welcome back. finally today, my observation on the market that just won't quit. they say the folks are calling for a correction. we are looking correction. we shoot up nearly 120 points on the session today. we have been pointing out for quite some time this market wants to go higher, largely due to the federal reserve policies of record low ratsz and the bond buying program. today on cnbc, that theory got a further boost. >> fed policy is very easy. it is going to stay easy for a long time. i think the policy is much easier than last year. i think the outright purchases are a more potent tool than the twist program was and we replaced the twist program with the out right purchases. i don't think markets have completely observed that switch. >> with those words, ready, set, rally. it makes perfect sense. simply put, there are very few alternatives to get any kind of a return. growing multi-national companies that pay dividends are the best game in town and returning money

to shareholders. what would reverse the euphoria? make no mistake, still a fragile story. let's remember what we were told yesterday. as soon as the market figures out we have a credit problem, that cob the beginning for the end and the start of a cries is. the moment the market sniffs the federal reserve is beginning to take the foot off the gas pedal, the cellars come out. will washington continue to kick the can down the road on entitlements? so many business leaders say if this country has a plan and communicated that plan to the markets that we have the arm around the debt, that would unlock the boom for our economy. it is all about perception and sendment. today shall the perception is that the fed will be there for a long time keeping rates low. when and if that perception changes, stocks will likely reverse. until then, we have to repeat. don't fight the fed. before with he go, the market today on the up side by 120 points. i'll see you monday. have a great weekend. that will do it for closing bell. stay with cnbc.

options action begins now. this is options action. tonight, take a bite apple shares have been rotten but could a major shareholders meeting get them cooking again wechltle debate it and show you how you can make money too. talk about an oscar worthy trade. >> i'm the king of the worl. >> cohen carter teaming up for a trade on time warner that could make you five times your money in two months tichlts a blockbuster trade you won't want to miss. why are all those option traders pigging out on wendy's calls. a super size explanation. the action begins right now. live at the nasdaq in new york city's times square, i'm melissa lee. these are the traders. stocks break their losing streak. the dow closing with over 100-point gain breaking its two-day losing streak. is this healthy price action or is there something amiss in the

markets? it was a tough week for home builders, retailers and autos. they are surfacing about the strength of the consumer. >> we saw disappointing results out of home beuilders, like tol brothers. the automakers had a tough week. the fed has been doing what they have been doing. we got the minutes from the last meeting. a little more dissent than some people had expected. at some point, they are going to take their pedal off the metal. we are facing sequester, $4 gas at the pump, payroll tax increase. some guys told us this is hurting their sales. at some point, something has to give. i'm not sure at five-year highs if we can continue to go up. >> the home builders were due for a sharp pullback. they had gotten so far ahead of themselves, trading at valuations that go back to the last real estate bubble even though we are try tog create a

new one. >> aren't these better companies than 2008, 2007? >> i definitely think they are. toll brothers as an example, one of the things they did was bought two pieces of property in manhattan where real estate is doing exceptionally well. i wouldn't say they haven't built themselves into better companies. they have. does that justify high multiples? i don't think so. one other thing that was a positive about the market was the fact we saw some negativity in the markets. in gold, it increased. those type of things, they reflect some skepticism. the market needs skepticism. from this skeptic, that is a positive. >> i'm going to play the optimist on the desk. wasn't this a solid, broad advance? we have had new highs on the transports, midcaps, small capps. it is a broad-based rally. >> we really had trouble earlier in the week. we had a nice comeback on friday. part of the problem is that when

the market starts getting volatile, it stends to sttends volatile. another sector that had problems were the banks. bank of america, when the broad market was up, bank of america was up all of 2 cents, all of 6.5% from its february high. to the degree traders have been riding these banks like trigger, the fact they have come back is a problem. >> the banks gave a little up. they were clear leaders as were the home builders. a sector that did not par at this time pace was technology. that was the sector that got us here for a good part of 2011 outperforming in europe and 2012. i'm negative here. i think we are in the process of making a top thichl. this is going to take a while. i don't think you pick a top and pick a point in time. we are going to have to see some of this other stuff confirm.

if toll brothers and xhb, if they are telling us something, where the new leadership is going to come from, this is why we could be in for some more down side. >> are we reading too much into a couple of data points from walmart or nordstrom or abercrombie & fitch in that we only have a couple of months in terms of the payroll tax increase. we are beginning to see as walmart pointed out the increase of tax refund checks. as they continue to roll into consumers hands, we could see a pickup. it could be an offsetting factor. walmart numbers end td up being not too bad. i am not sure how much you can put into walmart. i don't think the quality is going to be really high. that sector of the market has been in trouble for a while. we've been looking at the other parts of the market, the coors and ralph lauren and the

companies that are doing better, appeal to the higher end of the market. the walmart and dollar stores are in trouble. >> you are taking a look specifically at the home building sector. >> yes. the etf that covers all the home builders, all the big once. a lot of building suppliers. >> home depot, sherwin-williams, temper pew dick. >> not just a play on the home builders. what caught my eye was the move on toll brothers. it was trading in 2005 when they earned $4 a share. they are expected to earn $1 a share. this is where valuation is going to become very important. we also have a chart here. people are talking about this massive housing recovery, when you look at the 25-year chart of housing starts. look at that chart right there. recovery, maybe? >> who thinks we are going to get back up to that peak we saw during the boom? >> that's a great point.

what i'm saying is valuation has to matter. toll brothers is trading at levels where they earn $4 a share in '05. they are earning $1 a share this year. it's discounting a lot of good news. >> dan is bearish. this is a great beginning strategy. it is a bear strategy. i buy one and sell one put. you want the stock to fall to the strike of the short put. that's where you make the most money and where your profits are capped. dan, walk us through. >> i want to pick on a sector i think is going to continue to be weak and had a tough weak. i looked athe xhb. i bought the april 2725 put stred for 45 cents. i bought one of the april 27 puts for 70 cents. i can make up to $1.55 between 26.55 and 25.

that's my max payout. i can only lose that 45 cents. this is a designed risk that implied volatility is relatively cheap in the name. despite the movement, i'm selling that lower strike put. i don't think we are going to get an apocalyptic move. >> are the options cheaper? >> yes. >> that's one reason you are doing this. >> that's a really good point. we have seen more dispersion in the markets. what ends up to etfs is that mutes how much they move around. when fear enters, they start to track together. the volatility of an etf or an index will increase. it is absolutely the case that right now, we're looking at a situation where we haven't seen indices. >> you are making a play obviously on a decrease. you are also making a play on the fact that increasing fear is

going to start pushing all assets in one direction. >> let's wrap this up. stocks versus options. >> better have a lot of money in the bank. etfs like stocks can go up forever. dan's put spread offers a 4-is payout and defines his risk to $45. not bad there. get your ballots ready, the 85th academy awards will air this sunday. while the glitz and glamour and perhaps ben affleck will take center stage, some big media companies stand to make big money off the event. julia, who stands to win? >> this may look like fun and games but this is big business. the winner on best picture has on average a higher box office of $14 million and high home entertainment. that should be a big winner for time warner. argo is expected to take on the top picture.

the other big winner is disney. not only is it sure to bring home serious stew u ets for lincoln but best director for steven spielberg. disney owns abc and this year is expected to bring home more than $85,000 in advertising revenue. watch to see which studios are behind the films that bring home the most oscars. the key thing to keep in mind, the smaller a film's box office, the bigger the impact those awards have on the bottom line. >> before we let you go, any picks going into the oscars? best picture, best ac stress? >> i think best picture is going to go to argo. i think best director is going to go to spielberg. if argo wins best picture in the fact that it wasn't even nominated for best director, that will be a really interesting situation. best actor i think has got to be daniel day lewis. i think the best ac stress could

go to jessica chastain, jennifer lawrence or the actress that starred in amore, which not many have seen. >> it is going to be one to watch on sunday. the media stocks, the only thing hotter than ben affleck. our next guest says they have come too far, too fast. our next guest being the man who some believe is actually ben affleck's muse. carter, what do you see? >> time warner, is it priced in the good news so to speak. here is a two-year chart. a beautiful trend. the yish us thissue, this move june low, the stock is up you are talking 60%. a little bit above trend. i want to show you this current six-month move in the con text of the long-term chart. we broke out from this well-defined wedge thachlts the move. at this point, i think it is overdone. take a look at this same five-year chart of time warner

versus the s&p. a top 50 stock in the s&p, breaking away. it is pricing in almost everything if you will. look at the ten-year chart, again, top 50 stock in the s&p. very correlated to the market. overshooting. this is a pretty time to harvest gains, take your profits and sell short. >> harvest gains and take profits. mike, where do you stand on time warner? >> it is interesting. it isn't a hugely rich stock. it is trading a little over 17 times earnings, a turn higher than it usually does. they have authorized a $4 billion share purchase. that gets you right back to the mean valuation or a little bit lower. they have seen some decent top line and eps growth. their margins have broadened. it comes in 200 basis points. i think what scarce me are the charts more than the fundamentals on this one. >> what the trade on this, mike?

the april 50, 48 put spread. i'm going to spend 80 cents for the 50 puts and sell the others. that's a net deb bit of 35 cents trying to risk a little bit of money to make my bearish bet. if they do take home the oscar, that's not going to bode well. >> this also income passes the next releases. i think really what we're dealing with is, is the market stretched? is this stock stretched? >> i don't know how you don't look at the charts and if you own the charts, i don't know how you are not terrified by these charlts. you have to do something. >> you are all bears. incompetent don't like this chart because i'm negative. >> it's a big-time warner thing. >> the only thing i will say is i didn't see carter show the

bubble highs. this thing where they merge with aol. it is breaking out the ten-year highs. to carter's point, if you can get this stock back to the recent breakout level, those are probably good levels to buy at. >> a lot of these media stocks are at or near all-time highs. >> do you feel the same about these other tra jjek torres tha we have seen? most stocks are starting to roll over, limiteds, pet stores, casual diners. the sector is being pulled up by these big immediate yas like disney, comcast, news core. they are skewing what's going on under the hood. people are nervous. they are selling stocks that are consumer discretion related and they are having to be in the sector. so you are crowding into the safety names like time warner. that never ends well. >> good point there, carter. last time here on stocks versus

options, the financial equivalent of ish tar. mike's point whch, $35 and a 5-1 payout. got a question, send us a tweet. scott will answer it. tonight he has a trade on goldman sachs. options actions@cnb this. .com. here is what's coming up next. are apple shares about to start cooking? the stock has been in' free-fall. with einhorn pushes for stocks could it be time to take a bite. dan a no hold bar that could make you money. that's when option actions return. >> time for pump up the volume. would you like fries with that? this company is one of the largest fast food chains in the

country. the stock is juicy after revamping their menu and reporting higher than expected stocks. they are craving the company's call to indulge in mouth watering earnings next week. who is it? the answer when options action returns. ♪ [ 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. ♪ [ male announcer ] from the way the bristles move to the way they clean, once you try an oral-b deep sweep power brush, you'll never go back to a regular manual brush. its three cleaning zones with dynamic power bristles reach between teeth with more brush movements

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the volume this week? wendy's. almost ten times the average daily volume. ali, frazier, yankees, red sox, lindsay lohan and sobriety. these battles pale in comparison to the put up or shut up where dan and mike duke it out over a stock. the winner gets to give the trade. tonight, the debate is on apple. the battered tech giant will hold a share hold ter meeting next week. david einhorn is clamoring for the company's cash. a federal judge ruled for einhorn in a dispute that could make it easier for share hold terse to vote in the coming prophecy. has apple found a floor here? mike, why don't you kick it off. >> sure thing. one of the thing that has happened to apple, this thing has been pummeled from an evaluation standpoint. let's take a look at some of the businesses. $32.5 million in revenues in ipad, generated about $10 a share times 15, $150 in share

value. they did about $23.5 billion in max sales. so that's about another $2 to the bottom line, another $30 a share. you've got itubes, $8.5 billion. another $2 a share, times 15, $30 a share. $140 billion in cash. obviously, someone is short. knock it down for tax. that's $110 a share right there. you add it all up, what do you get? the iphone business is basically valued at $130 a share. $80 billion in revenues. that's about four times earnings. margin compression, decreases in sales, all baked into the cake i think we are getting to a local bottom. >> here is a business that's running very well. they are facing massive deceleration. analysts expect the company to grow at 1, 2, 3% a year. next year, 10%, 11%, 12%. you've said it yourself, mike. what's going on with the stock

he here. the shareholder base is turning over here. i am not bearish on the apple story. the days of seeing a 600 print in the stock are a long ways off. when i'm looking at this event, a lot of people see the stock at 450. i think on the ireinhorn. >> i am not calling for the stock to go to 600. people are going to say enough is enough. this is the level i'm comfortable with. >> i would love to own apple and be short in the market. here is my setup. i think einhorn's antics have created unrealistic expectations for what happens. if the company mildly raises the dividend, i think the stock sells off. >> the double bell ringing.

you don't want to get to a third bell, guys. let's have our panelists weigh in. scott? >> i think i'm with mike. i think the stock has found short-term volume. it has come a long way. the valuation is pretty compelling. carter, what do you see in the charts? >> i will let the viewers decide who won that. it's a classy example of so bad it is good. >> so mike wins. dan. sorry. >> i have never, ever won one of these. >> you barreled through two bells and lost. mike, why don't you give us the trade. >> looking for it to bottom out. i want to sell this and collect $19 on the 450s and cover the down side by buying the 14s for $14.50. i am going to collect for a spread that could be 10. if it rallies, we will have a chance to cover for a profit. i am risking $550. >> dan, i'm wondering what you think. mike is not arguing the stocks

are going to go to 600. he is arguing there could be some sort of a bounce. >> i think the trade is okay. implied volatility comes down in the name i don't think you are being adequately compensated to take that risk. i would love to sell put spread on this stock when you see it move to 400. >> one final thing i would have said. i would have loved to have been selling puts in this thing. for a while, they were really rich. they aren't. that's why i'm not doing that. >> so i win, basically. >> it doesn't work that way. what do you think of the trade? >> i like this a lot. it is essentially a coin flip. your selling that at the money put. you are going to collect as much time premium as you can. given the fact it is a coin flip, it makes a lot of sense. >> good debate, dan. he is the loser. if you want updates on our trades, be sure to follow us. >> dan has regular updates on his trades on twitter at risk

reversal. stay posted throughout the week at facebook.com. final call from the options pit right after this. [ 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. ♪

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♪ all on thinkorswim. from td ameritrade. time for the final call. >> the key is not always being right but always being disciplined, buying puts and put spreads. >> i like using this bounce and maybe early next week to lay out some shorts. i like shorts. >> dan, you are a winner on the xhb train. i am going to go with that. >> the implication is a loser in the apple debate. our time is expired. to are more options action, check out our website. see you back here next friday. money in motion is up right after this break. [ indistinct shouting ] ♪ [ indistinct shouting ]

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