be excitement for the stock and that's going to help volatility. >> you are essentially bullish here. you're buying a calendar call spread, it's a little tricky so we've got to crack open that playbook. it's a bullish strategy where you buy a call and then to finance that purchase, you sell them your dated call of the same strike to reduce your costs. how do you make money? you want the call to fall just below on the first expiration but above the strike of the call that you're long on the second expiration. so this requires a bit of timing here, dan. >> so timing's the key here. to me, i think the stock is likely to sell off after next week's announcement, september 12th, on wednesday. but i want to set up and own calls for october for a potential ipad mini. when the stock was about $6.82, i bought the september 22nd expiration, october 700 call spread. so i sold one of the september 700 calls at $6.10, used the proceeds to help finance the purchase of the october 700 call for $16.60. so that cost me $10.50.

that is my max risk. so what i hope to happen is in two weeks on september expiration, i want apple to be below $700. i want september to roll off and expire worthless. and i essentially want to own that october 700 call for $10.50. reducing the cost of what it would cost me right now. because i think there could be a rant into ipad speculation. here's the thing. i'm not really bullish. i don't think the stock should be bought but it sets up well. >> mike, i've got to ask you what many at home might be asking themselves, and that is how much more supercharged is this sort of trade which is much more dependent on the right timing as opposed to just waiting for what you believe is going to be the selloff into the release of the iphone 5 and waiting to be put on a bullish trade going into the ipad mini? >> well, the thing about that, of course, is that then you would be dependent on making sure that the stock moves your way first before you can then put on a trade that goes in the other direction. this is actually a trade that should make money if the stock just sits here, which i think is one of the benefits and reasons why options traders like to be

long calendars in general, especially when you see term structures that are usually upward sloping. dan was alluding to the fact that these near-dated options should decay more rapidly as you sort of see a normalization in that event. i really think these are the types of trades options traders like to do because they are high probability trades rather than just sort of a let's sit and hope that we get a chance to make a bet our way. >> i think this one makes a lot of sense because dan is sort of bullish. and given the run that apple's had, you can't be outright bullish. you just get carried out if you end up buying stocks at the very top. >> you might be thinking if you like apple, why not just buy the stock? you don't need to ask that question. you just need to play stocks versus options. 100 shares, that's nearly $70,000 or roughly the same cost of a secondhand ferrari. really? that's it? dan's call calendar which puts time on your side offers significant upside and costs just over $1,000. it's a very interesting risk reward and reference to italian sports cars. send us an e-mail.

optionsaction@cnbc.com. we'll answer it right after the show. we've also got trade recaps there as well. so you do want to check it out. here's what's coming up next. talk about a dream of a trade. last week cohen carter got aboard boeing and have since doubled their money. there's even more left in the trade. is it too late to double your money, too? find out when "options action" returns. time for "pump up the volume," the names that were heating up options traders sizzle index this week. let's talk about drugs. this company is a big player in the bio pharmaceutical space and recently positive press about their hiv drug strategy has sent the stock to an all-time high. option traders agreed with the diagnosis betting that the company's hiv medication will be a prescription for speedy profits. who is it? the answer when "options action" returns. and you don't want to miss it with thinkorswim by td ameritrade.

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where were options traders pumping up the volume this week? gilead sciences. call volume over five times the average daily volume. welcome back to "options action." time for our segment everyone can relate to. time for "i need more cash!" where we look back on winners and see if there's a way to make them into bigger winners. last week cohen got on boeing, but they made much more, and here's how. >> reporter: on "options action," sometimes risking less to make more just isn't enough. sometimes you want more cash.

and that's the case with cohen carter's winning trade on boeing. carter thought shares of the aircraft company were ready for takeoff. >> boeing is actually the place to be. >> reporter: time for boarding, mike thought. time to buy into boeing. but purchasing 100 shares, that would cost him $7,000. so to spend less, mike instead bought the november 75 strike call for $1.25. now mike has the right to buy boeing stock at that strike price. or for $75 before november expiration. but in order to make money on the trade, mike needs boeing stock to rise above that call strike price by more than that $1.25 he spent on the trade. or in this case, above $76.25. anything below that level mike will see losses by expiration. but now instead of spending $7,000 to buy 100 shares, mike spent just $125 to buy that call. that's the most he can lose on the trade, but it gets even better. why is that? because if boeing shares do

rise, that call will increase in value faster than the stock, meaning more money in mike's pocket. >> yeah! >> reporter: since the time of the trade, boeing shares have jumped 2%, making cohen and carter winners. these high flyers are hobnobbing around the world living it up in first class. but guys don't forget about the trade, but fans only want to know one thing. how can these two make even more cash? before we answer that, let's see how much money was made. had you bought boeing stock at the time of the trade, you would have made 2%. not bad for just one week. but mike's call purchase cost $1.25 can be sold today for $1.60, and that is a return of 0%. 30%. and that is good in any time frame. carter is obviously not here. he's in the uk apparently partying with the prince of wales. he was good enough to take a break and tell us this. greetings from 30,000 feet midway between london and new york's jfk. we are long and strong boeing and are excommitted to the trad

for more than just a quick pop. indeed, we're looking for a move to the $80 level. and per chance, i'm enjoying the service boeing's product provides right this very moment. have a nice weekend, carter braxton worth. so nice of him to drop him a line. now we know what carter is doing. mike, what are you doing? >> yeah, i'm definitely sticking with this. it's true the stock's up 2%, but actually if you take it into context of how much the s&p has moved, actually it's relatively weak for a stock that probably has a beta of about 1.2. we would have expected a much bigger pop. part of that is probably the result of the news out of fedex earlier in the week which sort of weighed on the transport, the transport sector and maybe also on the airline manufacturers as a result of it. however, i still like this stock. fundamentally i think it's one of the better-run companies. i think i'm going to stick with this trade. it's too early to spread it. we're going to wait for an opportunity to get all of the money and then some out of this. >> scott, just quickly, i'm curious, yes, boeing tracks transmits very closely, at the

same time it's one of those fiscal-cliff stocks that could really feel a headwind should that actually happen. >> that's right. and i didn't like this trade very much because i thought china was going to be a headwind, to continue the metaphor. mike is right because he hasn't made all that he can in this trade. it's trailed the s&p a little bit. and there's no reason to take profits now. >> all right. and a reminder hee as we head to break, if you want updates on our trades, be sure to follow us on twitter @cnbcoptions and dan posts regular options of his trades on twitter. finally, if you're on facebook, stay posted on our trades from throughout the week at facebook.com/optionsaction. coming up -- >> you can like us, too, right? >> like us. yes, like us, of course, on facebook. that's given. coming up, the final call from the options pits. >> what's your best option? following us on twitter. get trade updates, breaking news and analysis. see what we see in realtime. so follow us on twitter @cnbcoptions. get more "options action"

with our newsletter delivered directly to your inbox. packed with exclusive information and analysis, this is the extra edge you need. it's free when you register, or visit the member center at cnbc.com. 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 seaweed is always greener ♪ if you like crab cakes, we have got the video for you. officials at the maryland state fair say they have broken the record for the world's largest crab cake. the crustacean confection contained 200 pounds of crab meat or roughly 1600 crabs. fairgoers clawed their way to the cake which was made into 500 sandwiches and served to the public. that is tonight's edition of "optional viewing." time for the final call. mike, kick it off. >> don't take your problems too quickly. stay in the boeing trade. >> scott. >> market had a great week, but don't go crazy. if you're going to get long, use options and define your risk. >> dan. >> i'm not a buyer of apple, but i like call calendars. >> our time has expired. i'm melissa lee.

go to optionsaction.cnbc. see you back here next week at 5:00 eastern. "money in motion" is up after this break. 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. trick question. i love everything about this country! including prilosec otc. you know one pill each morning treats your frequent heartburn so you can enjoy all this great land of ours has to offer like demolition derbies.

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