things. now you stay safe. bye-bye! . >> the ballm. steve's stunning announcement sent stocks soaring. >> here's johnnie! >> how high it can go. plus the secret every investor wants to know. it's google's secret sign and each time stocks have rallied. >> small stocks with big problems? >> i've got a problem.

>> troubling signs emerging. we'll tell you what they are. the action starts now. >> live from new york's time's square. i'm maggie, sitting in for melissa lee. hello, boys, great to see you. forget about microsoft for a second. there is another beaten down tech stock bringing smiles to the faces of investors everywhere. that is facebook breaking through 40 bucks on an upgrade. with this move, facebook's market cap is just shy of $100 billion. that's with a b and that is more than mcdonald's and american express and even boeing. the question we have, is it too late to get in? brian, i will start with you. everyone pointed to the 38 mark, ipo price as key bias. we've broken in with 40 bucks and a little bit of change, do you see more gains from here?

the move up caught me by surprise. i made some trade, hoping to see the stock down tick a little bit and i could get back in. they're meeting some of their goals. monetizing to add revenue out of the mobile area. 40% of their revenue. video demand the next thing coming from them where they can charge and the earnings is strong. >> yes. certainly, facebook come at an interesting time. investors pulled the most amount of money out of u.s. stocks in five years. do you think the rallying names that like facebook and-like am might pull those investors back in and like apple. >> you have a couple leaders basically representing the index and how the market is doing more broadly. facebook is a good example these

are big stocks doing exceptionally well. in facebook's case it's interesting. we're seeing revenue surprises and earning surprises from the nay-sayers. i have to admit i was one of them. i have to tell youthy think the valuation is getting a little bit questionable. whether people should be taking their money and plowing it into these stok these stocks is questionable. where the fund flows is indicating those may be an opportunity at chasing facebook at 10 times revenues. >> that's a very good point about the valuation. scott, do you agree or disagree with mike? >> the reason we see facebook where it is, now it's a business. not a a fetish. people are figuring out how to make money and traders put facebook for every put. call volume three times the

average. it strikes above at the money. really, what's going on, it's finally fulfilling its promise as a money making enterprise. >> not just a fad but the cool cats. will you be buying at base levels? >> it's hard to buy here the valuation getting a little bit lofty. a lot of guys i hear on the trading floor crying about it. don't cry about a trade. if the stock has gotten ahead of you. i'm still looking for a pullback to get in going forward, whether they miss earnings come october and after that, i want to own the stock in a pullback because i think they're doing the right thing to project themselves forward and get to the growth numbers everybody was looking for but i want a lower number. >> brian is selling a put. usually we buy puts.

let's explain how this works. when you sell a put you want the stock to stay up. you want it to stay above the put at expiration. that allows you to take money you put in. if you are short that put, you could be forced to buy the put at that put strike price even if the stock falls below that level and that could mean losses. that said, what's the trade? >> you have to have a conviction to buy the stock when it gets down there. i do. basically come monday i want to sell a january $36 put. a strike price at $36. i can collect $2.05. it was trade being there earlier a little cheaper now. at five cents, that's 5% of the stock here. by selling the put i'm selling insurance, meaning i'm obligated to purchase the stock at $36. i want to do that.

i will keep cash set aside to do that in case i have to. in the meantime, collect my $2.05, earning some on the cash, a good way to buy in on the debt. if i miss the upside, i do. at least i made 5% in five months. >> what do you think of that trade? >> one advantage is facebook is not a levered debt, and the volatility is still rich enough you are collecting meaningful downside on the puts. i'm not so crazy about the valuation for those inclined to get on the bull train on facebook, this is a good way to do it. >> want to buy facebook? that will set you back 40 bucks a share. worse case in brian's scenario he could be forced to buy it for $34 a share or 10% discount. let's move to the big story of the day, in case you missed it, probably didn't.

microsoft, massive move high after they announced ceo steve ballmer will retire within the year. the real options market is the story. d dominic has the debut. don't mess it up. >> i won't. options traders see more big gains for microsoft and 640,000 call options traded today six times the normal volume for call options. most action centered around 35 strike calls. one trade had the option world buzzing, one bought 35,000 for 75 cents each. what does that mean? it means that person sees microsoft trading above that . 45.75 mark at january 15th expiration. that trader sees microsoft rising 32% by the end of next year. if that were to happen it would

be the highest microsoft stock has traded since the year 2000. some big bets mr. softy could make a big move higher. watch those options trade, mandy. back over to you. >> thanks. you're a keeper. let's bring in our resident chart master. see more gains for microsoft beyond today's pop? >> not particularly. let's look at it. i want to zero in on one chart. this is the basic one year chart of microsoft. i want to focus on the plunge of july and recovery today. the average and smoothing mechanism you see on the next chart is all the same principle, which this is following. when a stock has a violent reset and that day there happened to be earnings. there's always a news that causes a gap, on 250 million shares and today, an equally symmetrical reset on about 200 plus million shares. news related drop in gap and news related heavy upthrust in

gap. what's important the low of the day of the gap is $35.22. you know where microsoft stops today on the high? $35.20, within two cents. that's not random. the reason that occurs is because when having lost a lot of money a stock recovers to the level from which it plunged, people's memory kicks in. all the people that took this bad hit want their money back. this is the first chance they've got to remain hole. we think this is a dead animal here. likely to spend a lot of time. here has the long term chart. this high of '07. we know the stork market exceeded the '07 high by a good measure. they exceeded it by three bucks. we think the best you can get out of this longer term is around the 38, 39 level. look at this experience over the past 10, 12 years, not a happy one. >> absolutely, carter. thank you very much. what's your take on what carter was saying technically and your

take on the trade on microsoft? >> i'm inclined to agree. the issue is pc demand. it's weak and includes names like intel. changing the ceo is the hope that will change but it's not an easy thing to change. they might be losing their own space as well as as people migrate to other operating system. i'm not enthusiastic about it. i would never short a stock like this. instead i'm selling a call spread, take in a little bit of premium and bet the stock holes in this level and the 35 is the stock i'm looking to sell, collect the 35 cents and pay for the 36 against it. if it stays i will collect that money and if it drops down i collect it and only risking 60 cents to the upside if i carry it to the upside which i won't. >> does that make sense to you?

>> he's selling a much higher level and risk reward makes a lot of sense. only two things have changed in the last 24 hours. the ceo is gone, the company is worth $16 billion more and options traders say it's now 5% less risky. some things haven't changed, mike talked about declining pc demand and not changed microsoft missed on tablets and mobile. i want to bet against this. like the fact mike is putting on a bearish trade after the spike has stocked. >> brian. >> to be honest i'm long on the stock. like it as a slow money play. microsoft makes a lot of sense if you want to own the stock and collect premiums against your stock position. a great play. to carter's point, looks a little top heavy, probably going to trend around until we see who the new ceo is, will there be r&d until they see if they can get back the simple pc being

their market. >> if you have questions, sent us a tweet and we will answer it tonight in our one-on-one extra. and you will find great trader blogs, educational material. go check it out. this is what's coming up next. maybe you shouldn't sweat the small stuff. brian thought small caps were about to plunge but they've hardly moved at all. how can you save this bearish trade? plus, don't bother googling it, we're the only ones that know the secret google buy sign? what is it? we'll reveal when "options action" returns. [ 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.

♪ [ 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. ♪ lost in the tech forum apple and microsoft is the relatively flat performance of google. traders have started to see opportunity. what are you looking at with google? >> you can see fear and option pricing in google. let's start in the s&p 500 and you can get learning experience how fear and stock prices work together. what i like to see is declining fear, declining volatility in the options market. every time we get to new highs, we see lower and less fear.

making a new low again and again. if we get to a new high we could see the vix get to a new low showing the market is in contact. google, stocks are a little bit different. the google vix calculated by the chicago options exchange shows the same pattern. after the earnings and fear and excitement about the earnings move comes out, you see google as it had this nice huge rally making lower lows in the google vix, volatility index. you see fear coming out. traders not needing a hedge, love owning the stock, don't need to buy the put. even if a stock has bad earnings like we saw in google, we saw lower lows in the vix. that's a nice trending bull market. to me, that tells me the stock is very healthy and a buy. >> can you tell me the trade? >> for options traders options action we like to risk less and make more. you can go out and buy the

stock. one way to do it buying the $8.55, purchased that for $55 and then $21. you break even basically is $875, right roughly where the stock is trading at. i believe google can make a run and push towards the 900 level. does it get to a thousand like a lot of people are talking about. you're risking 20 dollars to make $20. if things fall apart you're stopped out at 855 and can't lose more than you paid. >> what about you, carter, do you like google at these levels? >> i'm with that. the stock acts well. the pullback is orderly and what you want providing an opportunity to buy. >> carter is 100% behind it. what about you, mike? >> one of the things brian is trying to do get in a position long using options mitigating the downside risk and not spending a lot on decay.

by setting this up in the money call spread you don't have that dynamic so i like the trade allot. >> lots of likes going on for google. the thing about this if the stock goes sideways you don't lose that much money, a tiny bit but not much. you would lose a lot if this was out of the money call spread. if carter thinks it's going to 1,000 bucks this is not the trade because it will only make money to $900. >> thanks. coming up next, small caps have hung in there but have warning signs ahead. we'll tell you what they are when we come back. ♪ [ 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.

♪ [ 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, everybody. i bet you boys really hate this segment. it is the time they get called out when we look back on the less successful trades shall we say it. winners are great but losers can make you better. a couple weeks back brian made a bearish bet on the russell 2000. on options action is it no small motto. risk less so we can make more. that's just what brian tried to do with his bearish bet on the

index ryan 2000. they're an indication for small cap stocks. well, it wasn't quite like that. so what exactly was it? well, basically brian noticed the standard correlation between prices for option and russell 2000 and the index it south florida -- >> had gotten way out of whack. >> everybody getting this so far? >> if you don't, just picture this. and perhaps this too. just going short the index, well, that -- well -- so, to define his risk, ron instead bought the iwm 97 strike put for $1.15. to make money, brian needs the russell et forks fall below the 97 strike below the 115 he paid or below $95.85 by the september quarterly expiration. >> fascinating. >> but it gets even better. that's because by buying that

put, ryan's maximum loss is that $1.15 he paid. if he shorted the item, the etf that tracks the index he'd be on the hook for unlimited losses if the index continued to rise. since the time of the trade, the index dropped by but not enough to make money. did he accomplish anything? he lost by 2%. >> does anybody want to accomplish anything or just make money? what to do next? in all fairness to brian he got the direction right but it hasn't fallen enough to make this profitable. brian needs it to fall below 96 bucks by the end of september to make money. september is a ways away and the market is showing weakness. what do you think? >> seems like the market wants to hang in the next week. and maybe other trades to

mitigate the risk. i still see risks in small caps. they had a huge performance. look at valuation wise and compare to large caps. the ratio of small caps to high caps is on the high end of things. i would be looking to rotate money into something else, looking to hold that put only down 30 cents, probably stick with it, sell another option later in the day if you're worried about the decay here. the purpose of buying this option was to give myself protection against my overall global portfolio. i think the small caps are the first one to go if we see this market crack if i'm worried about that and it is cheap enough to hold on to it. >> do you think brian is makein the right move? >> a great move. the truth is the market is deteriorating quite bad hi. the number one thing worked unchanged on the air. home builders as a group and started to pill over in consumer names. saw dropping in g.a.p.ing and

target and others getting smoked. it started happening in consumer names like haynines and mattress and auto and financials. the structure changed dramatically. i think the trade is just fine. >> what about you, mike? >> another quick point i would make, between now and labor day, the prices of those options is not likely to decay as you might suspect. i would stick with this. >> a reminder as we head to the break. if you want updates on these trades follow us on twitter. if you are on facebook, follow us on facebook.com/options action. coming up next the final call from the options kit. don't go away. ♪ [ 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. "options actio23

♪ [ 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. ♪

call it love at first bite. love comes in all shapes and brains. that is tonight's optional viewing. ah. time now for the final call. i don't know whether you guys can really follow that. that is a hard entree, isn't it? the last word from the final option, standing with you, mike. >> if you didn't already put on the hedge that brian recommended on the iwo, i think there's still time. i like the trade. >> what about you, scott? >> i like retailers and today's web extra how to get long for no money but giving yourself a big margin of error. >> carter? if you're not long, get long. >> you, brian? >> whereas fear has indicated google is a buy. you have to be concerned about small cap stock. i'd hang on to that put unless you see iwa trade above.

>> that's it for us. for more "options action" go to our website. see you next friday, 5:30 eastern. >> announcer: the following is a paid presentation for the fusion juicer brought to you by tristar products. this is an important message. we see it all around us. two-thirds of our population is overweight. it's time as a nation to wake up and realize how fat and unhealthy we're really becoming. over the past 30 years, our fast food lifestyles have helped to create this health crisis, with an increase in heart disease, high blood pressure, obesity and diabetes, and it's starting at an early age. it's becoming a worldwide epidemic. but there is a solution-- natural, nutrient-rich whole reods and an easy way to help