this is "options action." tonight, is tesla just too hot? >> this is the automobile you should be using. >> dan nathan says nope, more room to run. and he's got a trade that could put your portfolio into overdrive. he will break it down. plus, missed the rally? >> no! >> relax, because mike khouw and carter are eyeing one dow component that could be profits in your portfolio. how you can make money. and why is this hollywood starlet smiling?

>> i just had a great short sell the other day. >> because she's about to make a ton of money making her first options trade. it's a blockbuster in the making and we'll tell you why. the action begins right now.ç indeed it does. live from the nasdaq market site in new york's times square, i'm man dill drdy drury. these are the traders at the desk, los angeles and chicago. forget about apple, facebook and google's march higher, because there is a news stock captivating the mind of retail investors, and it is tesla. well, the shares of this luxury automaker are up 20% this week and 100% in the month. but with 40% of the stock sold short, that have engineered a brilliant car or maybe just the mother of all short squeezes? let's get in on the money and find out. and the thing many investors may find interesting here is, just how few share hold earls actually own the majority of this stock, which is a really important point. i want to bring in the guys

here. mike, you kick it off for us. where do you stand, the perfect car maker or the perfect short squeeze? i don't know about you guys, but i can't hear him -- >> i can't, either. i know mike's take on tesla here and i'm not going with him, here. he and i debated this one about a month ago on the show. i mean, to me, your question was, have that orchestrated a great car company or a great short squeeze. i think he's doing a little bit of both. the stock broke out at $40 on april 1st when they announceded they were going toç have their first profitability quarter ever. since then, they demonstrated, you know, their units on car sales sold -- this is a mania right now. they are doing everything right and it doesn't raleally matter. the stock's going higher. the top ten holders of this thing own 75% of the float, okay? like you just said. >> 40% -- >> fidelity, morgan stanley,

caps, they are the top five. >> and 40% of the shares outstanding are short. so, what this has created is a hyper situation for short squeezes, so, this week, they raised $1 billion through a secondary, and a convert, and there wasn't enough. they upsized the deal and investors, they priced the shares at $92.25, and the stock closed down a dollar from there, so, the stock is full-on short mode. i do not think you want to authority this thing here. >> mike, this is live tv at its best, right. we got you now. no, we don't. i do apologize, what about you, scott? i hope you're plugged in and ready to go. no, we don't have him either. >> all right, mandy. we're going to talk tesla. >> so, here's the deal. i've been looking at this name for a at least a month and i'm getting a lot of questions, when is it time to short? when you keep getting questions like that on a stock, this thing has a $10 billion market cap. it's not a small company by any means but when investors want tç

short it, this is not the time to do it yet. so, for me, the options market looks pretty interesting, because of where implied volatility is. it is elevated here and so, there's some wakes to trade the thing without being too contrarian on the short side, trying to pick a top, but without getting long at $90 after the stock was $40 a month and a half ago. >> one quick question. you know how apple was the darling of the retail investors out there, and that's definitely fallen from grace. is tesla is new apple? >> no, because, you know, apple is a company where most consumers felt their products, they touched their lives. and, you know, most consumers out there will never get in a tesla. they'll be lucky to see one, you know, on the streets. but i was in california last month and i saw a ton of them on the streets. i don't mean thousands, but i saw a lot that i don't see here. i think it's a trend in a certain deck graphic that's working. i think they have amazing opportunities geographically, despite their high price point, above $70,000 per car, but they

can compete with bmw and mercedes, i believe. >> might invent the tesla touch, then everyone can have one in their house. so, dan is clearly bullish. he's buying a calendar call spread. it's a strategy that we don't use too often. let's crack open the play book to see how it works. you buy a call and then to finance that purchase, you sell a call of the same strike toç reduce your cost. how do you make the money? well, that is why we're watching, uh-huh. well, you want the stock to fall just below the strike of the call that you are short on the first expiration, but above the strike of the call that you are long on the second expiration. so, this requires a bit of timing with that said, dan, what is the trade? >> i wouldn't buy this at $90, okay? i would about buy it with your money. but the options market could present an opportunity, if you can find what i believe is the next identifiable catalyst, which are their q-2 earnings, which come in late july. i want to use the high implied

volatility short dated in june and set up to own calls, longer dated in september. so, today, when the stock was $91.74, i bought the june september 100 call spread. i paid $5 for it. i sold it at $5 and i bought one of the september 100 calls for $10. that cost me $5. that is my max risk. my ideal situation over the next few weeks, until june expiration is that the stock remains range-bound here, okay? and one of the ideas why i chose the $100 strike, which is, you know, $8, $9 away from here, which seems kind of tight with a stock that's moving this quickly in such a short period of time, i think that secondary is going to provide an overhang. i think all the new shares here, all the new investors are going to have to die jest thic çthing. >> i hope you guys can hear me now. you were trying to squeeze me out of the picture, i think that's what's going on. look, this is -- this is a company that the valuation is just silliness for a car company. we've seen big short squeezes

before. we saw one in porsche a couple of years ago. this is a company that's going to do $2 billion in total revenues this year, you know, when i take a look and i compare that to other companies, i just don't see the valuation. if you are going to make a play trading at calendar spread, that's a low risk way to do it, but you are leaning to the bull side and i wouldn't make a directional belt in that direction. doesn't make any sense. >> scott? does it make any sense? >> well, i think the calendar spread makes all the sense in the world. but dan is right. this is no longer just a car company. it's a story about a short squeeze. that's really what's going on here. now, in the web extra, we had somebody ask us about a bullish position, taking a bullish position in tesla and that's what we do there, we actually do a put calendar, because outright options in tesla are crazy expensive, even vert cams are really expensive. so, if dan is bullish, then, you have to use a calendar. i just think the structure makes lots of sense.

>> okay, well, tesla is clearly a fabulous car, no one is going to argue that, but it still lacks stocks versus options that you can get only here on this show. if you want to buy tesla stock, you better haveç musk money. 100 shares are going to set you back $9,200. dan's option trade offers big leverage to the upside and kobss just $500. why don't we move on? well, the performance of stocks like google and tell us la has pushed the dow to new highs. if you missed that rally, are there any names you can still guy? let's go straight to the charts and carter what name in particular are you watching now? >> sure, and the setup for this is just what you said. there is a very big name. in fact, the most important name of all. exxon. it is in the dow and it has not participated in the current rally and we think that is going to happen shortly. let's look at the charts. what you have is an uptrend, but not as good as the market and now a series of lower highs and

higher lows. you worked into a wedge. the presumption is this is going to end and it's going to come to life. look at the same formation in a few other charts. first, here is this stock versus the s&p. this is where, of course, the market most recently has started to take off. but the biggest stock of all has not. we think this is finally going to join the party. it's a good trade to be short the market and long exxon. here's the five-year chart, the same trend, same wedge. and in long-term contest, look at the chart for 20 years and this is the point. we have not taken out the '07 ç high. we know the s&p has, we now the dow has. this is the largest stock of all. the presumption it will take out its former high. >> mike, are you filling up on exxon, as well, as a late stage rally play here? >> you know, this is really interesting because i think the point carter is trying to make is that there are a number of stocks, we've seen the market really really strongly and the valuations are starting to get a

little bit over their average number. that gets people concerned. but not all stocks are trading at a premium to their typical valuations and exxon is actually one of those examples. well have seen them slowly growing their, basically proven reserves and when you buy an integrated oil company like this one, that's essentially what you're buying. the other thing i would say is, you don't want to buy volatile stocks if you think we might be near a top. independent refiners have a lot more volatility than exxon does. if you are going to make a play right now to be long a stock, pick one with a valuation that's lower than the market, lower than average and had lower volatility. exxon meets that. >> excellent advice there. thank you, guys. so, here's the thing. mike is doing a risk reversal and here is exactly how it works. it's a bullish strategy where you buy one call and up sell a put against it to finance the cost. the goal here is, well, you really want the stock to trade above the strike of the call that you bought. but because you are short that

put, you may have to buy that stock atç that put's strike price. with that said, mike, what is the trade? >> so, the trade here, i'm looking at is the october 87 1/297 risk reversal. i'm going to sell that for $2.10. use that to buy the 95 call, going to cost me $1.60. net, i'm actually going to collect 50 cents. the downside is that exxon trades lower, i'm forced to buy it at $87.50. of course, i collected 50 cents, to my cost would be $87. and if the stock rallies higher, i'll own the higher strike call. the other nice thing about this trade is it gives me the ability to move around a little bit. if the stock does trade higher, i can look to cover that put, sell a higher strike call. and in the middle, i'm just going to collect my 50 cents. >> what do you think about exxon, dan? >> i don't mind the trade. i don't love the idea of selling a vol name. if things start to go a different way, i think the energy complex, you know, could

be one of the first places to get hit, although exxon is a pretty decent name and when you think about carter's setup on the technicals, if we continue to go here, i think we play some catchup. but i think calls are cheap enough you can define your risk. >> scott? >> i'm not a big fan of getting into a stock just because it hasn't performed as well as the rest of the market. that's gik going to the supermarket, getting in the longest line because you think it's going to speed up. but given that, iç think mike s picked the right strak chuuctur this setup. the stock has to drop quite a bit before he's going to get a put to him and he collects 50 cents, so, the worst thing that can happen in the world is he buys the stock at a discount to where it's at now. >> mike? >> yeah, you know, i think, one quick followup on that is, i think if you don't focus on valuation and don't focus on the stocks that haven't participated, what are you doing is simply chasing the market. that's probably not something that the three of us would recommend. you look for the stocks that are the best in their space, haven't participated, you expect to

catch up. that's a good play in general. >> okay, guys, if you've got a question, you can send us a tweet @cnbcoptions. we're going to answer it on our web extra, and that right after the show on our website. meanti meantime, tonight, scott s going to take an alternative route and help a fan craft a bearish trade on tesla, that's at cnbc.com. coming up, think options are for nerds? come on, guys, think again. some of the hottest young act tregszs in hollywood are risking less to try and make more. when we come back, rachel fox of "desperate housewives" is going to make her very first options trade, right here live on cnbc. and this is what else is coming up. talk about a golden trade. >> i love gold!ç >> last month, dan made a bearish bet on the gold etf but now he's in the green. >> yeah! >> so, how can he make even

more? find out, when "options action" returns.

well there's a first time for everything, isn't there? the first day of school, the first car, even a first kiss. but none of those experiences are nearly as exciting as what our next guest is about to do. lynnette's evil stepchild on "desperate housewives." but rachel fox is also the founder and editor of the hit blog fox on stocks.com. and you want to read it, because just last year, she made more than 30% on the market doing over 300 trades and her very big

news today, folks, she's going to make her first options trade. rachel fox, great to have you on the show. welcome to "options action." what took you so long? >> ah, you know, better late than never. well, you know, i've been -- i love the show and i'm just so excited to make my first options trade with you cnbc options pros. i feel like i'm in great hands. >> okay, what stock are you looking to do your first options trade on? >> well, i'm looking at slw. it's kind of -- it's a fun stock. i have position -- i have a position in it currently. i've been playing it over the last month. i bought in originally at mid 24 range, sold half when it hit 25 and it dropped some and it dropped some more then i bought in some more and right now, i have 500 shares at $23.70 and i am at a bit of a loss. and so i'm trying to figure out what the best play here is, because i really feel like slw is a fantastically strong company. its revenue grew last quarter,

great cash flow, great profit margins. just fantastic. and this drop over the past six months in the company stock price has really been, i feel like it's been due to the draw down in all of the silver pricing. >> well, no doubt about it. they are really levered to the price of silver. here's the thing. this is a new trade for you, in the last couple of weeks here. don't get married to something chlgt when you think about it, we have carter on the desk here, this chart looks absolutely horrible. and it's involved in a situation where the whole space, the whole commodities space is really just melting down. so, to me, you know, when you think about why you're on the show right here, "options action," you know, what are the three main uses that retail investors use options for? they use it for yield enhancement against stock positions, they use options to, for leverage and they use them for risk management. ifl think risk management would be a good case to talk about here. if you believe in this company and you think there is a bright future, but maybe, right now, there's a little bit of selling pressure in the whole space, you

can consider a stock replacement strategy by basically selling your stock, taking the loss, but replacing that with some calls, looking out and define your risk going forward. if that makes sense to you. >> absolutely, yes, i would love to beater to add to my position or have a position with slw but without adding anymore down side risk. >> right. and that's a great point. the idea is, with the stock right below $22, i would maybe look out to technical level, which would be maybe $25, where it broke down from just a few weeks ago and i would like to buy maybe the septemberç 25 ca, for $1.40. break even is at $26.40, but you defined your risk and that is the great use of options for risk management purposes. >> that's awesome. that's really great. >> by the way, i'm going to bring new here, carter, what do you think about this from a chart perspective? >> just what dan said. this is nothing short of atrocious. >> mike, what do you think? >> yeah, i mean, it's really a lot of pressure, you know, that the precious metal miners are under.

and it gets worse as the price goes down, because these guys have very high input costs and they may not be dropping as quickly as the value of the commodity is that they're selling. and that really puts a lot of pressure on them and they tend to add a lot of leverage at that point, too, which is why you see options prices relatively high in a case like this. >> rachel fox, a huge thanks to you for coming on and good luck with your options trading. maybe dan is going to be worried, might take his position in a month or two. >> thank you. thank you for all of your awesome help. >> thank you. coming up next, gold has been falling like lead, but is that maybe good news for dan and carter on the way? they made a lot of money getting short gold, so, how do they plan to make even more money and where do they see the shiny metal going? that and more when "options action" returns and don't worry, dan, you're completely safe. [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data.

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it's time now for the upside call, where we look back on our winning trades and give you the next move. well, two weeks back, carter and dan teamed up for a bearish trade on bouillon. it's made gold's pain their gain. let's take a look. on "options action," it's how we mine for winning trades. risk less so we can make more. and that's just what aan and carter did with their bearish bet on gold. carter said gold was a sell. >> is an excellent reshort. sell gold. >> but his main man mike wasn't so sure. so dan made a move. >> i'm trapped by his genius on the charting of that. >> so, to make a bearish bet on the gold etf, dan bought the july 140 strike put for $4.80. to make money, dan needs the gld to drop below that strike piece by more than what he spent on the put, or below $135.20 by july exper ration. but schilling out $4.80 just to bet against gold? just who do you think you are? >> i am king midas, ruler of this kingdom. >> come on, dan.

let's do this for less. >> and one of the july 120s on the back end for 80 cents. >> there you go. so, to cut his cost, dan sold not one, but two ofç the july 0 strike puts for a total of $3.60. but he did something even better. he made making money easier, and here's how. between the $4.80 he spent and the $3.60 he collected by selling the other, dan cut the cost of his trade to just $1.20. and now, instead of needing the gld to fall below $135.20, dan seeps profits if the gold etf falls below $138.80 by july expiration. >> that's gold, jerry. gold! >> well, hold on. because there is a trade-off. and by selling more puts than he bought, dan could be forced to buy the gold etf at that low put strike price, or, in this case, for $130. even if it falls well bell low that level.

so, to protect himself against that nightmare scenario, dan then bought the july 120 put for 80 cents and created his put fly for a total cost of $2. >> wow! >> now, dan's protected below the $120 left, since he spent more, he'll need the gld to fall more to make money. dan needs the gld to fall below that $140 strike price by more than the $2 he spent on the trade, or, below $138, by july exper ration. >> yeah! >> and since the time of his trade, gold has dropped ç7%, making this trade a winner. and now, gold freaks across america just want to know one more thing. what will dan do now? okay, before we answer that question, let's see just how much money was made. had you shorted gold at the time of the trade, you'd be looking at a 7% gain. which, you know what, that's not bad. i'll take 7%. but dan's option trade cost two

bucks and can be sold today for $3.30, which is a rueturn of almost 70%. and the trade defined its risk? >> yeah, well, real quickly. unfortunately, i think it's being moved too far, too fast. take the profits and run. >> on that note, coming up next, the final trade from the options pits.

well, looks like our time has expired. thank you, guys. that's its for "options action" tonigh my mission is simple, to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere and i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends, i'm trying to make you money. my job, i'm teaching and making you money. sure, i know we have to take a breather eventually, things are getting too hot, we request see that. as i said over andç over again this market is raised