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before we say good night look at the day on wall street. the dow jones industrial average finished in positive territory. it was down for much of the session. 8 points up on the dow. nasdaq and s&p 500 down. my observation returns next week. thanks for being with me on "closing bell." have a half a long weekend. monday, markets are closed. enjoy your friday.

this is "options action." tonight, retail wreck. walmart posts its worst month in seven years. so is costc.o. next? dan has a trade to make you a lot of money. plus, metal melt down. some say 1500 is the next step. and breathing life into the billionaire brawl continues with carl icahn firing the latest shot. >> the fact that i don't like ackman is the strawberry on top of the ice cream. >> who's right about herbalife and how can you profit from the brouhaha? live from the nasdaq market site in times square i'm melissa lee. these are the traders putting a smile on the faces of some traders out there. the big story of the day is walmart. shares of the world's largest retailer falling 3% on reports of an internal walmart document described february sales as a

total disaster. the initial report said a mid-level executive who described february as the worst start to the month in seven years. the big question now is this a walmart story or perhaps a bigger warning to the world. let's get in the money to find out. dan, you are the desk bear. what do you think? >> interesting you call him a mid level executive. i would say former executive at this point. that e-mail, headline hit the market by surprise. the s&p traded in a tight range for the last six days. it's been in 60 basis point range. when you see a company like walmart sell off as quickly as it did and take the market with it, to me that could be a precursor for the action we see. in the e-mail or in the news report they are citing the payroll tax. it's hitting people here. just because we didn't see it full force in q-4 results that we got to in the last few weeks, it may be very much evident in

the last few quarters. >> amazing that we haven't factored that in. the q-4 reports we got didn't include the month of january. people may have gotten paid at the end of the month. so it didn't factor in the fact that they are getting less for their paycheck than before. >> the impact wouldn't have been felt. this is when we are going to start feeling it. we have the sequester to worry about in the future. that's a couple of things to be concerned about. in places like california we have seen an uptick in gasoline prices. that takes money out of consumer pockets. we are talking about marginal consumers, guys without lot of discretionary income. they will be impacted by these events. when i look at stocks like walmart with i have to think of the other no growth companies that have seen huge rallies. procter & gamble, johnson & johnson, all trading at relatively high multiples. gets me concerned. in fairness i have been a bit of a bear. it would be revisionist of me not to admit it. the market has been rallying for a while.

i'm not going to pretend i haven't been skeptical. >> this has to do with a certain strata of the consumer. if you live paycheck to paycheck the companies you frequent had a tough day whether it's walmart or dollar general or jc penney. on the other hand, some other consumers saw companies they frequent do well today. michael kors, ralph lauren, costco were higher on the day. this says something about businesses that appeal to a certain customer. they are going to be a trouble. >> this customer is america. that's the most important thing. to me when you think about it most u.s. multinationals make their living on middle to low income sort of buyers here, consumers. to me, this is a warning sign. i just don't -- you know, people sitting here with the s&p at 1500 thinking everything is rosy, i think we'll be in for headaches in the near future. >> walmart is the largest retailer in north america. >> michael kors was up 2.5%

today. >> let's get more on the walmart warn aing for the markets. call to the charts and check in with carter braxton. what do you see? >> we'll look at the chart in a second. lit's talk conceptually. what's important about the facts, this is going on for several months. casual diners are the most sensitive part of the consumer discretionary space. you can shut it down. don't go out to eat. they have been failing for three, four months now. it's been spilling over into sporting goods stores and is now spilling into a staple like this. here is a chart of walmart over the last 18 months versus an etf that's all retailers. walmart has been die verging in a while. it's happening in kohl's. it's a serious disconnect. the sector is being driven by big media names north by northeast. disney, time-warner. under the hood, more stocks are deteriorating. >> all right. we want to go to dan tonight for the trade. what we really focused in on

here is it's going to be a certain kind of consumer more so than others. you're focused on costco. the consumer is much more like the nordstrom consumer than the walmart consumer. >> to me, i think it will go across all stratums here. i see the walmart news. i'm looking for derivative plays. costco will report march 12. to me this is a company that has low implied volatility. actually the 30-month implied is trading near 52-week lows. i'm looking to buy puts. with the vix i'm getting murdered owning premium. if you can find a catalyst, a derivative play to play something that's what i want to do. that's why i was looking at costco. i have this identifiable event coming up. >> walk us through the trade. >> as simple as it gets. when the stock was 102 i bought the march 100 put. paid 1.20 for it, the max i can

risk, 1% of the underlying. i have this event. between 98, 80 and 1 i can lose up to 1.20. below that i have the substantial ability to make profits and above 100 i lose the 1.20. what i want to do here is i think the market is set to roll over. i have this event. i will look to spread this put that i own on any weakness. >> do you like this trade? do you like the name he picked to do the trade on? >> you highlighted this before. i suspect costco is a little bit less sensitive to marginal dollars but i like the trade for sure. it's interesting. the options market provides you with real dilemmas about how to put trades on. there aren't many dilemmas. the price of options is cheap. that means wh you make directional bet long or short you want to be net long premium. you don't need to get complicated about it. a put purchase is the way to go. >> you want to be long premium no matter what your bet is.

costco is supposedly the world's biggest retailer of premium champagne. i would look at a dollar store instead for a derivative play. >> great point. why not go to the dollar stores where the customer is theoretically more similar. >> i don't know about you guys, we're all working harder, making less. taxes are higher. i'm not so focused just on the lower middle income consumer. i think this is something that especially as we get closer to sequester and this stuff that americans will start feeling it no matter where they are. >> if you're picking on costco it follows that you would think macy's or nordstrom would be challenged in that environment. >> i think that's totally fair. i would look to those for the exact same reason. i think probably all of them present reasonable opportunities. the only one -- only name i might consider taking another way is jc penney. that's because it's been so maligned that maybe you could have a short squeeze and propel it higher. that would be a spread trade.

every single one is probably a sale here. >> perhaps if walmart had this, february would be a different story. we are talking about stocks versus options. want to short costco off the walmart disaster, that can be costly. dan's costco put is just 120 bucks, offers huge leverage to the down side. let's move to the other big story of the day. that is the billion blowup. gold finishing the worst week in eight years falling 2% above 1600 an ounce. we heard from carter earlier. going back to him on this topic. back in january options action fans will recall he published a bearish report that gold would break the 12-year winning streak this year. where do you e see it going now? >> this looks to be just beginning frankly. it's a mess. let's look at the charts and figure it out together. i have drawn the lines several ways. this is going back to 2008. we stayed on trend. if you draw it this way where the lows connect we broke trend,

threw back and hit our head and failed. you can draw it a different way. look at the second chart. same time frame. this shows if you move the trend line down a little bit you can call this the trend line in a wedge with. you broke out of the wedge but it's a head fake. now we have turned back down. that's a particularly bad circumstance. then the same chart again with what i think is coming here without the trend line. these lows are in play. the presumption is we'll approach lows at 15, 25, hold there and break again. i think we're going to 1500. >> wow. that's a long ways from here. we have a lot of data points and hedge fund managers. that's a snapshot of the end of the fourth quarter. had liquidated or taken down positions in gold also. >> that could be a part of the reason that we are seeing this action a. people are taking some of the bets off the table. it's interesting. one of the big concerns here is with all of the liquidity, what's a safe haven?

people are really looking at spread trades. are equities cheap relative to high yield? gold doesn't produce cash. if suddenly it loses that aura of being the store of value you could see things break. you could go back to 1979 and 1980 to see how severe they can be. they can be staggering. when i look at this it is an issue of technical weakness. we have the sequester coming up. plus symptoms of economic weakness. those are the things that could weak en something that could be the counter trade like gold here. >> mike will have a call spread. good to crack open the play book and see how it works. it is a bearish strategy to define your risk you buy a higher strike call of the same expiration. you want the stock to be below the strike of the call that you sold by expiration to make the most money. mike, walk us through the trade. >> looking at selling the march 155 call spread to collect 2

dollars. look to sell the march 155s for 3.10 and buy against the 1.10 to get the credit. we talked about buying puts in s.l.t. and you can spend a little premium, watch it decay. i got stung by that so i'm looking to sell options. options are cheap so i'm covering myself with the upside call. collecting 40% of the distance between the strikes is the sweet spot with call spreads. >> would you be bearish of gold i don't think it is a coincidence that the s&p has rallied. when you have the option to put money into gold which doesn't pay anything or into the stock market where you could be paid a defensive kennedy on top of gains the answer may seem obvious. >> yeah. i don't want to be long of anything as gartman says. but the truth is you make a great point. there is a very difficult choice that investors have right here. at the end of the day the

technicals are the thing now that make you want to stay away from gold now. i do like mike's trade here. implied volatility in gld picked up. you're getting more for that. >> the corollary to the statement i made before is if you think the rally is stretched you might see -- >> gold has seen its best day. i think mike's trade makes sense. you never want to sell naked call. in gold you really never want to. >> let's wrap up some stocks versus options here. getting short gold is the equivalent of financial russian roulette. it could leave you bankrupt and in the poorhouse. it could be worth as much as $200 and can make money whether gold goes up, down or nowhere. call it the magic of options. we'll see carter later in the show. got a question? send us a tweet at cnbc options. we'll answer it after the show on our new website. yes, options action.cnbc.com has

been revamped. find trader blogs, educational material and exclusive trades. check it out. here's what's next. the billionaire brawl is back on. carl icahn fires another shot in his quest to crush bill ackman. could ackman be right about herbalife but lose money on the stock? and dan and mike battle it out to show you how you can make money, too. [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪

okay. [ male announcer ] with citibank's popmoney, dan can easily send money by email right from his citibank account. nice job ben. [ male announcer ] next up, the gutters. citibank popmoney. easier banking. standard at citibank.

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welcome back. i'm kate kelly with breaking news. the s.e.c. froze assets in a goldman sachs account after spotting options behavior ahead of the heinz deal it considered suspicious. in a complaint against unknown traders in new york federal court the s.e.c. charges that one or more people with a single account purchased about 25 # 00 heinz june calls with a $65 strike price the day before the deal causing call volume to surge to more than four times its normal level that day. after the $72.50 per share heinz buyout was announced the stock, of course, surged creating an estimated $1.8 million profit for those trader. the s.e.c. moved fast on this one for fear the assets might be removed. in that sense it's similar to a case settled last fall with a hong kong investment firm over charges with insider trading.

the agency is trying to get tougher on insider trading here and abroad. when there is a risk of flight for the money they have to move fast. >> they do. kate, thanks for that. more classic carl on cnbc today when he called into the halftime report and reiterated h his bullish view on herbalife stock. >> the fact that i don't like ackman, you could say maybe is the strawberry, you know, on top of the ice cream. but i am saying to you that this is not done to squeeze ackman or squeeze anybody. however, it must be understood when somebody goes out and shorts 20% of a stock and makes that very public i have said this before. in my opinion, that's a huge, huge risk. >> he went on to say herbalife is a viable company and didn't dismiss the possibility of a short squeeze in the name. the interview captivated trader

attention who sold the stock. 900 units changed hands. the question now is ackman or carl icahn? who is right and how can you make money? time to put up or shut up where dan and mike duke it out over puts and probability. who would have thought you would be up there on the plasma. dan, kick off the debate. >> we are all equally fascinated by the situation here. to be honest it has little to do with the company and their prospects. it has to do with them facing off in a public fashion. to me i don't think anybody out there will do better work on the story than those two guys right there. they are both fairly well convicted. i will tell you one thing. i said it on january 25 after they first squared off a. the price action and the stock has been horrible. as much noise as carl icahn made think of this. we were on "fast money" last night and the stock closed below

$39 today. i think there are long holders of the stock who have been in the name for a long time who are using the opportunity to sell even when it's up or down. to me, i think the story stinks. i think ultimately they both have the potential to be wrong. at the end of the day when you have a stock open up 20% and close up 2% it's a disaster. >> one of the reasons you saw the technical weakness is because of weak hands getting out of the stock. do you know where it's going? into stronger hands like carl icahn's. there is a lot of smoke. it wouldn't surprise me if in ten years we are looking at a big hole in the ground. we are looking at the stock in the meantime. this thing will make $4 a share assuming no buy back. it could be trading at basically 7.5 times earnings. all of ackman's thesis relies upon this company being shut down. i don't think it will happen even if the ftc came in. they could put a fine on them,

ask them to change business practices. in the meantime you have this dynamic of a massive short squeeze potentially. you see all of the things that carl icahn could do. he could announce a tender. somebody else could. there could be a massive short squeeze. those things and the cheap stock, i have a hard time believing we'll face it at the close. >> think about icahn and his bets over time. blockbuster, motorola, chesapeake. he stuck it out after the attention has gone away. at the end of the day if ackman hasn't called in the short he'll probably stick around but will cover. he's not waiting for this to go to zero. [ bell ringing ] >> i don't know if that means we're out. >> finish your thought. >> we are worried about the next six months. >> so carter, what do you say? >> i guess this is a testament. the debate is the issue. there is no winner. anyone trying to trade the stock is left with their fingers cut off. you don't want it short or long.

this is a mess. stay away. >> i disagree. if you can't have fun trading this i don't know -- >> it's about staying profitable and not getting your fingers chopped off. >> ackman is out in the cold on this. the market is a great detective. they would have ferreted out something. >> the stock opened up $10 and closed up a buck. >> that's called finding value. >> all right. >> so we are tied on the desk. i get to make the call. i would go with mike. mike, what's the trade then? >> i actually do agree with carter that this thing will be banging around for a while. i don't think the stock will go much lower. here's your way to potentially join forces. they were buying the stock in the 30s. you could look at selling the may 37 1/2 puts. that's a stand still return of 12%. if the stock declines you will own oh it at $33.

like i said, i don't think it will go back down to $26. in the meantime you are just collecting money. >> you have to sell options in this name. they are amazingly expensive. i don't like selling a 37 1/2 put. the stock was $32 two weeks ago on essentially a bogus story in the post about an investigation. >> if you sell the puts that's where you're getting it. >> this stinks. >> i agree. >> i'm not telling anybody to short this stock. >> it's a hole in the ground in ten years. no one is going to sell that much basically diet drinks in africa. i don't see it happening. how is that possible? they have growth forecasts for formula 1. >> what's most important is that you both probably agree on the fundamentals of the company. it's disagreement when it comes to what the stock will do in the next few months. >> right. >> that's the issue. >> is the risk reward equation worth it? we are going to post the loser's

trade on twitter. that's dan. sorry, dan. if you want updates on our trades follow us on twitt twitter @cnbc options. if your on facebook, stay posted on trades from throughout the at facebook.com/options action. final calls after this. >> what's your best option? following us on twitter. get trade updates, breaking news and analysis. see what we see in real time. follow us on twitte twitter @cnbcoptions. [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box.

♪ all on thinkorswim from td ameritrade. ♪

[ cows moo ] [ sizzling ]

more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade. final call. scott. >> i like dollar store puts. >> dan? >> don't buy stocks here people. >> costco puts. >> our time has expired. check out our website optionsaction. cnbc.com. money in motion is up after this. >> announcer: options action is sponsored by think or swim by td ameritrade. [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats.

[ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪