let's stand in our truth from this second forward. now you know. and until next week, there's only one thing that i want you to remember when it comes to your money and it is this, people first, then money, then things. now you stay truthful. bye-bye. this is "options action." tonight apple's pain your gain. shares of apple continue to fall but dan nathan has a trade that can triple your money in one month and help you get your money back. he'll break it down. plus talk about a blockbuster netflix trade. carter and coe are teaming up for a trade that can make money if netflix shares go up, down or nowhere at all.

they will show you how you can make money, too. and which of these stocks do options traders see paying a biggest dividend? scott nations goes digging for more dividends. the action begins now. live from the nasdaq market site in the heart of new york's times square. i'm melissa lee. these are the traders here in times square. the dow closing at the high of the day and finishing up for the third straight week. the s&p also in the green. the only stock america is watching tonight is apple. the national nightmare continues. apple is lower in nine of the last 11 sessions. it is in bear marketer torrey. it is below the death cross. people are panicking. mercury is in retrograde. the question now is, is this a broken stock or the buying opportunity of a lifetime? let's get into money and find out. dan, you are bearish on apple. it is important to understand why you think the stock is down before you can say whether or not it is a buying opportunity. >> this week was interesting. >> there were so many reasons. if you thought that this stock would be down 9% on a week and the s&p was basically flat to up a little bit.

that is pretty crazy. there are stock specific things going on here. having nothing do with the broad market. to me we had tax selling and a whole host of reasons that came up this week. really, at the end of the day, i am going to break it down. it was not important what they are but the fever is broken in the name. the euphoria is done. the story is broken at least on this euphoric run. since the bottom in 2009. that's what investors have to come to grips with. here is a company that is facing what most every other hardware company has faced, margin compression and now they are starting to miss earnings. the law of large numbers has just kicked in here and i think investors are going to have to get used to a 10% grower. trading at ten times. >> the question is it now priced accordingly or is there more down side because it should anticipate earnings growth? >> i think what you are seeing is selling pressure. i don't know that it is unreasonably priced based on fundamentals here.

one thing that is really unusual is how volatile the stock is. when you consider there's $120 billion on this company's balance sheet. you wouldn't expect to see it moving at a 40% annualized volatility. having 2, 3, 5% moves. it is really elevated the options premium. i look at the stock and think where this stock is concerned i would not use options to make directional bets. i would want to be short options in apple at this point. >> using short option positions to take a directional bet. you have to define a risk because mike is absolutely right. this thing has really fought around. on wednesday it lost more market cap than 420 of the names in the s&p 500. it really had a run here to the down side. i don't think the down side run is broken here. i think it is still pretty ugly and the momentum is to the down side. i think the major reason is something that dan mentioned, that is margin compression particularly in tablets. if apple has more competition in

a tablet space then they are not going to make as much money across the platform. as they might have hoped. there's more room to the downside. >> what is key to understanding the trade that dan is going to understand is the point that you made. the volatility in apple is extremely high. not just that, i believe it is approaching record levels at this point. >> it is. i think the thing that you should be thinking about here is a really good example. i was looking earlier this week, when the stock was $550 the jan 550 call was like a 7% buy. you can sell that for almost 7% of the stock price. that is staggering. you can sell straddle for 14%. those are huge, huge swings in the value of this enterprise. >> one of the things we were talking about the cliff, i want to look at december and isolate this time period. i think there's more room to go. the technical set up like scott said, the momentum is broken and it is lower. to me when you look at 500 that low from november 16th was 505. there is nothing below that until 450.

this could start to crescendo. to mike's point, i do not want to play with apple options. the premiums are too high. you will not make money on a directional basis. buying short dated options. >> what are you using? >> a put spread. i want to use the qqq which apple makes up about 17%. of the top eight technology names in the basket make up 55%. my guess is that some of the apple negative sentiment could actually move towards like google, amazon is still up a lot. oracle is up a lot. i want to use a put spread in the qs. and december quarterlies. >> so dan is bearish. he is buying a put spread one of the most common strategies. for making a bearish trade. it is always good to crack open the play book and review the structure. buy one put and sell a lower strike put of the same expiration to cut your cost. how do you make money? you want the stock to fall to the strike of the short put where you make the most money and where your profit as a capped.

i want to make one other point. >> we would not short this stock here. the way that stock moves from 505 to 590 in a week and a half is danger time. i want to use the qs. i think it's a better risk/reward. the q was at 65. i bought the december 31st quarterly. 64, 62 put spread. i paid 55 cents. i bought one of the december 31st quarterly for 95 cents. to reduce the cost i sold one of the december 31 puts against it for 40 cents. so the max cost was 55 cents. that's my max gain. my max profit is $1.45. between 6345 and 62. and my max loss is 55 cents between $63.45 and 64. that is about a dollar away. it gives me a 5% ban where it can get back to. if apple does break. >> key is there is a belief that the rest of the basket is going to go lower. to offset -- >> i think that is a really good point because one of the names

we saw highlighted is amazon a stock that we think of as having a very stretched valuation. concerns could spread and it would drag the volatility of the index higher. we have other factors that have been beaten to death. that could potentially create pressure here. i think making a bearish bet in the index is a good idea. the other thing i would point out, close to a quarter of the distance between the strikes, we're looking for a good risk/reward relationship. we're close to an ideal one here. >> i also like to think dan is branching out because a lot of the names could have problems. microsoft could have problems. if we get negative earnings preannouncements that aren't so good or a problem with the fiscal cliff then the whole index is pressured. maybe apple's fortunes would be better had they included this in their devices. stocks versus options. think shorting the broad market is safe? think again. stocks tend to go up over time.

if you are short them you could be on the hook for unlimited losses. dan's put spread offers the payout and risks just 55 bucks. let's move on to our next trade. shares of netflix in the news. first a groundbreaking deal with disney. yesterday the streaming giant received a wells notice over comments company ceo made on facebook. just imagine that. the story that manages to combine the words facebook, disney and netflix. it's like the holy grail for financial cable news. the question now is what about the stocks? let's call to the charts and get answers with carter braxton worth. of oppenheimer. hey there. >> all the same time frame and then a comparative chart. here is netflix over the one year period. what is important is that a well defined down trend is broken. you can see the line. you can see the break above the line. the next chart same time frame draws the lines a different way. it is also the one year chart. it shows the symmetrical bottoming out process. it shows the neckline here and

we are toying with a break above the neck line. we close at 86. we think it is going to about 100. the next chart it's the same time frame, nice rounding bottom. anyway you cut it, this stock is bottoming out. take a look at the comparative chart. this shows netflix relative to other so-called left for dead but recently coming to life names. rim, netflix, green mountain coffee, nokia. first solar. literally, huge correlations coming off the bottom. you want to be in things that are working. this stock is working. we think it goes to 100 closed today at 86. carter, thanks for that. mike, what's your view? >> the other term we can throw this potpourri of buzz words in is carl icahn, an activist investor. >> i think if you had to take a look at the fundamentals of this company it will be hard to make bullish case here. we're talking about a company trading at 100 times earnings,

a bullish choice here. forecasting to go about 12% year to year. what does carl see in the company's future. he's obviously, hoping as he often does could be an amazon. i love the company service. i don't like it's valuation. but amazon stock is a currency where they can acquire netflix. there's one or two companies in the world that could be true, that you can use your stock. that combined with the disney deal that they've forged here, i think that obviously created a little buoyancy in the stock. i talked to people and a lot of people think it is going to fill the gap to 100. if you are going to play along with that then that is fine. valuation is probably not the most compelling reason. >> mike is selling a put. usually we buy puts on the show. when you sell a put you want the stock to stay above the strike of the put that you sold before expiration. that allows you to keep the

money you took in for selling it. because you are short the put you could be forced to buy the stock at that put stock price even if the stock falls below that level and that could mean, of course, losses. some people think of the strategy of a limit order for which you get paid. you have to be careful. mike, what is the trade in >> i'm looking at selling the january 80 puts for 4.10. the idea is if the stock falls i could be compelled to purchase the stock at $80 net of the $4 i collect. i'm actually going to own it around the 76 level. that is almost stand still yield of 5% over 40 days. the idea here is i'm trying to capitalize of the fact that options premiums are bit up. it has all this volatility and potential catalysts driving premium up. this is a stock that has been moving around quite a lot so this is one of the ones where you hang on to your hat. >> he is looking at you like you have two heads. >> i wouldn't sell that put with mike's money. the way this stock has been moving around this goes back to what we were talking about with apple. it is hard to make directional

bets with a stock with high volatility like this and get the direction right. and really make a heck of a lot of money. i don't like the put sale because i think the range is 60 or 100 potentially. on the next -- to me the risk/reward -- >> the question isn't whether or not you think there is down side risk to either purchasing the stock or trading options because there is. this stock really does move. if you buy the stock at $85 you have a lot more to lose than if you sell the put for $4.10. the stock goes side ways from now until expiration. >> quickly, scott, break the tie here. whose side are you on? >> i am on your side. i think the way to look at this is this is a limit order to buy the stock but it eats up margin because you have to be ready to buy the stock. this is an investment strategy. not a trading strategy. >> one more time on the stocks versus options here. want to buy netflix it will cost about $85 a trade. the only way to make money is if the stock goes up, of course. in mike's put sale he can make money whether the stock goes up down or stays flat. he may have to buy netflix for

$80. with the money he collected he gets along at $75.90. we will see carter later on. meantime have a question, send us a tweet. the address is --@cnbc options. we'll answer it on optionsaction.cnbc.com our website has revamped. you will find great trader blogs, educational material and so much more. check it out. here is what is coming up next. now there is a winning bid. mike and carter made a bullish bet on ebay. with the stock up 9% they have nearly doubled their cash. how did they do it? find out when "options action" returns. time for pump up the volume, the names that were heating up. need a neighborhood pharmacy this drug store chain is at the corner of happy and healthy. the stock bubbled in anticipation of a special dividend. options traders rushed to stock up on calls. who is it?

the answer when "options action" returns. 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 were options traders pumping up the volume this week? walgreens. it was nearly two times the average daily volume. you heard how walgreen calls were active. scott, do you think this has to

do with the special dividend buzz going on around the markets? >> that is certainly what is going on here. part of it. call buyers looking for likely candidates to issue special dividends. walgreens has big insider ownership. it's a great name. some of the companies for example oracle, walgreens might issue a special dividend. time for the upside call where we take a look back on some of the winning trades and give you the next move. a couple weeks back, khouw and carter got bullish on e-bay. shares have rallied some 10% but made seven times that and here is how. on "options action" it is how we make winning bids, risk less to make more. that's what coe akhouw and cartd on e-bay. heat index that is what they did with their bullish bet on ebay. carter thought ebay shares were worth clicking on. >> we like it here. >> if carter likes a stock it has to be worth a bid mike thought. buying it outright 100 shares could set you back almost 5 grand.

so to spend less mike bought the january 50 strike call for 2.25. to make money, mike needs to raise above the price by january expiration. shelling out $2.25, we ain't bidding on rare art here, buddy. >> $107 million. how much? sold. mike, how can we spend less? >> i'm going to sell the 55. >> now we're talking. mike managed to cut his costs by -- enough with the double-talk. what is mike trying do? make money easier. between the $2.25 he paid and the 85 cents he collected, mike managed to cut his costs by more than a third to just $1.40. instead of needing the stock to rise,

now mike sees profits of ebay shares rise above the 50 strike call by more than the $1.40 he spent or above 51.40 by january expiration. but there is a tradeoff. by selling the higher strike call mike capped this profits. to the difference between of the strike of the call that he bought and the strike of the call that he sold. since the time of the trade shares of ebay have risen by 8% making this trade a winner. now, khouw and carter must make a choice. stay in the trade and hope for more gains or close up and find the next stock to bid on. >> "options action" biggest fan. only wants to know one thing. what will these two do now? >> before we answer that let's see how much money was made had you bought ebay at the time of the trade, you would have made 8%. not bad. it cost 1.40. sold today for $2.35. that is a return of almost 70%. what should they do now? let's go back to the charts.

and carter, what do you see? >> i think you have to walk away from this. it has three quarterly gaps and the stock is extended. take the money and run. >> the stock is extended. mike, what do you do? >> there's another issue too. we're closer to the strike we're long rather than when we're short. what ends up happening now is we are starting to decay away. number two, based on it's decaying is exited trait. >> exit the trade. do you think that is a wise move especially going into the holiday shopping season. >> it could be. here's a stock, making five, six, seven-year highs. this is on a lot of people's buy lists. that's my view. when you look out from 2013 there is expected earnings growth of about 17%. it trades it about 17 times earnings. there are very few stocks you can see. >> that's the point. if you want to get long this thing or roll up and out at that point that is probably the way. what you should do going into the holidays is take the money and run and look for strategic opportunities.

to get back in on the long side. >> the stock would have to rally $3.25 to get to the max profit on this trade. if it is already overextended how is it going to get that high? i think mike is right. the math is working against you. i think it's time to take your money and run. >> the way you frame it, it sounds like you like the pay pal business on a fundamental basis, but because of where the stock is you want to take the money and run. last week, you had a bearish trade on visa. it seems like very similar companies. at least on the surface. they're both payments -- pay pal is ebay. >> these guys are in wonderful businesses. both of these companies are. there's no question about it. to me when i look at these things they are both pretty stretched. we have seen a lot of optimism for a long period of time in both. that doesn't necessarily -- you can have a good company. doesn't mean it's at a good price. that is what we are looking for is possibly better price. >> e bay is up 70% year to date. as we talk about the cliff in stocks that could get cliffed, if we go up to the end of the year, you may want to take profits just for

tax reasons if you think capital gains caps are going up. >> i don't want to catch the last 10% of a move. that ends up being an expensive 10%. >> you mentioned other opportunities within this space where would you look to? >> i think these two guys are occupying the sweet spot. that's really the fact. there aren't many good opportunities outside of it. the valuation is getting to levels that are budding up. against their growth rates. that's usually when you look to exit positions financially. >> reminder as we head to break if you want updates be sure to follow us on twitter. dan, of course, posts regular updates of his trades on twitter as well at risk reversal. finally if you are on facebook stay posted on our trades at facebook.com/optionsaction. our thanks, of course, to carter braxton worth. we'll see him next week. final call is after this as well as an unbelievable video you will not want to miss. back 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.

♪ sit, stay, drive. from learning to heal, sitting behind the wheel a shelter has achieved the impossible, teaching dogs to drive all part of a publicity stunt to show that rescued dogs can be trained to do extraordinary things. these pups can see or brake and change gears. that doesn't mean you should let rover drive the land rover. that is tonight's optional viewing. how does he reach the brakes? >> how does he keep his eyes on the road? >> time for the final call. the last word in the options pits. scott? >> this week's web extra is similar to dan's trade how and why to buy a put spread in apple? >> dan in. >> in apple, i'm not in the camp of playing with directional long premium trades. i want to use qs. i think it makes a new low. >> mike khouw? >> the fundamental story in netflix is not that great. if you are thinking about buying

the stock here, selling the put is a better odds play than doing that. >> looks like our time expired. i'm melissa lee, thanks for watching. for more options action go to our website. w nbc web -- cnbc web web don't go anywhere. "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.