now, you stay safe. bye-bye. this is "options action." tonight afraid to buy stocks now? >> i don't want to come in here and look stupid. too late. >> no, it's not, will. we're looking at late stage rally plays that could have your portfolio back in the game. we'll tell you what they are. plus -- >> free your mind. >> with the government off gm's back could shares follow into higher tier, we'll have a special report. talk about a hot hand. >> all reds. >> yeah. >> what up, dog? >> casino stocks hit the jackpot.

is their luck about to run out? action starts right now. live from the nasdaq markets in new york city's times square i'm me l melissa lee. these are the traderers at the desk while stocks continue to make new records curious names losing ground today. pandora giving up almost 2%, and it had company in that space, zillow also lower on the day. investors are clamoring for stocks, why are they shunning high flyers? could that open a pandora's box of its own? it does seem investors are suddenly turning away from momentum, just as the markets are heating up. >> it's interesting, there is probably, if you look at stocks, the web stocks, solar, they caught headlines in the last few months, they had fabulous gains, they were leading i think a lot of this conversation about speculative bubbles forming in the market. in some ways the price action, the s & p makes new highs right here, and these stocks don't participate, a lot of people make the argument, that's

actually bullish, you're seeing rotation outs of this. it is bullish. we closed at a high today. these stocks can't get out of the way. so to me, i think we tend to be skeptical. there is plenty of opportunities to get short things in a raging bull market. so to me, i actually think it's bullish activity, but i think there's opportunities to make money on the short side. >> do you agree? that implies there is rotation. >> there is definitely rotation happening. actually, you can see that in options prices. how? well, actually, you see it, when index options, things like options on the spy and iwm are relatively low, compared to some of the options on single stocks. that suggests, that stocks are going in different directions, people are actually picking stocks, instead of just picking the market and letting it ride. i do think that that's a healthy thing. i think it's healthy to be selling high flying names, the valuations, and i'm more of a valuation guy, really didn't make sense to me. >> it is absolutely healthy and you just saw how the broad market is in the vix, and it is in the all-tie 12s which is

interesting, because it is at an all-time high. because the s & p and the dow are making all time highs, and the vix can't make a new 52 week low. what does that say? for the broad markets there is skepticism. but you know the fact that tesla and pandora and some other names might roll over, might take a header, that's good. now, in pandora, biggest trade today was a buy the puts, they paid for those selling calls in december by far the biggest trade, and it's interesting, because that is an outright bearish trade. >> so i have a question for you, dan. you mentioned that most of you here are skeptical. and that has been the pattern, i have noticed myself, does this mean you are bullish with the market? >> not really. listen, we're probably going up into year end, but listen, i'm focused on these web names and we'll talk about pandora in a second. i have bearish positions on zillow and yelp, i think these are critical technical levels. they act poorly, i think they will go lower. that's why i look at pandora. they reported last night, the guidance was light. but here's a stock that's actually just a few percent from the 52 week highs, which most of web 2.0 are not.

one of the things that's interesting, we talk about after events. we have a chart of implied volatility for the last year of pandora, results were out last night. implied volatility is back towards the 52 week lows right now. it's making on a relative basis, you know, option purchases in a name like this more attractive. >> sure. so what's the trade, ken? >> i think you want to press this short, look at the chart. i want to make a play for a move back to 25, i think if it breaks there, you could see the thing start to snowball. today the stock was $29 i bought the december 29 put for 1.60. my break even is 27.40. above 29 i lose the whole 1.60, but if this whole thing starts to go down and implied volatility pick up, then i can sell it at the implied strike put. >> this is the trade to make, when you start seeing an implied volatility graph. that's just a measure of how expensive options are when they are inexpensive that's the time to buy them, don't get fancy is sell things against it. this is an opportunity trade, too. we had a market that had for a long time basically going one direction. if the market does exhibit

cracks, these weak stocks will get a lot weaker, that will be a great opportunity to spread out of it. >> the only beef, it's true implied volatility got 25% cheaper today. that doesn't mean it's cheap. you are actually spending a fair amount of money for a low-priced stock. if you look, it is interesting, because there is a divot after the may earnings, and if you see the same thing after these earnings, this is a term that you spread your way out of or take a profit. i wouldn't say that options in pandora are cheap. >> is that -- what would you say? >> you are buying 50 implied volatility. scott is 100% right. when i have been playing other names like zillow, i have to spread them. the vol is crazy. so to me, this gave me the unique opportunity playing after the event. >> expense is also a relative thing. stock moves a lot. >> let's wrap up with a little stocks versus options, want to short pandora shares, that carries unlimited risks stocks can go up forever. big leverage to the down side

and risked just $160. let's move to a story that's been overlooked here. it's heating up the options market. that's the government's planned exit from general motors, our man dominic chu back at the cnbc studios with more. >> gm is getting closer to shedding the nickname of government motors, the treasury department said it will likely sell the rest of its stake in the automaker by end of the year depending on certain market conditions. now, that would mean divesting around 31 million shares. now, remember, gm was bailed out by the u.s. government during the financial crisis, treasury says it's now recovered around $38.4 billion of the $51 billion it spent on gm's bailout and restructuring. after the government stake is sold, gm would be free of certain restrictions on things like executive pay, the canadian government and united auto workers health care trust still have very large stakes in general motors. now, on the options front today, about 45,000 calls traded today versus 42,000 puts. so decently even, and shares of gm are up around 30%, melissa, so far this year, so interesting

action for sure on the options front. >> thank you, dom. the government back, will gm follow another ward of the state, aig. let's call to the chart, the one and only carter braxtonworth. >> interestingly of course the government lost money in general motors and made a lot of money in aig. let's look at the charts. here's something interesting. this is a one year chart. and aig and general motors have nothing to do with one another, but they are literally correlated at a 95%. and in fact it's gone going on for three years, this is '11, '12, '13. these stocks are tracking one another. let's look at general motors. this is well defined, up trend as you can find. as a principle in the bottom, you ricochet and then top, you fail and then hit the bottom and you ricochet, but the presumption is to get to the top of the channel, and that implies $40. look at the long term chart. we draw the same lines here and here. but the principle is we have a nice triple bottom, and the price objective is the past

high. $40, or 6% from where we closed today. >> positive. mike, i'm curious, even without the government's exit, a lot of people are very bullish on gm just based on the fundamentals and the auto sales we've seen this year. >> well, auto sales have been strong as long as rates remain low, it seems likely to continue. people often talk about the average fleet age here of cars in the united states, that suggests the buying pressure could continue. the other thing people like to do, they like to look at the fundamentals on the next 12 months expected earnings basis this is trading at less than nine times. on the ebida basis, i would caution people that number one, the stock has had a strong run. the other thing is, autos are cyclical. so just taking a look at what you think happened over the last six months or is going to happen over the next six, isn't necessarily the best way to think about it, you might want

to spread analysis over a longer period of time. some people look at cyclicly adjusted earnings. i am inclined with a rising market, with relatively attractive multiples relative to what's expected to make a bullish bet along with carter. i want to basically mitigate my risk. >> so let's get into mike's strategy. bullish bet. he's using a call spread. we haven't used this in a while. bullish strategy, one call, sell higher strike call against it to reduce cost. you want the stock to go to the high strike. that's where you make the most money. that's where your profits are capped. mike. >> i'm looking at the january 39.42 call spread. i will buy the january 39 call, spend 1.25 for those, sell the 42s against it for 40 cents a net debit of 85 cents, about 28% of the distance between the two strikes. one of the things that's interesting, the government did indicate they were going to liquidate their position by year's end. this gives me time to play out. since i'm extending to january expirations, if they unwind it, that would pressure the stock. this gives me opportunity to see a little bounce after they are done. >> i think this one is interesting. options on gm are cheaper than on pandora. this makes sense. why? because mike is selling a call reducing the cost of the whole

thing by a third. selling a strike he doesn't expect the strike to get to. if it does, he will say hey, i was more right than i realized, but he's actually happy to collect that 40 cents reduce the cost of the whole thing. he doesn't think it will get there. >> dan. >> i like the trade. i would like to enter this trade when the stock is 36. i think that's a great support level. the chart has been in this massive consolidation. i think the stock sale of the u.s. government has been an overhang, this is a stock in the new year investors will come for, when they don't have the overhang. >> that's a good point. one of the things on a friday night, the stock might go out at a different price than on a monday morning. what you need to do, obviously, you take things into consideration, these structures make a lot of sense, adjust strikes accordingly if the stock is lower. >> got a question, send us a tweet @cnbc options. we will answer nit in the 101 wb extra. tonight scott has a way to protect your portfolio using options, you'll find great trader blogs and educational material. so check it out. here's what's coming up. >> looking for a late stage

rally play? >> yes. >> what dow component could be poised to break out? why are these two people suddenly best friends? >> it's not exactly an accurate statement. >> because they are both making money on shares of wynn. find out how when options action returns. [ male announcer ] once, there was a man who found a magic seashell. it told him what was happening on the trading floor in real time. ♪ the shell brought him great fame. ♪ but then, one day, he noticed that everybody could have a magic seashell. [ indistinct talking ] [ male announcer ] right there in their trading platform. ♪ [ indistinct talking continues ] [ male announcer ] so the magic shell went back to being a...shell. get live squawks right in your trading platform with think or swim 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 to "options

action." if you're looking for where a lot of the stock action has been over the past few weeks, it's been in the megaintegrated oil companies, take a look at shares of exxon mobil. this is up around 11% since made october. and then we learned of course that billionaire investor warren buffett has taken around a 40 million share stake in those xmo shares. then america's second biggest oil company, chevron also up around 7% in that same time. now, overall, large integrated oil companies have had been a new focal point for investors. even the energy sectorspeeder ticker xle on a stealth rally. despite a drop in oil prices. so the real question, melissa, what are investors seeing in those big oil companies? back over to you. >> thank you, dom. if you missed out on some of the rally here, large oil names and exxon in particular a good way to play catch-up. carter and dan have their pens drawn at the super power plasma. sounds dangerous. but carter, kick it off. >> sure. let's look at some charts. so what's important of course, energy is the worst performing

sector off the lows of this bull market. meaning real underperformer. that's what we think the opportunity is for the group and for exxon in particular. take a look at this chart, this is the s & p 500 energy chart. and it's a well defined channel. and there is every indication it's not too far too fast. the implications are higher prices. take a look at this also, this is again the energy sector, and as a matter of principle, after a plunge and well defined recovery, you usually make it back to the top. which implies, again, further prices to go. now, take a look at exxon mobil. the same trend, what appeals to us here are these well defined tops, the breakout potential is enormous, the tension here, and why the stock is going sideways this long, it's happening for a reason. it's happening at the past tops, meaning, it is contending with the '07 high. and the more time you spend waiting, resting, ultimately, after responding to a high, you

exceed a high. this is a heck of a jiauncture r a very big stock and the presumption is higher prices. >> yeah. to me, you know, first of all, you know i come equipped with one of these things, too. you know what i mean? he's got great long term charts. and i get all that. let me tell you what i'm looking at. i was about a month ago was looking at this and saying i thought this level right here was a bit oversold. i made a short term bullish bet here. i probably took profits a little too soon when i thought it hit resistance, what am i doing right now? this stock went parabolic, this is exxon not yelp or pandora. we find out mr. buffet takes a 40 million share stake. and that explains a lot of the move. what i want to do, i actually think on a near term basis, that the chart is a little overbought, just like i thought it was oversold on the downside. this line right here is the 200-day moving average that i believe that the stock can pull back to in the next two months or so, because it is a momentum move.

i want to make a defined risk bet. i screwed that up. >> you know what the beauty of this is. there is an eraser. look what i can do. >> what i want to do, the previous all time high from may 2008 was 96.12. a little above here. i want to make a near term bearish bet with defined risk. when the stock was below 95 today, i bought the january 95.90 put spread for 1.35, that's my max risk. i paid -- oh, the 95 put. my break even is 93.65. between 93.65 and 90 on january expiration i can make 3.65 i'm looking for a modest 3% to 5% pullback to the level here. i think that's a reasonable bet. >> i feel like the use of the smart board really gives us a window into your personality. almost like oscar and felix. and you can decide out there who is oscar and who is e felix. >> take a look at, i think this is an important principle. when you have a move from an intermediate low, right back to a pass top, usually you get stuck.

there's memory, people bought here, had a disaster of a purchase. these people want out. so you do encounter over supply. this addition of 85 to 95 is $48 billion. that's bigger than hewlett-packard, that's bigger than target. from a short term point of view the trade makes sense. the longer term point of view, this is a powerful stock. >> exxon is approaching all time highs but crude is not. my question would be, when you buy an integrated oil company, what you are doing, you are buying a big reserve of oil. so my question is, doesn't it seem like the integrateds are stretched relative to oil prices? >> either of you guys? oscar or e fee lix? >> well, let's ask the chart is. >> crude of course has collapsed we went from 1.05 to 94. but ultimately, the day to day prices have nothing to do -- >> i think this is a sentiment trade. the stock got bought up with buffet. >> carter has a long term view. dan has the short term view. this is a trade. so here on the desk, do you like this? >> i'm with dan.

i like dan's. >> i like this trade but more important is the fact you made the distinction between the stock and the option trade. i think that's really important. these guys can both be right. >> absolutely. >> coming up next wynn resources had a great run. is it time to cash out? one of the hottest trades this year is about to go cold, we'll tell you why. [ 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. ♪

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welcome back to "options action." time for total recall. we look back at existing trades, a couple weeks back the card counting duo known as carter and khouw made a bearish look at casinos, and they may move lower and here are some reasons why. on options action it's how we bring down the house. risk less so we make more. and that's what carter and mike tried to do. carter thought shares would run out of luck. >> we would say harvest. >> just shorting the stock, this ain't no indecent proposal. >> it's absolutely true. >> so to define his risk mike

instead bought the march strike put at 8.25 and now to make money, mike needs the winn shares to fall below that 160 strike price or below the 151.75 by march expiration, and the risk is 8.25 just to bet against the casino, and mike, you keep spending money like that, and we are going to end up like this gu guy. >> a this is pretty funny. >> so to spend less mike sold the december 160 strike put for 3.50. he put the odds in his favor and here's how. between the 8.25 he spent on the longer dated put, and the 3.50 he collected by selling that shorter dated put, mike is now spending just 4.75 on the trade. and now instead of needing wynn to fall below 151.75, mike now makes money if the stock falls below 160 by more than the 4.75 he spent. or below $155.25 by march expiration. but, it gets even better.

that's because the value of the nearer dated put that mike sold would decrease faster than the value of the longer dated put that he bought. letting him do something even these guys can't do. turn time into money. >> rain man, let's play some cards. >> well, hold on. because remember, there is a tradeoff. in order to make the most money, mike needs wynn shares to stay above the strike of the put he sold before the first expiration, but below the strike of the put he bought by the second expiration. and unfortunately, mike seems to have gotten the trade too right. wynn shares have fallen fast. and since mike was short that nearer dated put, that means he could be on the hook for losses. and now options action's biggest fan -- >> not exactly an accurate statement. >> well, one of our biggest fans is tuned into the show. and he wants to know one thing. what will mike and carter do now? now, we don't want to keep steve waiting.

but this is interesting. had mike shorted wynn shares he would have faced unlimited risk and made 3%. not great odds. but mike's put calendar cost 4.57 and can be sold for 5.70, a return of 20%. here's where it gets really interesting, as if it weren't already. if wynn closes above 160 by december expiration mike's trade becomes way more profitable, the put he sold will expire worthless. so should mike take profits or hold out for more gains? carter got us in. so carter, where do you see the stock going? >> well, from a technical point this trade made it's objective, it's a massive underperformer compared to the s & p, we would say go flat from the point of view of the charts. >> mike? >> well, as you pointed out, it is really interesting, because that near dated put is expiring more rapidly and it is going to decay quickly. so it's going to decay quickly. scott made a good point earlier. one of the things you can do, keep an eye on this thing.

or adjust the strike of that put that you're short, so that it remains at or just out of the money. that's a way to continue to collect some money in this trade, without actually having the stock put to you. so that's one of the ways you can take a look at playing this. just manipulating the trade a little bit to account for the stock. >> is that what you did? you play these name ss a lot. >> i do, i actually like the name, so i would roll this, this december put down and out. i would buy it back. i would sell a january strike -- january option with a lower strike. >> all right. coming up next, the final call from the options pits. [ male announcer ] once, there was a man who found a magic seashell. it told him what was happening on the trading floor in real time. ♪ the shell brought him great fame. ♪ but then, one day, he noticed that everybody could have a magic seashell. [ indistinct talking ] [ male announcer ] right there in their trading platform. ♪ [ indistinct talking continues ] [ male announcer ] so the magic shell went back to being a...shell. get live squawks right in your trading platform with think or swim 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. ♪ final call. >> i have a lot of questions about how to protect your portfolio, we do that in this week's web extra. >> dan? >> pandora, if you want to make a defined risk bet on a momentum name you think could break, this is one. >> mike khouw. >> i think options are clean, buy some insurance, i have actually stopped committing new capital to equities recently. >> all right. looks like our time has expired

i'm melissa lee thanks for watching for more options action check out our web site, and also take a look at our daily segment inside fast every day at 5:40 p.m. eastern time. we'll see you next friday at 5:30. have a great weekend. "mad money" starts right now. program for the shark sonic duo is brought to you by euro-pro. [ shark sonic duo buzzing ] >> [ buzzing ] >> [ buzzing ] [ buzzing ] >> [ buzzing ] [ buzzing ] >> i've never seen anything like it. >> oh, my gosh. i love the shark sonic duo. >> the carpet's like new again. >> my kitchen floors are cleaner than they've ever been. >> it's the best cleaning system i've ever used in my home. [ buzzing ] [ laughs ] >> announcer: bright, beautiful carpets, rugs, and floors make your home look amazing. but no matter how much you vacuum or mop, you get frustrated because, over te,