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i had a great trade, actually. about two weeks ago, i bought a january 400 call. so sold the january 460 call and sold the january 325 put, zero. >> nice. >> no question. took out about $30. >> that was legendary investor from las vegas talking about his bullish trade in apple. you might be saying what is he talking about with all the puts and calls. we are going to break it down here. basically, he is doing what's called a call spread risk reversal. he used that money to buy the 460 call spread. he did it with no money. he can make $60 by january expiration. because he sold the put, he must be willing to buy apple for $325. even if it goes below that level, of course. dan, you are active in apple.

>> on a mark to market basis, if the stock went down toward the 325 strike, remember, the options market, if you have done that before, it was pricing an 8% move. it does not get you down to 325. he seemed conservative about that. what i would say for the viewer, it's a great, great trade. when we say it's for free, it's not. if the stock goes against you, you have losses. one of the ways to modify the trade for the people out there is sell a put spread to buy a call spread and define your risk. that way, you don't have the risk to the downside. >> mike? >> yeah, i think the biggest change i might have made to the trade is shortened up the duration a bit. when you get net short options over a longer period of time, it's harder to realize. if he bought the stock at $325, it's shaving $100 billion off compared to where it is now. it puts the value at 180 bucks. 4.5 times earnings.

that's why he's drawing the line in the sand. you have to back the truck up at that level. it's smart to play in names that don't have a lot of leverage. >> let's look at the chart on apple. do you like the levels here? where do you see the stock going? >> we think it's a great trade. the stock has upside. seven months down, mid september to mid april, 55% decline. here is what happened. we broke above trend. we never went below where we broke out. all the hallmarks bearish to bullish. we think 520, plenty of upside. >> what kind of trade would you put on given what carter is saying? >> in apple you can buy a call spread. you can do what he did. i would go further out of the money now.

i would buy an out of the money call spread and wouldn't mind selling a put or put spread. you have to leave some -- you have to leave some margin in your account. >> it's a lot of margin because apple is expensive. >> if i buy at 325 or 350, i'm happy to do that. i just have to remember i was willing to buy the stock. >> be careful buying too far out. the fundamentals for the company are as bad as they have been in a long time. i think there's some downside support somewhere near 400 again. i think you probably get a retest. i don't think you want to try here. >> a retest of lows? >> back below 425 this year. >> mike, what are your thoughts on that? >> the buyback is why you should feel comfortable. the risk reversal works. it's up 50 bucks. >> our thanks to carter braxtonworth of oppenheimer.

now talking disney and dan's bearish trade. how much more room can the mousehouse run. we'll break it down. ♪ [ 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.

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[ 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. ♪

welcome back to options actions. we take a look back on trades gone wrong to see if we can right them. dan made a bearish bet on the magic kingdom. the stock moved against him but he hasn't lost much money yet. here is why. just because you risk less doesn't always mean you make more. it's what happened with dan's bet on disney. he thought shares would dip. >> consolidate or go lower. >> do you really want to short the stock? >> go ahead, make a fool of yourself. >> dan, jiminy cricket is right. after all, shorting any stock can expose you to risk. to make a bearish bet he sold the may 5250 share. he needs shares to stay below that cost or below 62.50. above, profits will trail off.

dan won't see losses until disney rises above that price by more than the $1.10 he took in or $63.60 by may expiration. >> i just love happy endings. >> well, let's not get ahead of ourselves. there's a trade off. if shares trade above $63.60, he's on the hook for losses. >> to infinity and beyond. >> yeah, that doesn't sound so good. to limit his risk, dan bought the 65 strike call for 35 cents and created a bear call spread. here is how it works. between the 1.10 he collected by selling the more expensive call and the 35 cents he spent on the higher, he pockets 75 cents. it's the most he can make on the trade. to keep all of it, he needs shares to stay below 62.50 through may expiration.

the difference between the strike of the call he sold and the strike of the call he bought minus the credit. but, it gets better. >> now i know i'm dreaming. >> now dan can do something that only exists in fairy tales, make money whether disney drops, stays flat or goes higher. shares added 8% making this trade a loser. now options actions biggest fan only want to know one thing, what will dan do now? before we answer bob's questions, perhaps this might make those who put this on feel better here. shorted 100 shares of disney at the time of the trade. a loss of $500. if dan closed out the trade today, it's a loss of $170. because the value of the call was offset by what he bought. do you keep the trade on and hope disney will fall? >> this is about hope.

i have room in the house of pain here. the stock was up 8% so i put the trade on. it's up 18% since the beginning of april. i wanted to find a way to get short without unlimited risk. it's been a disaster. now i have to wait the week until expiration and cover it below the spread. >> what would you do, scott? >> you have to wait. the only thing that can happen, the problem is it's way above the moving averages. it's in no man's land, technically. >> i guess you are with dan and you should wait on the trade and disney is going lower? >> for sure wait on the trade. essentially what you have is like having the same put spread. you certainly wouldn't want to cover it here. disney is trading at a valuation that is above its average. of course, i have expressed skepticism about the market strength. if anything is going to pull

back, let's hope it happens in a period of time for the trade to work out. >> disney hit a 52-week high. a lot of the stocks are at this point. the markets going higher and wanting the do stuff names, do you think disney will fall if the markets are going to go higher? >> i hope so. >> hope is completely different. >> i don't know what to say to people. if you want to buy disney after the stock rallied 18% in the last month and a half. it's not a strategy i can feel good about. to me, i'm a trader and looking for opportunities where i thought a lot of good news was in the stock, a rich valuation but i was wrong. >> you can't lose anymore money. >> true. >> a reminder, as we head to break, follow us on twitter @cnbc options. if you are on facebook, stay posted on trades from throughout the week on facebook.com/optionsaction. next, we have the final call

from the options pits. ♪ [ 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.

all o[growl]orswim. we used to live with a bear. we'd always have to go everywhere with it. get in the front. we drive. it was so embarrasing that we just wanted to say, well, go away. shoo bear. but we can't really tell bears what to do. moooooommmmmm!!! then one day, it was just gone. mom! [announcer] you are how you sleep. tempur-pedic. ♪ [ 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.

♪ you could say things got a little squirrly tuesday night at the baseball team took on wichita state. a squirrel got loose causing a brief delay. the runaway rodent wasn't going to be captured. he tagged the second base bag. wichita state's tyler baker used his batting helmet to bring the squirrel into custody. he removes it from the field and releases the critter into the parking lot where then he got ran over. just kidding, he didn't get run over. last word from the pit. mike? >> dan was on the right track with disney. look for opportunities to buy put spreads. >> scott?

>> competition is eating mcdonalds for lunch. it's about how to take advantage of that. >> dan? >> if you want to short anything in this market, put spreads. >> our time is expired. i'm melissa lee. "mad money" starts right now. >> announcer: the following is a paid presentation for luminess air. now there's a new way to completely cover your flaws, minimize wrinkles, and make you look 10 years younger instantly. >> people asked if i got botox. >> people come up to me and say, "your skin is beautiful." >> i've had two people actually tell me it looks like i have porcelain skin. >> announcer: introducing the airbrush beauty breakthrough-- luminess air-- the most exciting new beauty product in years. it's the revolutionary, new way of applying makeup that gets results liquids and powders can