saturday night. here's what you need remember. people first, then money, then things. you stay safe. bye-bye. this is "options action." tonight, bet against buffett? oracle of omaha kicks off his annual meeting tomorrow. dan and mike are kicking the tires on a trade that could make you money tonight. they'll break it down. plus, is freeport a gold mine? >> are you doing, sucker? >> mike khouw has a way for you to get paid to buy shares at a discount. it ain't fool's good, but 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. these are the traders, stocks no longer an investment, they're a parody of helium. 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 into a cyclical. >> 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? after the huge runups they've had. >> 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, these are types of stocks we've been talking about trading at 20 to 22 times earnings. these are sort of epic multiples for these stocks. 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. these things are trading at about a 50% discount to the aforementioned stocks. >> 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. we saw today 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. carter, i talked to you i think on fast money maybe last week did it, the notion of a bifurcated market. has anything changed? as the s&p and dow simultaneously hit new records today? >> 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 of the last two years. 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 die verge generals 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? >> a couple different ways. little bit of both. >> 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 q1 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.

they didn't give good guidance. 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 economy 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 fundamentals are still poor and will remain 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. june expiration. >> put flies are a little 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 4:85. 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 -- 187.50 >> 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. the risk/reward is pretty good. 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 at expiration. in addition, 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 you, 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? that could lead to a black-and-blue portfolio as shorting stocks carry unlimited risk. dan's put buy offers a four to one payout and defines the risk to $225. other than the s&p 500, the other big story today was the massive come back in commodities. cnbc's jackie deangelis 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 commodities 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 commodities 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 commodity comeback a head fake or a confirmation of the record round in stocks? melissa, back to you. >> thank you, jackie. all right, mike. i guess this is really -- the really broader 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. could you conceivably see copper fall below 2 bucks a pound, well, yeah, you could. right now, it's $7,000 per metric ton. that said, a lot of the producers are trading at 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 selling 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. that allows you to keep the money you took in. 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.

mike, walk us through. >> i'm looking at freeport, at the july 30 puts. i want to sell those. collect 1 cloin 40 -- $1.40. 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 premium. if it rallies, that's still a win. 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. the market's grinding higher and i'm not going to fight it kind of trade. >> historically, that has been viewed as a copper etf, but it's no longer, it's got an oil component, as well. does that bother you? >> well, they have a little bit of precious metal components really, what we're doing here is, is the global growth story intact or is it weak? ultimately,

this is going to come down to, can europe turn it around and is china in -- >> >> 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 stink in europe and china right now. and we could be slugging along the next few months. >> 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. that's after the show on our website. 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. khouw and carter made a bullish bet on chipotle and the trades 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. ♪

[ 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. berkshire reporting

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 derivative 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 $144,630 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 correlated to are the transports. i want to show you. 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%. this chart is very telling.

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 look at berkshire itself. 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 carter's view, you want to make a short term bearish bet, 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 view, i looked at a september 105 100 put spread, when the stock was $108.65. that would cost you 1. $20. buying one of the puts for 2.60 and selling one of the puts at 1.40. $1.20 is your max risk and you can make $3.80 if the stock hits 100 or below. which is his target, i guess. >> i think that makes a lot of sense. volatility is very low. puts have become very inexpensive. important point about berkshire, if you read their filings. they are actually short a ton of puts. otc contracts. this is a little bit of a hedge. against the fact that you're obviously benefiting in these most recent quarterly results. 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. that's good. >> let's tweet him right now. all right, quick programming note here. do not miss warren buffett as he sits down with becky quick. for his first reaction after that meeting. that's monday starting at 6:00 a.m. on "squawk box." whush whush when we come back, is chipotle still a spicy trade? khouw and carter call the move higher. 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

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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. bet on chipotle. 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 for $13 and created his bull 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, 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. by june expiration. below that level, mike will see 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 these 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 expensive 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. >> pregnant pause there. 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 don't have the issues that yum does in china >> is the answer yes, you just hate to admit mike is right? >> yes. >> 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. ♪

[ 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 "options action," go to our website. follow me twitter. have a great weekend. >> announcer: the following program is a paid presentation for the shark rotator lift-away brought to you by euro-pro. >> [british accent]: all right, i agree, your shark vacuum has a no loss of suction sealed system and it's easy to steer, just like me old dyson, but... [harp glissando] my new dyson has the strongest suction of any vacuum! so there. >> well... >> here we go again. >> testing proves that the new shark rotator lift-away... [harp glissando] deep cleans carpets better than your new dyson. >> what-- shark outcleans this $600 dyson? >> 'fraid so. and my new shark rotator also liftay