nation's banks or in personal money market accounts, the implications for the market are huge. we've been saying the s&p 500 is sitting on $3.6 trillion of cash on company balance sheets. there's been somewhat of an unwillingness to put that money to work because of regulation and dysfunction in washington. but at some point cash on balance sheets becomes a problem. you have to put it to work. 17 of the 18 major banks that went through government mandated stress tests passed. the conditions presume these tests assume conditions even worse than we saw in 2008, the financial crisis. one of the gauges for the test, was that the economy would contract by 5% and that unemployment would reach 12%, a lot of stress. and all but one made the cut. the banks are a big part of the s&p 500. next we'll we're likely to hear announcements that they will increase dividends and buy back their own stock. that likely will be another market boost. some of it is priced in.

then there's the investor pushing corporate managers to put their cash to work. earnings season, another plus, that's on the horizon. if earnings growth rates pick up and coincide with better economic data like today's, the market rally could take a new leg higher. nothing goes up in a straight line and given the week we've had, we could sooy a pullback on the near term, something larry fink is warning of. but that buy on the dip mentality will likely win out as the federal reserve continues to lead investor behavior. take a look at the market on wall street and how we ended the day, another record high, up 67 points on the dow. 14,397. and the nasdaq, finishing at 3,244. s&p 500 up to 1,551. see you on sunday for on the

money. in the meantime, have a great weekend. i'll see you monday on closing bell. stay with cnbc. "options action" begins right now. goodnight. ♪ >> this is "options action." tonight, america is back. a strong jobs report sending the dow to another record, but there's a warning sign every investor needs to know about. he'll tell you what it is. social media stocks are soaring, so is it time to like facebook? a trade that could get you long for free. they're going to break it down. and could it a better deal be in the works for dell? some traders say yes. and scott nations explains why. the action begins right now. >> and live from the nasdaq market in new york's times square, welcome to the show. happy friday, everybody. well, of course i have all the

traders here as well in times square and across the country. welcome to the show. and four new record highs for dow, a blow-out jobs report this morning as well. better than expected, really helping those hopes of the recovery is real. stocks posting second history best week of the year. so if you missed the rally is there time to still get in? let's find out. it may be slow and steady, but we've seen some incredible moves here. just been mounting up, blowing out every possible head wind. do you believe in this rally, dan? >> well, i personally don't believe it. it's happening, but the question you have to ask yourself, is what news is priced in the market here? as far as committing new capital, investors get excited to see new milestones in the market, new highs. we're close to new highs in the s&p 500. does that mean you have to get in? i would tell you that one of the biggest mistakes that retail investors make are doing things

improperly at highs and lows. so i would say, be careful here. you're going to have an opportunity to buy stocks lower. to me, just because you see new highs does not mean you have to jump. >> when you talk about opportunity to buy at lower levels, when do you think that might come? what would be the catalyst for us to hit a brick wall and move back? >> the fed said they're going to keep the pedal on the metal. but if you look at the unemployment rate and the dow jones, the last time it was up here, unemployment was below 5%. so we're cheering 7.7%. doesn't make sense to me when you see equity valuations getting stretched. when you think about where we've come from, 7.7% feels like the new normal and people are cheering it. my question is, at what point will we say this market is looking too frothy to be in right now? >> i would argue that i'm saying that right about now. when i start seeing no or low

growth companies trading at well over 20 times earnings, above the average multiple, names like proktor & gamble, it gets me concerned. one of the things thats a propellant is the fact that unemployment is higher. the cost of labor is low. when interest rates are low, the cost of capital is low. all of them help businesses and they're all risk factors. when people become aware of it, probably a pullback in equities. >> some people were saying that if really we were just based on fundamentals here and saw a really good jobs number, we should have seen a much bigger rally. but when we say good economic dat a people price out quantitative easing from the fed. is that a concern going forward? are you there? >> it's because of the fed. the fact that people think that the fed is going to keep

interest rates really low going forward. so dan makes a point that last time the dow was up here, unemployment was much higher. but the other thing is, interest rates were much lower the last time the dow was up here. so if you want to buy equities, it's a lot easier to be brave with interest rates where they are. i don't think that the market is frothy. the s&p going forward is about 14. pretty reasonable. if you look at the action today, in the spider, volume was much lower than it has been over the last 30 days on average. so it's not like we have a bunch of people rushing in to buy stocks. and finally, in spider options today, if you were buying options today, you were about 12 times more likely to be buying puts than calls. so i think people are justifiabley optimistic, but they'll buy puts and get protection. >> hedging their risk. let's talk about the housing stocks. they've led the way.

you say considering the run-up some of them stocks have had and this started way back last year, some of them are being looking expensive now. >> they definitely are on a valuation basis. it doesn't do anybody good to short a stock on valuation. you look at that chart. toll brothers is a stock that reported and just can't get going. they missed on earnings and deliveries and revenues and gross margins. that chart there, just made a new five-year high. toll brothers is yet to do that. i think a lot of reason because of that bad number, but also it's a wait and see story here. to me, here's a sector that was like a coiled spring. they got so depressed and earnings got just nailed down from $5 in total to half a dollar or something like that. it's picking back up here because of demand. rates are low and inventories are low now. people are rushing to get in.

i think the next leg of the housing boom or housing recovery is not going to be a boom. so i want to look down when everyone's looking up. >> you're being the real bear. this is a bear strategy where you buy one put and then sell near at the same strike to reduce your costs. the goal here, you basically want the stock to stay above the strike of the put that you sold by the first expiration but fall below the first of the second expiration. it requires a little timing. what's the trade? >> one important thing about this countertrade, it's at the money. it's not outright bearish. net long premium but the idea is i want to base here, sit here. i think it will play out over time. i want to use the short data premium that i'm short and stay long for an event in june. so the trade i bought today was 35.20. i bought the april, june 35 put

spread. i sold one of the toll brothers april 35 puts at 135 and bought one of the toll june 35 puts for # 230. that's my maximum risk. i really want the stock to stick around 35. if that happens, the april puts that i'm short are going to start to decay. why did i choose june? that will be their fiscal earnings, i want to own puts for that. if they duplicate what they did a couple weeks ago, i think the stock is going back to 30. >> yeah, mike? >> one of the things that dan's alluding to here is the valuation on some of these home builders. it might surprise people to know that almost all of these homes, kg homes, lennar, they're actually valued more richly now than before the credit crisis, a time when most of them had revenues two to three times higher than what they have now. i'll grant these companies are probably better positioned,

certainly made themselves more efficient, but still, i don't understand how people could be thinking at all about chasing these stocks here. any kind of a bearish bet, that it will strad sideways makes sense. i might lean a little more bearish myself. >> one more quick point. toll brothers in 2006, when the stock was 36, where it is right now, earned $4.50. this year they're expected to earn maybe .85. so it's trading higher versus the eight times in 2006. valuations are crazy. you're going to need to see a massive recovery frr the stocks to make sense. >> it feels like a number of the stocks are priced for protection at these levels. what do you think, scott snchblth we like buying calendar spreads on the show and i would really like this if i owned the stock. i had a nice run. want to protect some earnings. talking about the catalyst that would worry me, next earnings

announcement. so i would do this if i owned the stock. >> you might be wondering if dan is so bearish on toll, why not just short the stock? why mess around with all this? the answer is found by playing a little stocks versus options. want to short toll, that carries unlimited risk. dan's trade offers a bit to the downside and defines his risk to just $105. sounds better than the alternative. in the meantime, let's move to one overlooked story, shares of pan dor a rising 20% on some blow-out earnings. and linkin in made another new all-time high. so if all these new internet stocks are doing just so well, why is facebook, the so-called mother of all social media stocks, so unliked by investors, falling 2% today. let's go the charts and get some answers now with the always very likeable and hopefully very knowledgeable carter.

tell us all about facebook and its chart. >> sure. this is the big one and the one that's lagging. let's put it in the context of the big moves. all the other stocks have been on fire over the past few months. at this point, we would make the bet that facebook catches the bid. so we'll try to figure it out together. facebook is what i would characterize as a well defined head and shoulders bottom. the pattern is not very old. only been in business for the better part of a year if you will. what you see going on here, a well defined left shoulder, a well defined head and a well defined right shoulder. but the right shoulder is higher than the left shoulder. that's what the beginning of a major bottom out is. we think that's the objective for this trade, that the stock will reach 30, 32, close around 28, plus or minus today. so you have a 20% pop from here.

we would get involved, play for a catch-up move in facebook. >> that's what the charts are telling us. let me get to you dan, with regards to facebook. it feels like this stock just can't catch a break. kind of like from the debacle of the ipo from the get-go, kind a shadow over it. >> no doubt about it. 1.7 billion shares outstanding, part of the problem here. takes a lot to move this stock. don't forget, people ont a ton of it. retail onds a ton of it. they need it to get back higher. it rallied under is the zuckerberg speech. up 4%, down 2% today. looks like investors are using every opportunity to sell into the strike. investors know they can get more leverage in a link in or pandora. >> in terms of a turnaround, is there anything that you see that could allow this stock to lift?

>> for one thing, this is one of these growing stocks that really is growing, about 30%. there also isn't any other social media stock that has the penetration that facebook does. it's a stand alone on that basis. also they are proving they can monetize both mobile and their website. that's important when people think about what this company could become. volumes are decent, what that suggests a lot of desperate sellers are probably get out and once they do, that could allow the stock to go a little bit higher. >> sounding like the course is bull. mike is using a strategy called a call spread risk reversal. we don't use this method too often. let's see how it works. this is a bullish strategy, sell a put and use that money to buy a spread. how do you make money? you want it to go to the short call strike. that's where you make the most money and where your profits are

capped. since we're short a put, we must be willing to buy the stock. with that said, mike, what's the trade? >> as you mentioned, cautiously optimistic here. what i'm looking at is the april 25, 29, 32 call spread risk reversal. sell the april 25 put, collecting 90 cents using those procedures to purchase the april 29 calls. and and selling the 32 call for 60 cents. by doing this, laying out no prem-up. if the stock declines i may be compelled to buy it at the lower strike, a discount of 10% from where it's currently trading. otherwise if the stock rallies, i participate at 29, up a buck from where we are now and i capture the upside up to $32. when you short more options than you're long, one of the things that happens, these thing will decay a little bit. so if the stock sits, chances are i can collect some money and take it off before expiration

approaches. >> dan, what you think? >> i like the strad structure. here's a tech stock where implied volatility is elevated. you're getting paid to sell that put. at the end of the day, you have a stock that's been range bound here. sooner or later something will break it out. they're expected to grow earnings and sales at 30%. investors don't seem to be buying what zuckerberg is selling right now. but if there's something, i think the stock works back towards its ipo price later in the year. >> one last time on the stocks versus options button, want to buy facebook? convinced of the turnaround? one share will cost you just over 27 bucks a share. mike's trade costs no premium. worst case scenario, he could be worsed to buy facebook for 25 bucks a share. that's just the magic of options. >> okay, at this point, do you have a question? post it on our facebook page. at facebook.com/options action.

we're going to answer it in your web extra. and this week scott will help out "options action" fan david with a trade that can make money with blackberry goes up, down, or nowhere at all. blackberry is the new name for research in motion. you can find it on our website, it's got lots of great things on it. it's been revamped. in addition, you got trader blogs, educational materials, exclusive trades, go check it out. meantime, this is what's coming up next. winning the battle and losing the war. when mike debated dan, he was a winner. but his trade was anything but. can he turn it around? how can you make money? find out when "options action" returns. it's time to pump up the volume. the names that are sizzling this week. dude, you're getting a buy-out.

that's what this computer company is saying, but they're saying, not so fast. he's taken a big position and says buy-out price is simply too low. and that was music to options traders ears. the answer when "options action" returns. [ 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. ♪ so we created the extraordinarily comfortable sleep number experience. a collection of innovations designed

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where were options traders pumping up the volume this week? dell. at one point, call volume was almost three times average daily volume. we just heard how dell calls are active. did traders see a better deal coming for dell? >> they do. when this deal was announced, lots of questions about whether or not 1365 would be rich enough to get it done. now that carl icon is involved, it seems like it's not. so we saw lots of cal volume particularly on wednesday, sea buyers on 14 strike calls across a variety of expiration. as far as the option market is decided, the question is the when. >> i want to stick with another troubled tech nim. is it time to get called out on a losing trade on apple. ? mike said it was over, but the stock continues to make lows. mike hasn't lost a great deal of money and this is why.

>> on "options action," just because we risk less, doesn't always mean we make more. sadly that's just what happens with mike's bullish bet on apple. he thought their shares were set to recover. but buying the stock, 100 shares would have set him back $45,000. so to avoid shelling out that kind of cash, mike sold the april 450 strike put and collected $19. to keep all the money, mike needs apple to stay above that put strike price to april expiration. of course there's a trade-off. and in exchange for selling that put he's obligated to buy at the put strike price even if it falls well below that level. so how can we protect ourselves in case apple takes a nose dive? >> on the downside -- >> bingo! so define his risk, bought a lower strike put.

for 14.50 and created his bull put spread. he put the odds in his favor and here's how. between the $19 he collected by selling one put and the $14.50 he spent on the other put, mike took in a total kret of 4.50. that's the most he can make on the trade. but now mike can do what no apple genius can do. make money whether apple goes up, down, or nowhere at all. how's that? even if apple does trade below that 4.50 strike put, he wouldn't see losses until it falls below that 4.50. below that level, mike will see losses, but by buying that put, he protected himself below the level. good thing he did.

apple shares have lost another 4%. mike's defeated, self-loathing and living in shame. but it might be time to save the trade. we want to know one thing, what will mike do now? but before we answer that question, perhaps this might make you feel just a little better. had you bought apple at the time of the trade, you'd be looking at a loss of about $1,700. mike's put spread gave him $450 credit. we know it's a volatile stock. do you think a rebound is in store, and are you sticking with the trade? >> well, you know, this is what happens sometimes when you try to catch the falling knife. you get stabbed. i think that's what happened to us here. i feel like the valuation at apple will be compelling to bring buy,into the stock. but we have a problem with the options trade right now.

when we're short that out ofy put spread time was working in our favor. now that it's an in the money put spread, something has changed and time is working geaps us. as time progresses that could go to the value value of the distance between the strike. so the right move is to take the trade off, take the $150 loss and move on. >> guys, where do you see apple going? >> well, to me, next week is going to be very interesting. samsung is in new york, doing their first launch of a phone here in new york. it's going to be the galaxy 4-s. another thing is, here's a catalyst for apple, they had that shareholder meeting a few weeks ago. maybe they announced what they're going to do with cash distribution. >> final call from the options pits up next. [ indistinct shouting ] ♪

[ indistinct shouting ] weeks ago. 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. ♪

weeks ago. ♪

[ 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. time for the final call. last word from the options pit. mike? >> sell home builders. >> scott? >> close mike's apple trade. >> what about you, dan? >> toll calendar. >> you guys are fast.

our time has expired. for more "options action," go to our website. have a fantastic weekend, folks. ♪ [ 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 to remove up to 100% more plaque than a regular manual brush. and even 76% more plaque than sonicare flexcare