union. >> who knew that? >> 27 countries in it. >> i stand corrected. >> the odds were on your side. >> that does it for the "closing bell." thanks for watching. "options action" will start right now. this is "options action." tonight well bid. how would you like to triple your money on ebay in just three months. it is not online but it is the trade on the tech giant. they'll show you how you can make money, too. call it the golden touch. the trade on goldman sachs to turn time into money. why are the options traders reading up on barnes and noble calls. the action begins right now. live from the nasdaq market site i'm melissa lee. these are the traders here in times square.

financials getting floored despite earnings from jp morgan and wells fargo. as we head into the busiest weeks should you bank on more trouble. there is a price action on jp morgan and wells fargo does it bode poorly? >> absolutely. here is one thing about it. somebody robs a convenience store they peel out. they are peeling out of financials right now. stock went from 7 to 9.5 in about two months. bank of america, jp morgan and financials where we have seen nothing but bullish call buying trying to get the long bet on financials. it was a mixed bag. we started seeing increasing amounts of bearish bets people letting go of the equity. i look at this and i think people have had their winners.

low revenue down. we had markets down much more. as for jp morgan everything without any sort of distinction between them. >> we have talked about this on the show before. a lot of times jp morgan because it is considered best of breed and we had jamie dimon strutting himself in washington. this guy looks like he has amazing control. don't forget there were some self inflicted wounds this year. it has rallied all the way back up to the gap from the april gap on the london wail losses. there is a lot of good news in the stock. at the end of the day they didn't do enough to retest the 52 week highs. >> dan makes a great point about jp morgan. loves to talk about the fact that once a stock does that people who are long and taking the pain are happy to be made

100% full. you shouldn't be surprised to see jp morgan come off. we just saw the chart today. option buyers there were heavily weighted towards puts despite the fact it is a friday. options were through the roof today. we saw about three puts bought for every two calls. people are expecting the financials to have more trouble. >> the final point, wells fargo and jp morgan is thought of as an investment bank. next week it is pure investment banking and the capital markets haven't been that great. equity trading is just not a great business to be in right now. you take a look at a lot of the businesses and you think that is presented with a lot of head winds. i can't feel optimistic about them. >> let's talk about goldman sachs down 1.5% on the back of jp morgan's earnings. the businesses aren't 100%

comparable. overall revenues down 1%. >> these guys have also distinguished themselves from the money center banks. there is not a bank that will do less bad in a difficult environment. this stock has had an amazing run back up from -- it was below 100 a couple of months ago. i would expect consolidation here. short period of time. let's not forget we are seeing rotation in other sectors. we were talking about on fast last night some of the things that contributed a great deal of performance to a lot of portfolio managers. these stocks are up a lot. goldman sachs is up 33% year to date. if you are nerving about potential head winds in november with the elections and that sort of thing it may make sense. what we are seeing today is taking profits. >> financials are up about 20%.

certainly one of the big winners so far this year. dan is putting a put calendar on goldman. we crack open the play book. in the strategy we sell the daily put and use the money to buy the long on the same strike. you want the stock to be above the strike or put the strike before the expiration. so dan why don't you walk us through it? >> we use this last week. it worked very well for earnings. i want to do it again. we just showed this chart. it looks like a little bit of double top. there is a good bit of resistance. one of the things i wanted to do today because next week's october expiration there are weekly options. and they are pumped. they are elevated in volume terms for this event. i want to sell the october regular 1.15 puts and use the

proceeds to buy the november put. i bought the october/november 1.15 put calendar for 1.40. i told one at 50 cents and bought one of the november for 1.90. my max risk is 1.40. that is a little less than 1% of the stock. i want the stock to not do a lot. i want it to go down a little bit and go up a little bit. i want the octobers to expire worthless and own the november 115 puts. at that point i will look to spread them. i am looking at november because i believe if obama does win in november i think financials which have come a long way in a short period of time could come back in. there is a bit of romney enthusiasm. >> options traders love these trades. there has been news in the space out already which means the potential for some systemic

surprise in the space is limited. goldman sachs not implying the biggest move they have had in the past. you are risking very little on a trade like this. i like it. >> yo don't like it very much. this is not a bearish trade because once the stock gets below that strike and it is only about 4% away then you lose the maximum amount of money. and then it becomes bullish. >> if this stock gaps to 115 you are going to make money. if it go business low that what happens? >> this trade is not going. this trade down to $5. i think that is the important point. >> on these clanter spreads you are not looking to get a sign on the option. one or two things happen. either it expires out of the

money or you take it off. if it gives you the opportunity to take it off. >> we'll see about it. >> it is good to put out the possibility so you are fully aware. >> you are not making short selling a put. you are only risking the 140. i'm trying to get the stock and go to 115 and have a ball. i'm going to spread to november. >> let's button this trade up with stocks versus options. goldman sachs stock for the muppetts of the world. the most you can lose is that $140 he spent. let's talk technology because the banks are not the only sector in focus next week. it is a make or break time for technology as names report results. ebay has caught the attention of

traders. option traders are predicting a 6% on earnings. in what direction? so let's call to the charts and try to get answers with the man everybody wants to bid on. >> the last chart speaks to why this isn't a tech trade. so here is the one you are charting. obviously it is orderly. if you can draw a straight line in this business you are okay. well defined straight line. it is on trend. let me show you the same chart without the lines. the same chart. these gaps, april and then of course three months later july and then three months later. these are quarterly beats. the presumption is you get a big move. we think it will be the upside as the last two were. the third and final chart is really telling. although ebay appears in the s&p 500 software systems composite

it is really not that. it doesn't track with retailers and it doesn't track with google or amazon. 95% correlation is visa and mastercard because pay pal is such a big part of the growth of this business. there is the chart of visa and ebay. we think you go to the earnings on the long side. >> ebay maybe categorizes technology but business doesn't say technology. ebay is in the category of winners. the stock is up 57% in an environment where we are seeing rotations out of winners this might be vulnerable. >> i agree with that. i think it is a phenomenal point. it is very, very hard to start making bullish bets or getting into stocks after a run like this one. i would never recommend doing it with your money or mine. this is a company is trading about 20.5 times earnings. there are reasons for that not the least of which is we are

looking at two consecutive years of double digit revenue growth and i think that is what people are looking at. it does justify a slightly higher multiple. i'm not inclined to start buying the stock. >> you are buying a call spread. it is always good to refresh how you do it. let's open the play book. this is a bullish where you buy one call and sell another to reduce the cost. you want the stock to go to the high strike price. walk us through this trade. >> i'm looking to buy the january 50 calls and pay $2.25 for those and sell the 55s against it and collect 85 cents a net debit of $1.40. i'm going to have to go through the $50 strike by at least $1.40 before i see money. one reason i'm selling the higher strike option is in the case of ebay we are dealing with a situation where the stock is

moving. it is moving in a very narrow band at a diagonal line. it is not exhibiting a tremendous amount of volatility. i also as i have pointed out not going to buy the stock but if i'm going to try to make a bullish bet into earnings this is one of the ways. >> would you make a bullish bet into earnings? >> that chart is very interesting. mike made good points about the valuation here. this stock is tracking at valuations higher than financial. i would probably wait. i will say one thing, the october weeklies are really up. it is 20 points over october. >> i ink the important thing to take away here. it reduzs the whole thing by almost 40%.

>> you did sound reluctant. you wouldn't want to buy the stock so you would do this. >> i would be bullish enough -- it is rich relative to itself. it trades around 19 times earnings. there are some to work out. it is going to decline in about 18 months. that is the give and take we are trying to work. >> let's look at the stocks versus options. want to buy ebay pretty good one. 100 shares would set you back $4,800. the call spread would cost just under $100. got a question send us an e-mail. we'll answer it in our web action after the show on our

website. you'll also find trader blogs and trade updates. maybe should have left wells enough alone. dan made a bullish bet on wells fargo but the stock didn't go far enough. can dan find a way to make bank? find out when "options action" returns. [ male announcer ] the markets keep moving.

make sure the news keeps coming with thinkorswim by td ameritrade. use the news links breaking stories with possible breakout stocks, options with potential opportunity, futures and forex with in-depth analysis. it's an all-you-can-eat buffet for all things trading. thinkorswim by td ameritrade. it doesn't just deliver news. it's making news. trade commission free for 60 days, plus get up to $600 when you open an account. 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. thinkorswim by td ameritrade. trade commission free for 60 days, plus get up to $600 when you open an account. where are options traders pumping up the volume this week? barnes and noble. >> barnes and noble calls are busy this week. >> we saw 8% thanks to good news

for their nook e-reader. people think that the run is going to continue. >> time to do something we have not done in a while. it is time to get called out. we take a look back. dan made a bullish bet with wells fargo. >> it's a motto you can bank on. risk less so you can make more. that is just what dan tried to do. dan thought wels fargo would go far. >> here is a stock amazingly stable. >> 100 shares would set him back $3,600. dan instead bought the january strike call for 80 cents.

or above 38.90 by january expiration. 90 cents? we are trying to bet on a bank here, not empty out our bank accounts. >> i sold the january 13, 33 put. >> now we are saving. so to spend less dan sold the january 33 strike put for 80 cents and created his risk reversal. he did something better. he made making money easier and here is how. between the 90 cents he spent buying the call and the 80 cents by selling the put dan is spending a dime on the trade. instead of needing wells fargo to trade above 38.90 he needs it to be above 38.10 by january expiration. there is a tradeoff. because he sold that put dan will be forced to buy wells fargo stock at that strike put

price even if it falls below the level. since the time of the trade wells fargo shares have fallen 5% making this trade a loser. but all is well that ends well. options action fans want to know one thing, what will dan do now? before we answer that maybe this will make us feel better. had you bought 100 shares of wells fargo at the time you would be looking at a loss of about $250. had you bought dan's options trade you would be looking at a loss of about $100. here is where it gets interesting. if wells fargo can stay above the strike of a put that he is short he is more or less the on the hook for losses. earnings is a volatile time. >> here is one where on october 2 i managed this position. i was getting nervous about it. we tweeted it out so do follow us at cnbcoptions.

i covered that put. when the stock was higher it was 34.70. i'm still long the calls and i'm going to look for an opportunity if the stock rebounds here to maybe spread the calls and define the risk better on the trade. i immediately didn't like this trade a couple of days after it. >> so wells fargo finished the day today lower by 2.5%. carter has a bullish from wells fargo. dan wants to know whether or not we will see a bounce in this stock. >> there is weakness to take advantage of. meaning the stock dropped and gapped at the open. it found support. all day long it was climbing back. the low print at the open. stock closed at the middle of the range. >> mike, would you agree here

given what wells fargo reported today? >> if you are inclined to agree there are a couple of things that happen. options premiums drop. they released the news. i am not inclined to be for example short puts in the financials at this point. if you are inclined to make a bullish bet i encourage you to buy calls or call spreads. >> our thanks. be sure to follow us on twitter. dan posts regular updates of his trades. if you are on facebook stay posted on our trades throughout the week at facebook.com/options action. we have the final call next. [ male announcer ] the markets keep moving. make sure the news keeps coming with thinkorswim by td ameritrade. use the news links breaking stories with possible breakout stocks,

options with potential opportunity, futures and forex with in-depth analysis. it's an all-you-can-eat buffet for all things trading. thinkorswim by td ameritrade. it doesn't just deliver news. it's making news. trade commission free for 60 days, plus get up to $600 when you open an account.

[ male announcer ] trading's 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. thinkorswim by td ameritrade. trade commission free for 60 days, plus get up to $600 when you open an account. a man was walking in the park when he stumbled upon a pair of stags. the buck didn't stop there. he chased the man in circles for a few terrifying minutes. the man was able to climb on a

tree and hang on for dear life. that is tonight's edition of optional viewing. time for the last word from the options pit. >> how to be bearish using options on a low price stock. i want to use the elevated volatility in october and set up to own puts november. >> even though we don't talk about it as much now q eternity is still with us. i wouldn't sell puts on them. if i'm going to make a bullish bet that or ebay. >> looks like our time has expired. i'm melissa lee thanks for watching. we will see you back here next friday. "money in motion is up right after this. [ male announcer ] the markets keep moving.

make sure the news keeps coming with thinkorswim by td ameritrade. use the news links breaking stories with possible breakout stocks, options with potential opportunity, futures and forex with in-depth analysis. it's an all-you-can-eat buffet for all things trading. thinkorswim by td ameritrade. it doesn't just deliver news. it's making news. trade commission free for 60 days, plus get up to $600 when you open an account. 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.