this is "option as actis ac" tonight, bet against buffett? dan and mike are kicking the tires on a trade that could make you money tonight. they'll break it down. plus, is freemort a gold mine? >> are you doing, sucker? >> mike khouw has a way for you to get paid to buy shares at a discount. it's his option trade and he'll show you how you can make money, too. and forget about having coke and a smile. ♪ i'd like to buy the world a

coke ♪ >> scott nations has a way to turn time into money using coca-cola. it's the real thing, and scott nations will show you why. the action begins right now. live from the nasdaq market site, i'm melissa lee. if you missed out on the rally, "options action" has a message for you. relax. we are here to find you names that can make you money on the short and long side. let's get into the money right now. the most recent part of the run has been old technology. and you take a look at a name like microsoft. prime example of this, dan, where it is finally above 33 and it looks like it might stay there. >> yeah, well, microsoft, it's intel, it's even apple. if you ever call that old tech, but it is in a lot of ways. >> you just did. >> i did. these guys have gone parabolic. we've seen gains since earnings of about 10% after all these names. so, we're seeing a rotation out of some of these names that you were just talking about

previously, some of these more defensive names, right? so, what didn't work this week on a week that the s&p just made new all-time highs? health care. the xld was basically flat. utilities was that flat on the week. seeing a rotation into cyclicals. if you believe that the economy is getting better, then you want to move -- >> flat on the week for the defensive names isn't convincing to me, at least, that there is a rotation under way. i mean, wouldn't you think that you would see them down? substantially? >> first of all, it seems like any risk asset is a buy. i think what dan is trying to say here is that the valuations of a lot of those things, like the low growth companies, look at colgate, procter & gamble, trading at 20 to 22 times earnings. so, you go from low growth to companies that have had no growth, you know, names like microsoft and intel have seen no top line growth. but you have to put your money to work. they are trading at a 50%

discount. >> i don't think i can bring myself to sell at a loss just so i can race into microsoft. i think a lot of the old tech names, people want to be long them but they want to do it using options. more calls than puts trade in almost all of these name, which is probably just a defined risk way to get long. i think if i were long microsoft, i would take that 16% rally, since earnings and i would consider it a gift and be buying puts. one thing that didn't work and boy did it not work was linkedin, and facebook, they are both down on the day. now, what that says to me is google, which might also have problems monetizing mobile, is probably also going to have some trouble. >> all right, so, we've been talking a lot about the charts and what the charts have been telling us. we have to go to carter braxton worth to find out what the charts are saying. i talked to you last week about the notion about a bifercated market. has anything changed? >> not particularly. we remain that way and that's

been the case with the various parts of the market. one of the things that's interesting about technology is how much that sector has lagged. we made 12-month relative lows. i want to show you a chart here what's started to happen, because of the kick in of microsoft, apple recently and a few others. the relative strength is actually improved for the first time in 12 months. we would expect this to continue. we would think the diver jens between the s&p and one of its major parts is going to be brought closer together. >> all right, so, brought closer together and carter, just connecting the dots. you mean that technology will actually meet the -- the s&p will come down? >> one could come up, one could come down. the outperformance that just started is not likely to be quite that short lived. >> okay, so, dan, you're looking at ibm. you don't believe in this old tech rally. >> listen, if you looked at q-1 earnings and where we are right now and where the market is, you would say, wow, thing must be great. let me tell you what old tech

told you. all of those companies, and ibm that we're going to talk about right now, did not report good quarters. so, ibm is interesting to me. it had a massive gap. when they reported on april 18th, okay, the stock was down 9% and kept on going for a few days. since this latest stage of the rally, in the last two weeks, the stock is up almost 9%. almost filled in that entire earnings gap. i think we're going to be headed into a period, despite that fantastic jobs number today, where global -- the global company is not strong -- >> sarcastic? >> a little bit. it didn't read on tv necessarily. >> i was writing in a sarcastic font all day today. >> ten-point times roman? >> windows 8 doesn't it, though. it's weird. i want to look at ibm. very interesting technical setup. i think the stocks come back. i think the fund. ams are still poor. i think the market is topping here, shocker. i want to look, without just shorting the stock, without buying outright puts, i want to look at a put butterfly for the next six weeks.

>> that's a little bit tricky, but it is a low cost way to make a bearish bet. here is how it works. bearish strategy, you buy one put and sell two lower strike puts against it. but to protect yourself, you then buy one even lower strike put. that sounds complicated, but the goal is simple here. you want the stock to go to those two strikes that you are short. that's where you make the most money. think of it is threading the old needle. dan? >> it's threading the needle. this is not -- it sounds more complicated than it is, just like mel said. on all of your trading software, you can figure this out. i'm isolating a range here where i want the stock to go to. when the stock was at $204.85, i bought it. june 205, 195, 185 put buys. i bought it for $1.55 each for a total of $3.10 and one of the june 185 puts for 50 cents. this is how i make money on this not so complicated trade in my

opinion. between $202.75 and $187.25 on june expiration, i can make up to $7.75. my max gain is $7.75 at $195. my losses are only up to $2.25. the premium i paid for it. that is between $202.75 and $205, i lose out to $2.25. between -- >> wow. >> okay, but -- >> that's a lot of numbers. i want to give you simple numbers. 1% of the stock price that is going to go down about 5%. that's it. that's really all you need to figure out about the risk/reward relationship. we try to give you the specific prices so it is easy to figure it out, but at the end of the day, that's what you're looking at. i think that, with all the support we have for stocks, the chances this thing is really going to drop 10%, 15% is almost nil. >> what i don't get is, you made fun of microsoft in the lead-in and then you want to pick on ibm. i would rather pick on microsoft

because of the window 8 problem. i don't think ibm is going to have that big a problem. this is a trade. you are going to have to take it off before expiration. you don't want to have to thread the needle. use a limit to put this on and take it back off. >> you guys are talking about threading the needle, we're talking about a 20-point range here where you can make three, four times your money to the downside after we just had a 10% run. listen, we're going to tweet out the numbers to, it's not nearly as complicated as it sounds. >> it works best if you take it off before expiration. >> let's hit the stocks versus options button. want to get short big blue? dan's put buy offers a four to one pay you'vethout and defines the risk to $225. the other big story today was the massive come back in commodities. cnbc's jackie deanswer list has been watching all of the action in the pits today. crazy day. >> it was a crazy day. i like that, intro, thank you. well, historic day for stocks and also a wild one for

commodities. copper jumping more than 6% today. it was the biggest one-day move that we've seen since november of 2011. this after the strong u.s. jobs report. while the come mod tips complex did see broad-based gains across the board. copper by far outshining them all, even outperforming crude, which saw strength in the session. but before investors take copper's move as a bullish sign that commodities are validating the move in equities, some traders out there are saying proceed with caution. copper's move is likely just a knee jerk reaction to today's equity action as investors are looking to park money in undervalued asset classes. remember that come mod tips were weaker just several days ago when bearish u.s. and chinese manufacturing data sparked a selloff. so, the big question now, was today's come back a head fake or a confirmation of the record round in stocks? melissa, back to you. >> thank you, jackie. all right, mike. er guess this is really -- the really browder question is, do you believe in the demand for copper, born out of economic

growth? >> i think she really made a good point and that's a great question. of course, there's still a lot of concerns about copper demand in china. there's a lot of concern and questions about demand in europe, i mean -- you know, germany's copper demand has been lacking and so has it in japan. we feel like it might be due for catchup. if we start seeing the central bank action doing what it's supposed to do. but if you look at the longer trend, copper is absolutely weak. and should you see copper fall below 2 bucks a pound, well, yeah, you could. right now, it's $7,000 per metric ton. a lot of the producers are tradingal relatively cheap multiples. we saw highs on the multiple side in 2012, names like free port are trading now to the mid or lower part of their basically valuation range. >> all right, well, mike is obviously bullish, he's receiving a put tonight. usually we buy them. but here's how the strategy works. when you sell a put, you want the strike to stay above that buy put expiration. because you're short that put, you could be forced to buy that

stock at that put strike price, even if the stock falls below that level and that is something key to remember here. >> i'm looking at freeport, at the july 30 puts. i want to sell those. that represents a little over 4.5% of the total amount of capital, if i'm forced to buy the stock at that lower price. if the stock stays right here, even drifts in a little bit, i'm just going to take in the $1.40 in pree ymium. worst case, the stock weakens and i'm forced to buy it at $28.60. that's almost a 10% discount from where the stock traded today. and like i said, the copper names are in general are now trading below their historical average multiple, which is the first time they've done that in about a year. you know, this is not an overwhelmingly bullish bet, this is a stand still. >> historically, that has been viewed as a copper etf, but it's got an oil component, as well. does that bother you? >> well, they have a little bit of precious metal components

what we're doing here is, is the global growth storyintact or is it weak? this is going to come down to, can europe turn it around and is -- >> bet on global growth, though, than this? this thing can't get out of its own way. it has rallied 15% in the last couple weeks here, but to me, you know, selling a put out in a period, where, fine, we got that data this morning, everything is great here. things really stibink in europe and china right now. and we could be -- >> we could go back to the conversation we were having at the beginning of the show is, do we try to participate by buying stocks that have been weak. this is one of the stocks that's been weak. annualize the turn on a trade like this is over 20%. you're going to be forced to buy the stock at a discount. if you are betting this rally continues, this is a safe way to play it. >> all right, got a comment or question? tweet it to us, and we'll answer it in our web special. scott is doing a calendar on coca-cola. you will find great trader

blogs, educational material and exclusive trades there, as well, so, check it out. here's what's coming up next. now, there's a hot trade. shares of think pot lee have sizzled. how can they make even more cheddar? find out 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. ♪ humans. we are beautifully imperfect creatures

living in an imperfect world. that's why liberty mutual insurance has your back, offering exclusive products like optional better car replacement, where if your car is totaled, we give you the money to buy one a model year newer. call... and ask an insurance expert about all our benefits today, like our 24/7 support and service, because at liberty mutual insurance, we believe our customers do their best out there in the world, so we do everything we can to be there for them when they need us. plus, you could save hundreds when you switch, up to $423. call... today. liberty mutual insurance -- responsibility. what's your policy?

♪ [ 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. welcome back to "options action." warren buffett's berkshire hathaway reporting quarterly earnings after the bell. better than expected on both the top and bottom line. $43.87 billion in revenue for the first quarter. quarterly operating profit rising 42%, to $3.78 billion.

that's up from $2.67 billion. profits helped in part by better results in insurance, investments and its gains in dririve contracts. management saying the gains contributed to changes in fair values of their put option contracts. investors now see a floor in berkshire's a-class shares of 144,6 $144,630 or, about 20% over the reported book value of the conglomerate. since december, buffett had had board authorization to buy shares of up to 20% over book value. berkshire holding its annual meeting this weekend in buffett's hometown of omaha. still, the most expensive stock per share in the u.s., closed today at yet another record high of $162,904.

melissa, they are such big numbers, we're not used to talking about such big numbers with just one stock. unbelievable. >> that is true. bertha, thank you so much. now, as the oracle of omaha kicks off his meeting this weekend, is berkshire stock a buy? let's call to the charts with the oracle of at least the upper east side, if not more, carter braxton worth. >> sure, well -- we would say this is a classic example of price discounting the facts. meaning, berkshire, if you were to really look at it, of course it's insurance. but the index that it is most likely core lated to are the transports. here is a five-year chart of the stock versus the dow jones transport index. 70% correlation, 77%, in fact, compare exxon and oil, it runs about 55%. notice, there's a slight divergence of late. this is the day-to-day over the last two years. this bothers us a little bit. i want to talk about how far above trend it is. we measure trend by the

smoothing mechanism. it touches it to the penny, to the penny. this is about as far as it's been in five, ten years. look at the long-term chart and you'll see just how far above. it's now to here, here, here, we're at that point where we think it's discounted. the very good news that has just been released. do you buy or hold, i would say sell into any further strength on monday morning. >> sell into strength says the oracle of the upper east side. dan, what do you say? >> he had me at smoothing mechanism. >> me, too. >> obviously. you teared up. i saw it. but you know, listen. i guess we could go back to apple for a second. when steve jobs was sick and there was all this talk about what would happen to apple when he was no longer with the company, and, you know what, there was like a delayed reaction, seven, eight months. it didn't end very well. at some point, if you are a holder in berkshire, have the fabulous gains, you have to think about secession. there is a premium likely built into this company. if you believe in chart arter's, i think the put spreads, looking

out to september, look kind of interesting. not a trade i have on, not particularly bearish on the stock whatsoever, but today in line with carter's crew, i looked at a september 105 100 put spread, when the stock was $108.65. that would cost you 1. $20. $1.20 is your max risk and you can make $3.80 if the stock hits 100 or below. >> i think that makes a lot of sense. volatility is very low. puts have become very inexpeensive. important point about berkshire, they are talk chul actually shof puts. otc contracts. this is a little bit of a hedge. those are long-term options. $35 billion worth, they were actually short at one point. this is, if you are short, if you own the stock, that's a good way. >> warren buffett is one of our viewers. >> let's tweet him right now. all right, quick programming note here.

do not miss warren buffett as he sits down with becky quick. that's monday starting at 6:00 a.m. when we come back, is chipotle still a spicy trade? we're going to tell you how you can make even more money. stay tuned. [ 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. ♪ i've got a nice long life ahead. big plans. so when i found out medicare doesn't pay all my medical expenses, i got a medicare supplement insurance plan. [ male announcer ] if you're eligible for medicare,

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[ 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. welcome back. time for the upside call, where we look back at winning trades and give you the next move. two weeks back, mike and carter bellied up to the global phenomenon that is simply called chipotle. they made a lot of money and here's how. on "options action" it's how we make our traders sizzle. risk less so we can make more and that's just what mike and carter did with their bullish belt. carter thought the shares were about to heat up. >> get paid off around $370 on earnings beat. >> all right, mike thought.

i'll have what he's having. but just buying the stock, 100 shares cost more than $30,000. that's a lot of burritos. so, to make a bullish bet, mike sold the june 330 put and collected $14.80. now, to keep all that money, mike needs shares to stay above that put strike price through june expiration. but there is a trade-off. and in exchange for selling that put and keeping that $14.80, mike is now obligated to buy stock at that put strike price even if it falls well below that level. so, how can mike protect himself in case it crashes and burns? >> buy the three and a quarter against it. >> now we're cooking. so, to define his risk, he bought a lower strike put. he bought the june 325 strike put and created his put spread. but he did something else. he made the trade an instant winner. >> what did he say? >> that's right, amigo. instant winner and here's how. between the $14.80 he collected by selling one put and the $13

he spent by buying the other, mike took in a total credit of $1.80. now, by taking in that credit, mike can make money cl the stock goes up, down, or nowhere at all. in fact, even if chipotle does fall below that put, mike wouldn't see losses until the stock falls below the strike of the put by more the $1.80 he took in, below $328.20. below that lechl, mivel, mike w losses, but by buying the put, he's protected himself below that level and defined his risk. and it's all good, because since the time of the trade, chipotle shares have added 8%, making this trade a winner. now, "options action's" biggest fans want to know one thing. what will niece two amigos do now? let's find out. carter got us into this trade, so, the question now, carter is, do you see more gains? let's call back to the charts. carter? >> it looks that way. so, we hit the 370 target, we

think it's 400. just stay and ride. >> all right, mike. >> just trying to hit some singles here when we trade these high priced stocks, i'm going to roll out and up in the put spread. >> out and up. scott, what do you think in general? >> i'm not a big fan. it's very expensive. if you made a profit, i would take it. it's twice as expense ichl as mcdonald's now. >> dan, do you think mike is making the right move here? >> listen. >> sounds like no. >> i actually did not like this trade at the time. but these guys have a lot of their financial metrics that drove that growth had been decelerating and so this quarter, i think, allayed some of those fears in the near term. they are very exposed to the u.s. they -- >> is the answer yes, you just hate to admit mike is right? >> got it. bottom line there. coming up next, the final call from the options pits. [ 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. ♪ humans. we are beautifully imperfect creatures living in an imperfect world. that's why liberty mutual insurance has your back, offering exclusive products like optional better car replacement, where if your car is totaled, we give you the money to buy one a model year newer. call... and ask an insurance expert about all our benefits today, like our 24/7 support and service, because at liberty mutual insurance, we believe our customers do their best out there in the world, so we do

everything we can to be there for them when they need us. plus, you could save hundreds when you switch, up to $423. call... today. liberty mutual insurance -- responsibility. what's your policy? ♪

[ 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 time. scott?

>> this week's web extra all about coke and how it's doing well in emerging markets. >> dan? >> good shot spot to reshort ibm. >> mike? >> just bad singles here. take what the market is selling you. >> i'm melissa lee. for more simple, to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere, i promise to help you find it. "mad money" starts now! hey, i'm cramer. welcome to "mad money." welcome to cramerica. if you want to make friends, i'm trying to help you make money. my job is not just to entertain you, but to ed kite you. call me at 1-800-743-cnbc. no number, no number is more important than the jobs number. to