things. now, you stay safe. bye-bye. this is "options action." tonight, is gold's national nightmare over? the man who called gold's collapse is back with a bold contrarian gold call. you won't want to miss it. plus, is the hollywood blockbuster dead? a string of box office duds has hollywood running scared. but mike khouw is looking at one trade that could be an overnight sensation. he'll break it down. and onyx pharmaceutical shares jumped 50% this week. so why do options traders see even more gains? it's a sweet drug deal that only scott nations can explain. the action begins right now.

live from the nasdaq market site in the heart of new york's times square, i'm melissa lee. these are the traders both here on the desk and in chicago and in los angeles. and tonight there's only one story that matters to your money. it isn't stocks, it's bonds. the ten-year yield hitting its highest level in two years. this means that borrowing is more expensive and that could mean trouble for the home builders and the rest of the stock market as well. let's get into the money and find out by how much. brian, if you start to see trouble with the home builders, how big of a threat will that be to the economy? >> that will certainly put a dent in the consumer's pocket. the housing market has been super strong in the last three or four months here. so certainly, if we get some trouble on the home builders and that starts to get stagnant, that may hit the consumer's pocket, people laying out equity to purchase their homes right now. you have to be a little bit worried about that that rates continue to tick higher and that becomes a little bit of a crunch for the consumer discretionary person. >> and mike khouw, we should

differentiate, because rising yields won't necessarily put a damper on the housing recovery, but when it comes to the home builders, which are at historic high valuations, that could be a different story. >> well, that's right, of course. because the home building stocks, the valuations basically are pricing in the best of all possible worlds. so even a fairly strong housing market might not be strong enough for them to sustain the valuations we're seeing. and of course, one thing is with stocks in general, as yields rise, as interest rates rise, then the value of future stream of cash flows, all else equal, is going to decline. that could potentially pressure equities generally. the highest flying ones are going to get pressured more than some of those others. just to put things in perspective, a 1% rise in the 10-year, which would push up a mortgage by about the same amount, is going to raise the price of a home by about 10%. this move that we have seen is pronounced and you could start seeing some ripple effects. >> in terms of some of the ripple effects, brian got to one of them, scott. that is less money in your pocket. if you're a homeowner and you're

all of a sudden paying more for your mortgage, that could mean less discretionary spending. and yet in today's session, we saw retailers actually doing fairly well. >> i think retailers did well because of the jobs number, but what higher rates does is it's great for banks and horrible for banks' customers. if you're trying to borrow money to buy a home, and you're thinking you really missed the boat with rates a few months ago below 2%. so it causes problems. as mike really well pointed out, it causes problems for the home builder. you know, lennar is still quite a ways off its 52-week low. but we saw a big put buying in lennar. big buyers of the july 32 puts today. as you might expect, because this is going to be horrible for the home builders. maybe not so much for housing in general, but for the home builders that have to do big plan developments, they're just really in trouble, because they have so much capital investment. >> and mike, at the same time, in terms of the home builders, you've come tonight with a negative trade on the etf that tracks a basket of home builders

as well as some of the other sort of component stocks, the ones that feed into the housing sector. why not differentiate in terms of toll brothers on the high end versus another one on the low end. won't they be impacted differently by rising rates? >> i think they could be, but of course, really, the issue is that all of these, the whole sector really has seen a lift that's kind of hard to justify on a fundamental basis. so while it's definitely true, as you point out, that dr horton, lennar, toll brothers, pulty, these are not all the same company, in general, this rising tide has lifted all boats and i would expect all of them to fall as well. included in the hxb are a lot of the suppliers to the home builders, names like masco, for example, and some of the others that actually sell the materials for home building to the home builders. and of course, some parts that you might actually think of as home improvement, like lowe's and home depot, whether they will be affected as much seems less likely. their valuations aren't quite as stretched and they aren't as tied to it. but in general, this is an

entire sector that has really benefited from the low rate environment. the valuations reflect that and if rates continue to rise, it's going to pressure all of them. >> so obviously, tonight, mike is bearish on the housing sector. he's buying a put spread on the hxb. this is a great opening strategy. let's crack open the playbook and see how it works. a bearish trade where you buy one put and sell a lower strike put. on the same expiration to reduce your cost. how do you make money? you want the stock to fall to the put of the stock that you sold. that's also where your profits are capped. mike, walk us through the trade. >> this one is pretty simple. i'm just looking at the september 2926 put spread. pay $1.40 and sell the 26 against it for 50 cents. that's a net debit of 90 cents or just under a third of a value of the spread. it's interesting, even as rates have become much more volatile and the xhb, the options are much more expensive for a trade like this, as you might expect. that's one of the reasons why even though we have seen options premiums jump quite a bit within the course of the last couple of weeks on this volatility, i

still think purchasing options is the best way to make a bearish bet here. and because rates have spiked so violently, if they did suddenly dip back, you're not really exposing yourself to too much exposure on the upside. if you would to say, for example, sell a call spread. >> brian sullivan, you like this trade? >> i do for multiple reasons. one, it kind of limits your risk here. two, it's a short play on xhb. what we saw today was a buyer around 2,000 july 28 puts. people getting really bearish on this. and if you look at comparison of the ten-year treasury note and xhb, you see a divergence between the two. in other words, when rates remain really low, we saw the home builders really rally hard. and ever since rates can be ticking up here, we've seen those home builder's etfs roll over a little bit and start to push lower. this is a great trade in a couple of senses. i like the short idea on this. >> let's move on to the other big story of the day, and that is gold getting hit again on higher rates and fears of tapering. our next guest has a contrarian call. and unlike most people, you want to listen to him, because here's

what he had to say about gold back in april. take a listen. >> once something plunges, you have all these people that are trapped. they don't want to dump it at the low, but they want to get it out. you have a lot of dead bodies up above. you're into overhead supply, sell gold. >> all right. it wasn't his first correct call, back in september of 2011, he called the very top of the gold market, none of which is surprising, since he was born with a silver spoon in his mouth. we're kidding, of course. but we want to know where he sees gold going right now. let's bring in carter braxtonworth of oppenheimer. he's abandoning his perch at the post to join us on the phone. welcome, carter. what do you make of gold's price action and where do we go from here? >> sure, i have two charts, melissa. first, what's important, we have almost the mirror image of what was going on at the highs, which is to say when it's quite euphoric, you cannot get anyone to sell, and when it's quite

despondent, you cannot get anyone to buy. that's the human condition. and in my work, anyway, we have the latter. people are despondent, enough capitulation, and i think the charts really reflect that. let's look at the one-year chart. and what's most pronounced is the recent aggressive clutch, which has taken place over the last two or three weeks. we touched a low of $1,180 an ounce just last week. we've bounced up, closing around $1,225 today. but it's that last tail, literally, people popping up, getting margin calls, abandoning something that has been beloved for almost 10, 12 years. on a longer term basis, if you want to look at the eight-year chart that i have here, and this includes the smoothing mechanism, the moving average, we are so far below trend, meaning, the moving averages, a general way to measure trend. you get too far above it, the presumption is you're going to come in, too far below it, and the presumption is that you're

going to throw back. at this point if you look at that long-term chart, our high was 1,$920 an ounce. we hit a low of 1180. that's taken place over almost two years. so basically a 38% sell-off on a two-year basis, this far below trend, below the 100-day moving average. we think it is right to do the exact opposite of what is being done on the street now. you're getting downgrades, across the street. you're getting people talking about gold about to get much worse. we are taking the road less traveled. >> so, carter, let me just bottom line this. does that mean we are seen the worst for goal? because we just had louise yamada on. she's taking a look at similar charts and she says 1155 for gold? >> let's take that, and i apologize, i haven't seen her segment, but what's interesting about it, that's not a whole lot lower. we touched a low of 1180, and that's a very prominent and one of the most well-respected technicians in the world for decades talking about only $30 below the low it reached just

last week. in many ways, let's just give that a reality. that means there's very little downside, all sorts of upside. so i would say nothing is wrong with what louise yamada has said. and might very well be true. but that's the principle of it. there isn't a lot of downside. even from someone who's calling for the low prices, as determined by her price. >> got it. carter, thanks so much for phoning in. >> thank you. >> carter worth of oppenheimer. brian, what's your take? >> i think carter makes a lot of great points. technically, we've had an oversold condition, we've had a lot of volatility in gold here. and for clients, we run a gold model that tracks the macroeconomic factors just as well. face it, higher ten-area interest rates, higher dollar index, stronger dollar, there's less reason to want to own gold. but the fact remains the monetary base is huge when you look back six years ago. there's a lot more u.s. dollars out there in the system. that's a reason to own gold. i don't want to go all in here, i just want to start to average in and dip myself into owning gold here. roughly, we say about a 40%

allocation of normal gold exposure here. so one way to do that, sort of, is to buy a call spread. rather than outright buy the gld to buy gold, you buy a call spread. what i'm looking at here is the july 113, 121 calls. i'm looking at the weekly expiree of july 26th here. keep that in mind. i purchase the july 113 call. at the same time, i can sell a july 121 call. now, net on this trade costs about $4.50. so the break-even is right where gld is trading at right now, 117.50. that's the same kind of exposure you would get by selling the stock. but by selling that 121 call, i get called away from my position. and let's face it, folks, gold has fallen so far, there will be some resistance up higher in the gld. i don't mind getting called away. so why not take in some extra income here, protect my position, so gld really falls hard and i'm wrong about this or carter's wrong, i'm at least protected, i have limited risk, and still get the upside potential.

>> and if there is a possibility of further downside risk of 1135, although it's not much farther, it's still not probably something you would want to feel the pain of. so maybe a call spread is the best way to put a gold trade on at this point. >> i think it is. first of all, we take a look at gold's performance historically, what we've seen is that when gold does enter a bear market, they can be very steep, very pronounced. i think the average has been almost 50% decline in gold. if you go back to the '79, '80, '81 rollover in the metal, basically you're taking a look at a decline in real estate terms of 70%. i was bearish on gold last week, but today we saw a little washout. i could see a little bit of a technical bounce here. but longer term, if rates continue to go higher. especially if they go much higher, that's really dangerous. and i think that the only way you would want to make a bet is using call spreads, as brian suggests, because there still is some opportunity for it to go sharply lower even. >> let's wrap this up. a little stocks versus options. want to buy the gld, despite the sell-off, it ain't cheap.

100 shares will set you back almost 12 grand. brian's call spread will double his money and risk just $450. our thanks of course to carter from oppenheimer. send us a tweet and we'll answer it, on our website, optionsaction.cnbc.com. and tonight, scott's bearish a trade on netflix that can more than double your money. in addition to that, you'll also find educational material and trader blogs. here's what's coming up next. is the era of the blockbuster over? >> no! >> sorry, darth, but mike khouw says yes, and he has a way for you to profit off the next hollywood flop. plus, is the vix signaling a big, red warning sign? brian sullivan, one of the biggest merchants on the street, will reveal what your next move should be. that's all ahead on "options action".

[ 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. whether bullets that killed him, from the great beyond, it will protect you. and the ones you love. >> not many people loving "the lone ranger," with just $10 million taken in on its first day this week, the film is officially being called a flop of epic proportions, but it is not alone. other blockbuster duds this summer include "white house down," which was released last week, and remember "after earth," will smith's gift to his son has been anything but to sony, which released the film

back in may. may was actually a rare good month for movies, but it has been a rough summer at the box office so far, both june and april saw some pretty steep declines. so is the era of the big blockbusters coming to an end? mike, you're a movie buff. what do you say? >> yeah, you know, it's interesting, because it hasn't just become a blockbuster at the box office, it's been a blockbuster for people who have owned shares of a number of these companies. if we take a look at the broader media companies like disney, they've done pretty well. but then you take a look at companies like lion's gate, lion's gate says the days when carl icahn was doing battle, these guys have really done a phenomenal job and the stock's up about 100% over the course of a year. i think what you have to keep your eye on is not just the fact that, you know, there have been some duds at the box office, but, of course, we're getting to about the midpoint of the summer here and some of the valuations of these stocks are also looking a little bit steep. at about 14 times ebitda per lion's gate financial, that's above their average, above the industry's average. dreamworks may be stretched even

a little bit more at about 20 times, and 20 time earnings. and what is the hope here? obviously, the hope, when you're lacking at these companies is that the movies are going to keep dragging. and i don't see that happen. >> for lion's gate specifically, 52-week high in today's session. the hope here that in november when the next installment of "hunger games" comes out, the stock will run up into that release. or continue its run, i should say. >> absolutely. and it has had a tremendous run in the stock here. and you look at the bond prices behind lion's gate here, when you're worried about bankruptcy way back when a couple years ago, actually, the bonds have traded very well in there. so those have rallied. that means the stock is going to be rallying. people are going to feel comfortable about owning this stock, and i think they've really turned the corner, as of about six months ago here. so certain you you could see a runup into that release of a new movie coming out in the fall. >> they're still a little while away between now and the fall, so what's your trade here on lgf? >> i'll take advantage of the fact that the move has been violent. i'll look to sell the call spread, only $1 wide.

sell the 31s for $1.50 and pay $1.10 for the $1 higher strike. so essentially i'm collecting 40 cents on a spread that could essentially be worth no more than $1. if the stock stays right here, i'll collect that money, or if it goes a little bit lower. to the upside, if it manages to blow through those strikes, i'm limiting my risk, at most to 60 cents. but even if i were to cover it in the stock rally, i probably wouldn't be facing losses o of that kind of magnitude. >> scott, this has been a monster of a stock. would you put this trade on? >> i like this trade a lot. and we talked before about countertrend trades. great sort of countertrend trade. when you're putting a trade like that on, you don't want to risk a lot to make a little. this is almost a coin flip. in general, options traders think there's more upside today. we saw five calls in lion's gate trade for every couple of puts. but mike really has the math working for him on this one. coming up next, some very large bets being placed on the vix today. do traders see trouble ahead? we'll get a special report from scott lint, one of the biggest vix traders on the street. that's all when "options action" comes right back.

time for pump up the value, the names that are heating up the options index sizzle index this week. just say no, that's what this big biotech company did when it offered a $10 billion takeover deal from rival amgen, and shares were high as a kite this week as the company actively explores other options. so options traders are now actively exploring the drug world, making big bets that the sale of this company could send them on a trip. who is it? the answer 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.

it has been a volatile summer for stocks, so what does the vix, the so-called fear index see for equities going forward? who better to ask than brian. how do investors use the vix to make market decisions? >> i think you hear about the vix, it's at 25, it's at 20, whatever. what it's really measuring is the price of calls and puts. but for a moment, let's look at vix as a measure of fear. when vix is very high, there's a lot of fear in the market. when it's very low, people are feeling very good. how do we use that to benefit and buy and sell stocks. well, you look at the s&p over the last five or six years.

and when you talk about the new bull market that we've been seeing here, the vix sort of petered out and hit a relative lower high here, as the market was moving to new lows. what that means is people were less fearful about the market and buying into this last final dip in '09 and willing to ride out this new bull market here. when you look at the vix, we look at certain ways to tell us when to buy and when to sell. so when that see-saw stops moving up and down in counteraction to one another, that tells us an indication that the trend is changing. and what we saw here in 2013 in may, as the market was moving to at or near all-time highs, the vix actually was rising. so what that tells me here is hedgers are getting in place and hedging themselves and getting fearful about the market making new highs and not willing to stick with the market. so certainly, that was a reason to sell, back in may, and kind of go away for the month of june. now, what we've seen here, in july, is actually the vix has been normal behavior. people are becoming less fearful, the vix has tanked down off of its highs.

it's sort of made a double top here at the beginning of july, and now the market is railing. people are feeling good, they're less fearful. i think if you think of the vix as a fear indicator rather than the price itself, it actually gives you good insight to see how people are feeling about the market. and certainly by the vix moving lower here, this is a sign that the market moving above its 50-day moving average is a really good sign that we could see the s&p 500 move back above 1650 very shortly. >> above 1650, that's not bad, scott nations. >> no, that's pretty gad. i think the only problem with the vix, is there's a significant amount of seasonality to it. they like to go away and collect that premium. options traders like to sell s&p options in the summer and go away and collect that premium. the vix is higher than you would usually expect for the first week in june. >> one thing i would make, case in point, the see-saw action is happening again. the market is rallying and the vix is falling. we're not seeing that see saw between fear and price action in the market get stuck here.

so that's usually a sign that things are healthy, that the bull market will continue. that's how i would look it. coming up next, we've got the final call from the option pits. ♪ [ 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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♪ all on thinkorswim. from td ameritrade. where were options traders pumping up the volume this week? onyx pharmaceuticals. at one point, call volume was more than 4% above the average daily volume. you just heard how onyx calls were active. scott, what'd you see? >> the company put itself up for sale after it turned down the amgen bid. we saw strike prices as high as 150 out to the january expiration. time now for the final call on this friday after the july 4th weekend. so mike khouw, why don't you kick it off for us? >> sure. i'm not a gold bug, i have actually been bearish, but i like brian and carter taking a contrarian view here. it does look like it's protected. >> scott nations? >> is a put play the best way to be slightly bearish in netflix? we'll talk about it in the 101 web extra. >> and brian stutland. >> fear has left the building, the vix has fallen hard, the

market has rallied. i think it will continue over 1650 in the s&p. i would be a buyer of the market right now. >> brian, thanks for joining us here in new york today. looks like our time has expired. i'm melissa lee. for more options action, check out optionsaction.cnbc.com. have a great rest of your weekend. see you next friday back here. >> male announcer: the following is a paid presentation for 10-minute trainer, brought to you by beachbody. do you want results like this? then get ready, because for the first time ever, 10-minute trainer is available for 50% off the price. >> hi. i'm mark steines, coming to you from hollywood, california. we would all love to lose weight and get in shape, right? but the problem we have is time. look, i had all the excuses in the world -- i was too busy, i was too tired, not enough time -- that is, until i discovered 10-minute trainer. that's right -- 10 minutes.