this is "options action." tonight, apple's big moment. will wwdc finally give the stock its mojo back? dan nathan's revealing what's really at stake in giving you a winning trade that makes you money for free. and cracked foundation. may be jitters in the housing market, but khouw and carter is teaming up for a rock stoll lid trade. plus, rev your engines. has general motors come too far too fast? our traders have answers to put you one step ahead of the stock's next move. the action begins right now.

live from the nasdaq market site in new york city, i'm melissa lee. these are our traders for this evening and let's get to the name everybody will be watching next week, and that is apple. great expectations ahmed of the company's developer's conference. will there be a game-changing announcement and it will be the catalyst that brings investors back to the stock? dan, what is at stake here? because there's not a lot of expectations wilt s built in h >> the options market is implying a 3.5% move. the weekly options are going berserk. today, there were 75,000 of this week, of the 440 calls that traded and a lot are trading into next week. options traders are really trying to pick a bottom here, it appears. and it seems like on this network, we heard a lot of high profile people, these guys getting long here and thinking there's really good value. so, i think there's expectations that the stock works over the next year, without very little product info in the near term. >> right. and we're probably not going to

get any product infoal here. ? a software conference, not a hardware conference. and it's seen that the biggest catalyst that could emerge from apple would be a low-cost phone, which is of course on the hardware side. >> one of the reasons that you're seeing support for the stock is the same reason we've seen some names that haven't really participated. earlier in the year, getting bought at this point and that's mostly a story of valuation. if the story is weak, there's still interest in buying it. if you want any examples of how a stock can go, look at the pc stocks like intel and microsoft. these guys definitely don't have a great story. they have a very bad story and people are buying them because they're cheap. >> let's get to our technology correspondent, jon fortt, and what to expect out of this conference. jon? >> melissa, mainly operating system upgrades, first of all, for mobile, it's ios 7, which could have a new look and feel. i'm impressed it hasn't leaked yet. old school apple secrecy. why does this matter?

volume. ios 6 was downloaded to more than 100 million devices in a week in a half. ios 7 will support every device since the iphone 4. so, retina display devices only. probably some features that won't work on anything older than than iphone 5. we'll get a new version of os 10. mac sales aren't exactly the play makers for apple right now. and i cloud partnerships, we might get a streaming music service. on i cloud, they could do a better job making it simpler to use. streaming music service, i'm not expecting that much in terms of impact there. apple is unlikely to push things so far that the recording industry would get mad and they are not going to undermine their own healthy music business. software tools opening up apple tv, its interface to developers, especially game developers. that would be big. it would imply things what they

might do with hardware later in the year. >> jon, thank you. take a listen to what was said earlier this week about apple. >> i think apple goes to 500 bucks. it's just too cheap versus a lot of other stocks. given their cash flow engine that they have. it seems like 500 should be a fairly easy place for the stock to go to. >> now, we spent a lot of time talking about how options traders are trying to pick a bottom. would you agree, we're close to one, we have seen one? >> i don't think so. i've been pretty consistent on this. i don't think a stock like apple that had the rage that it was among the world investment community, ends the way it did, you know, last quarter. i think there has to be some form of capitulation. when we head into this meeting next week, we're not going to get anything. we're going have a few months where there is no product news. >> the most exciting thing they talk about is an operating system, i mean, god, how do you get excited about that? but both of you guys talked

about valuation. valuation has been compelling for a long time. it could stay that way for a long time and could get more compelling. i think the interesting thing, though, from an option point of view is that call options in apple are actually really expensive. usually puts are expensive because people are buying them to hedge and calls are cheap because people are selling covered calls. that's not what the options look like in july in apple. call options in july in apple are expensive because people want to get bullish. >> there's a listen for that, too, though. there's a lot of cash on the balance street. that is going to depress volatility on the puts. you are increasingly just dealing with a bucket of cash, which has a volatility of zero. one other quick point. bear in mind that other handset makers like the htcs of the world, they can trade at high single digit multiples for a long time. it's a business that's in favor sometimes and then you're out. it doesn't deserve to have a market premium, i don't think. >> dan, you're bullish? >> well, here's the thing. i'm personally not bullish. i think you're going to have a

better opportunity to buy it. seems like the investment world is universally convinced that the bottom is in. so, taking that quote from jeff, he thinks 500 is easy. if you own it here and a lot of people do and you want to look to add yield to that long position, i think there's an opportunity to do it, focused on their q-3 earnings which should fall in late july, looking at august options. >> dan's got an interesting trade on apple that costs nothing but offers huge leverage to the upside. he's doing a one by two call spread. you buy one call and finance that purchase by selling two higher priced calls. you want the stock to go to the short call strike. since you are short more calls than you are long, always do this against stock that you own. you can think of this trade as an override in which you use that money to buy a call spread against a long position. dan? what's the trade? >> we are calling it apple juice over here. the stock, i priced this when the stock was $441 today. i was looking at august. that's going to catch the q-3 earnings. if you looked at the august 475

500 one by two call spread, you can get that on for even money. you'd be buying one of the august 475 calls for $10 and selling two of the august 500 calls at $5 each, for about $10 total. so, this is how you make money. with the stock between 441, where it closed today, and 475, that call strike that you're long, you just have the gains of the stock, okay? between 441 and 500, you additionally have the gains of the stock. that would be 13.5%. if the stock trades at 500 or higher on august expiration, you're going to make an extra $25. the distance between that call spread that you own. that's an extra 5.5% yield. almost gets you to the unchanged mark on the year, 532. it's a levered way to get some yield, if you do have this strong upward movement. >> this is a great trade and taking advantage of the fact that the calls are kind of big here. you have get to sell that high premium. i really like trades like this. i like situations where you can sell premium around stocks that you own. if it rallies, you gear your

upside there, up to a level where you probably be comfortable selling the stock. and look what happens. you're not committing any additional capital to the trade. if it falls, you can look at other ways to try them, as well. >> this is essentially free. this works best with the stock going to 500. er think that's a bridge too far, given that 460, 470 has been the range since, well, since january earnings announcement, so, that may be a little bit too far. neat strategy, though. we like these. >> let's wrap this up with a little stocks versus options, shall we? want to buy apple? you better have a lot of dough. 100 sharms will run you more than $44,000 at this point. dan's one by two call spread, which you can use only against a long position, cost nothing to put on and could knelt you a gain of more than 5%. not bad. let's move onto our next option. here, it is a company that seems to be doing everything right these days. gm making a return to the s&p 500 this week. the treasury unloaded another 30 million shares of gm. the stock has been on a huge run, with shares up 60% in the last year. mike, what do you makele of this run here? >> obviously, the new gm has

really capitalized on something most people think of as the fuel that's been driving the housing rally, which is low interest rates. low interest rates help promote the purchase of cars. there was a very big lag. we went into the credit crisis. people weren't guys cars. the fleet age is basically at an all-time high. what you are having is now car affordability, much like home affordability, has really come into, you know, has come into favor here. what's happening here, we're seeing a big uptick in car purchases. that's really driving the story. that, plus the fact you deal with a company that has much better product, a better balance sheet. and they are trading at a discount to toyota. one common way to look at multip multiples. they are at less than eight and toyota is 11 times. as you see people start to go back to buying suvs, which are higher profit vehicles, that's going to be a strength. everyone buying tesla, you know,

tesla only has a couple hundred million in cap backs. this company has $8 billion in cap backs. i find it hard to imagine they're not going to be able to build some technology that's going to be competitive and scaleable. >> firing on all cylinders. i love when mike makes a funny. >> any reason to be bullish on general motors, but this makes a lot of sense and this strategy is really good. >> mike is selling a put spread. let's open that play book. you sell one put and buy a lower strike put of the same expiration to protect yourself. the goal here, you want the stock to trade above the short put strike on expiration. that way, you can keep the profits you took in. you will see losses, but they are capped at the strike of the put you put. >> i'm looking to sell premium. i'm looking to sell the july 34 put spread. collecting 30 cents, that's 30%. if the stock really falls hard and fast, if it is up, that's

quite a run. then i'm obviously mitigating my risk to the down side. the stock stays here, continues to go higher the way it has been. i'm going to collect the premium. >> you like this trade, dan? i like the aspect that the treasury is going to come out of their stake pretty soon. this is a very unlevered company and it seems like they are doing a lot of things really well. >> all right, got a question out there? send us a tweet, we'll answer it on our one-on-one web extra, that's right after the show. and tonight, scott is teeing up a bearish bet on google. in addition to the web extra, you'll find great trader blogs, educational material and exclusive trades. coming up next, taking a toll. a special look if rising rates will hit home builders like toll brothers. here's what's ahead on "options action." well, it's a hollywood hit. mike and carter made a bullish bet on dreamworks and now they are the toast of tinseltown. how can they make even more money? find out when "options action" returns. [ indistinct shouting ]

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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." rising interest rates are all the talk in housing this week, as the average rate on the 30 year fixed mortgage jumped over the 4% mark. yes, that is still historically low, but it's the highest since april of 2012. it's also the biggest one-week spike since july of 2011. all that from the mortgage banker's association. take a look at what we've seen recently. the 30-year fixed jumped 17 basis points from last week to average 4.07%. rates are up 48 basis points in the last four weeks. it's current it will buying 85 billion a month in bonds and

mbs, which has kept rates low for quite awhile. the higher rates took their toll on mortgage appliques, refis down 15% to their lowest level since november 2011. they now make up just 68% of all mortgage applications. that share had been up in the high 80s when rates were lowest. this is not good news for the overall economy. refis helped juice consumer spending. next week, a new report from foreclosures. they had been trending lower but we will get a look at how each local market is faring. melissa? >> thank you very much, diane that. no surprise that concerns about rates and mortgage applications are hitting the home builders. the etf sliding 2% this week. so, are these stocks vulnerable to more declines? let's call to the charts with carter braxton worth. what do you see? >> sure. it's a very serious subject. the backup in rates and the selloff in utilities. so, let's look at toll brothers. one of the biggest. four charts, all the same time

frame. this is the first one. this is one way you can draw the lines. a triple top that is forming. a bad formation signaling a reversal. if you look at the second chart, same time frame. this stock, if you want to draw the trend line this way, it's broke trend over two months ago. if you want to be more generous, look at the third chart. draw the trend line a little less severe. we still broke trend within the last several weeks. or you can rely on the smoothing mechanism. it is now flat and turning over. so, home builders as a group were up 7% of the year. s&p up double that, 1415, something is going wrong and we know what it is. the change in rates. >> mike, do you agree with carter? >> i definitely do. not just anrates, but material and labor costs, as well. the home builders were leveraging the fact that those had rose. as they feel the building boom,

they have so start hiring and labor rates are going to go up, as well. this is a company that was doing $6 billion in sales and had an enterprise value of 6 billion bucks before the credit crisis. it's doing $2 billion and it is worth $7 billion. had $4.80 in eps now, it's 74 cents. i ask you, what exactly are people thinking is going to happen? it looks expensive and they are nowhere close to what they used to do. it's really hard to make a bullish case, i think, for a stock at this -- >> so, walk us through the trade. >> here again, something very similar to the other trade i was doing, now i'm doing a bearish bet. i'm going to sell the july 34 for $1.80 and buy the 36 for -- against it, basically -- i'm sorry. $1.80 and $1. again, stock just stays here, i'm going to collect, if it declines and my risk is limited if the housing stock rally gets

reignited. >> scott, do you like this trade? >> i do. it looks a little bit like a counter trend trade to me and we would never get in a situation where we were risking a lot to make a little. mike's not doing that here. he's risking $1.20 to make 80 cents. i like that here. >> even bearish for a very long time. >> the momentum is broken here. i think carter's technical points are very good here, and mike on the fundamental front. it should start to matter at some point, especially if rates start to move. i think that's why this group is dead in the water. this stock is up 3% on the year, so, to me, i think investors are hip to it and i think this is a good trade. >> this all really pivots around whether or not you believe the fed is going to taper or not taper and most on the street believe they're not going to taper any time soon. or it will happen later this year. >> i think that's fair. and i subscribe to that same idea myself. but the fact is, it's gotten people foam us canned on a little bit more. when enthusiasm switching to

fundamentals is when people look at the valuations. this has been the catalyst for it. now they are saying, okay, if they don't taper right now, it's still a space that's very stretched. coming up next, call it a dream come true. khouw and carter's dreamworks bet has played out like a true hollywood fairytale. is there more money left in this trade? find out when we come back. sho] ♪ [ 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. ♪

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[ 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." time now for the upside call. we take a look back on some of our winning trades. a few weeks back, khouw and carter teamed up for a blockbuster play on dreamworked. they risked a little, but made a lot. here's why. on "options action," it's how we wheel and deal like hollywood moguls. risk less so we can make more. and that's just what crow and ca khouw and carter did with their bullish bet on dreamworks. carter thought the stock had legs. >> make the bet they are going

to turn the corner here. >> say, mike thought, this carter guy's got a point. but just buying the stock? 100 shares would set mike back almost $2,000. so, to spend less, mike instead bought the june 20 strike call for 85 cents. now, to make money, mike needs dreamworks to rise above that strike price by more than that 85 cents he spent. or above $20.85 by june expiration. but do you really want to cough up 85 cents just to bet on dreamworks? >> no. definitely not. possibly no! >> neither do we. mike, let's do this for less. >> i'm going to sell the 22s against it. >> it's like easy money meets cheaper by the dozen. i love it. so, to cut the cost, mike sold the june 22 50-strike put and created his call spread. but he did something even better. he made the profits come quicker and here's how. between the 85 cents he spent on that lower strike call and the 25 cents he collected by selling

that higher strike call, mike has cut the total cost of his trade to just 60 cents. and now instead of needing dreamworks to trade above $20.85 to make money, mike now sees money if dreamworks rises above $20 by more than the 60 cents he spent on the trade. or, above $20.60 by june expiration. >> thank you to you. >> well, let's not get too worked up, because there is a trade-off. and by selling that higher strike call, mike has capped his profits to the difference between the strike of the call he bought and the strike of the call he sold, minus the cost of the trade. and since the time in the trade, dreamworks shares have risen some 20%, making this trade a winner. and now, from spago to the chinese theater to the chateau marmont. what will these two hollywood heavies do now? >> before we answer that, let's see how much money was made. had you bought dreamworks stock at the time of the trade, you'd

be looking at a gain of 20%. mike bought his call spread for 60 cents and it can be sold for $2. that's a return of more than 200%. carter helped get us in this trade so let's get back to him. carter, what do you see in the charts? >> the chart is still constructive. we would stay in, let it run, let it get extended. just stay and keep winning, if you will. >> keep winning, says carter braxton worth. mike? do you want to keep winning? >> i would love to. the thing is, with this call spread, we have run out of gas. and the reason is, the most the call spread can be worth is the differences between the strikes, $2 $2.50. here's the thing. if you are going to sell this thing, try to do it with a limit order at $2.20. i'd be a seller. >> all right. our thanks to carter. coming up next, the final call from the options pits. [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats.

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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. talk about getting your

goat. that crafty critter is called a seroh, which is the goat's wild japanese relative, apparently. this one rammed his way into a northern japanese school this week and made himself at home at the deep end of a pool. the good news is it was empty. police weren't too sheepish about nabbing him with a net. but they let him go and that's what we call optional viewing. seroh. who knew? >> take your word for it. >> time now for the final call, which is, of course, the last word from the options pits. scott? >> this week's web extra is how to short google so you can use the proceeds to get long apple in front of the world wide developer conference. >> dan? >> cool. if you are long apple, you use elevated implied volatility to overlay against the long stock position to add yield. >> mike? >> i really like the apple trade. look for a lot of opportunities to do that. what's happened is, volatility that is the price of options, has gone up a little bit though it was down today. still higher than it was. people should be taking

advantage of that by looking to sell premium here and there. that's what i would do. >> looks like our time has expired. thank you so much for watching. for more "options action," check out our website. see you back here next friday, 5:30 p.m. eastern time for more "options action." . 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 just want to make you some money. my job is not just to entertain you, to educate you, call me at 1-800-743-cnbc. the big bad event is now behind us! hallelujah! >> that's