♪ this is options action. tonight, why are these two guys moving to japan? >> i don't even know what you're talking about. >> because it could be home to the next great casino boom. we'll tell you the company ready to cash in. plus, it's the best trade of 2014. >> it's smaller than a bickine each, it's a thong. >> it's not that, alex, it's actually gold. we'll tell you why it's going higher. an emerging threat. >> how dare you talk to me like that? >> we'll tell you why the weakness in emerging markets could ruin the rally at home. the action begins now.

live from the nasdaq markets in times square. those are three people that couldn't brave the snow. how to make money in 2014 check out the banks, the financials hitting their highest level since the crisis. look at bank of america, busting out to a five year high, so the question is, as we begin the new year, is it too late to get in these names. let's get in the money and find out. dan, that's a question everybody had on their minds. big performers last year, can they continue their run this year, city came out and lit a fire under bank of america shares. >> the stock is up 5% in a straight line in two days, like you said making five year highs, it acts well. technically, we have charts here. when you look at that breaking out like that, on good volume, you see the moving averages trending higher. technically it looks great. there is no resistance overhead here. when we come into the next two weeks, we'll get earn accident, that's going to be the driver, when we get the outlook for 2014. to put it another way. some of these banks are consolidating, when you look at

citi, one year basis, traded between the high 40s and low 50s for about since the spring and it looks ready to break out. others don't look so great. but to me, i think there's other ways to play it. i like the banks here, they absorbed the idea of the taper pretty well and have legs. >> mike, i'm wondering if you think the run we stau in 2013 across the board, when you look at some of them they are big runs in 2013, if that was in anticipation of the environment getting better this year as interest rates will rise in 2014. in other words, is it priced into the stocks at this point? >> you know, it's interesting. of course a lot of stocks had a phenomenal run, of course over the entireties of 2013. but the financials were just so cheap to begin with, i think that's what gave them that much room. they may have some room stim. if you take a look at where these things are priced relative to earnings and relative to book value, and go back to precredit crisis levels, you'll find that most of the big money center banks actually still look pretty reasonably priced, which is pretty hard to say about a lot of other sectors, specifically

things like consumer staples, so if you are going to look at a space, that has potential in improving economic environment, financials might still be a reasonable place to be. >> scott, are you going to make it a clean sweep? do you like the financials here after the run in 2013? >> very much so. and for the reason you mentioned, that is rising rates, you know, rising rates hurt consumers, they help some savers, but they are unalloyed good news for banks when the differential between short term rates and long term rates expands. that's fantastic for banks. mike makes a good point, if you look at some of these banks, for example, bank of america and citi, they are a long way away from their all time high middle, all these names now have headline risk. i think you do want diversification. i think you don't want to load up in any particular name, diversification, the xlf. interestingly three calls trading every -- for every put today in the xlf. >> all right. bullish activity there. dan, that is where you are putting your trade on the xlf,

the etf that tracks financials. >> the etf has acted well. one of the things i want to focus on for the trade today, that we will talk about, is that four of the five largest components report earnings in january expiration. it's bank of america, citigroup, wells fargo and jpmorgan, these set the tone for their core four results and outlook for q1 and balance of the year. so to me, i think there's a trading opportunity here. i think they have momentum, they outperformed the market just this year in the last two days the s & p down almost 1%, flattish, but some of the banks we talked about, citi is up 2%, so to me it's an easy trade. you have that catalyst in two weeks, i don't want to load up, like scott said in one of the names and make a bet. so the stock today, you could buy the january 22 calls for 18 cents, it sounds like a simple trade, but that's 1.5% away is

the break even, and you have that event. implied volatility is near two year lows meaning the option prices are cheap. to me, this is kind of easy way to take a punt on some of the largest bank earnings. >> take a look at what is in the etf. top three weighted stocks, on the street it seems like the ones that are in the most favor are the likes of a bank of america and a citi. is this the way you would want to express your bullish conviction on financials in general? >> you know, i think it's a good way to do it. what's interesting, is that because xlf represents a basket of stocks that compresses price of options a little more. and we've seen that also, because of the way the market has behaved. all of the index types of products, that's where the options premiums have declined most. you are actually able to get these levered bets by just doing something like dan is recommending, purchasing an upside call for relatively small amount of premium. you get upside leverage. and of course you're significantly mitigating any of the risk you take to the down side in case we see news that

will push these stocks the wrong way. >> scott, you like this trade? >> i do. dan makes the right point here and that is that implied volatility in xlf as low as it's been in 24 months, it's also low on an absolute basis. and so in a situation like this, you don't want to get too cute. you don't have to get cute. go out. buy a call. if you get the stock moving in the right direction or etf moving in the right direction, then look to spread out of it. and get yourself into a great situation, once you have done that. >> let's start this up stocks versus options, want to buy 100 shares of xlf. it will set you back $2200. dan's call purchase offers huge leverage to the upside and risks just 18 bucks. moving on here, think gambling and think vegas, movies with joe pesci and tomato sauce, now add japan to the list. jane wells making her options action debut, live from the strip has more. hi, jane. >> hey, melissa. you know, las vegas is

recovering singapore is doing well. the cow just hit it out of the park with gaming revenues up to $45 billion, mgm resort's ceo calls those huge results. what's next? japan, where gambling in a casino is illegal but legislators pushing to change that especially with the 2020 olympics coming along and they need money. all major companies have been there for years, sands, wynn, caesars, mgm. japan will be bigger than vegas. >> i believe that the japanese process will be similar to the singapore process, it will be very transparent. it will be specific. it will be protracted. it will take a long time. and everyone is going to say they have an inside track. no one has an inside track. we don't have one. our competitors don't have one. the only one that knows for sure what will happen are the people that live in japan today. i'm not sure they know exactly how this is going to play out.

>> okay. taking a look at how mgm shares have performed over the last year, murren says here at home you have to pick spots. the company just delivered a 7,000 page report to massachusetts authorities as they hope to get a license to develop a casino resort in springfield and capitalize on the northeast. he's positive on their new maryland property, 12 miles from washington d.c. melissa, when i joked to him, hey, you'll be near a lot of money. he answered, has washington ever had a bad day? >> all right. jane wells, good point by jim myrrhen. thanks for joining us from the strip. mike khouw, what could this mean? japan seems like a very long term catalyst, long term meaning far out. what do you think of the stock? >> well, you know, it's interesting, of course all gaming stocks have been performing wonderfully for a long time, mgm unlike some of the big names like las vegas sands actually does get more revenue from the u.s. and the stocks being propelled like this

has not only happened because we've seen gaming revenues increasing, and we've seen ebitda increasing, but because the multiples have been expanding. and they have been expanding significantly. up to almost 18 times ebitda for all of the gaming stocks in general. mgm, which obviously is -- has a lot of potential is also seeing a lot of priced in. very positive on this stock. it's trading pretty much right on the average price target. and it's trading almost 23 times ebitda, which is a crude measure of free cash flow. to me, i think basically, what i see in these stocks, they have a lot of this optimistic news priced into them. >> all right. so mike, sounds like you are bearish, using a put spread. we used this strategy before. it's good to crack open the playbook and see how it works. in the strategy you buy one put and sell a lower strike put of the same expiration to reduce costs. you do that when you are bearish, you want the stock to go to the strike of the put you selled. that's where you make the most money. that's also where your profits are capped.

mike, walk us through. >> i'm looking specifically at the march 23, 19 put spread. i was looking at these today. you could buy those 23 puts for about $1.20 then sell the 19 strike puts against it for 20 cents. that creates a net debit to the buyer of the put spread of 1. you know, i would point out these gaming stocks, carter and i talked about these in early december, we were bullish at the time. they moved almost 20% to the upside. you will notice, that the strikes have chosen pretty much are looking at that movement over that time frame. so you know, looking at these things fully valued, i'm trying to make a relatively inexpensive bearish bet. and shorting stocks, as we always know, unlimited risk. >> scott, you follow the sector. do you like this directional bet? >> i think this is really interesting. you mention the overall sect or. if you're going to look overseas, that's the only place you'll find growth for these

names. mike's trade is interesting, people ask all the time, how do you pick your strike prices, and mike laid that out. this stock has gone from 18 to 23 1/2 in two or three months, that's why mike is picking these strikes. the math on this is perfect. you are risking a dollar to make $3, you're doing that by getting long the at the money put or just out of the money put. so math wise, this makes a ton of sense. >> wow. ringing endorsement from scott nations, dan, what do you say? >> i would just say we saw early weakness in asia so far this year. if this is a trend that continues, we'll talk about it later with regard to eem. this is a sector that probably gets hit first. you may want to move this bet out a little further. >> all right. got a question out there send us a tweet @cnbc options, we'll answer it tonight. scott has a nifty tip for making good trades better in addition to scott you'll find great trader blogs and educational materials. so you want to check it oust. here's what's coming up. >> don't look now, but bullion

is breaking out. we'll tell you why 2014 could be the year of the golden comeback. plus, it's the only thing that could ruin the rally. we'll tell you what it is, 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. ♪ [ 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. ♪ welcome back. time to get called out we take a look back at losers and find out what to do next. a couple weeks out mike khouw and carter made a bet on bullion, the trade went bust but they haven't lost much money. here's why. >> on options action because we risk less doesn't always mean we make more.

and sadly, that's just what happened with mike and carter's bullish bet on the gold miners. >> ha ha ha ha. >> carter figured gold miners were set up for a rally. >> let it ride. >> but 100 shares of the gold miners etf would set mike back over $2,000. to spend less mike bought the january 25 strike call for $1.20. now to make money mike needs gdx to rise above $25 by more than 1.20 or 26.20 by january expiration. shelling out more than a dollar just to bet on gold? >> you're killing me, smalls. >> so to spend less, mike then sold the january 28 strike call for .40. and now between the 1.20 he spent on that lower strike call and the .40 he collected by selling the higher strike call, mike has reduced total cost of the trade to $.80. to make money mike needs gdx to rise above the 25 strike price

by more than the .08 he spent. . >> it's good. but there is a tradeoff. and by selling that call, mike has capped profits to the difference between the strike of the call that he bought and the strike of the call that he sold minus the cost of the spread. but mike is not done yet. because he found a way to save even more on the trade. specifically, mike went ahead and sold the january 22 strike put for $.70. and created call spread risk reversal. between the 1.20 he spent on the 25 strike call, the $.40 he collected on the 28 strike call, and the $.70 he collected on the put. mike is spending just $0.10 on the trade. instead of needing etf to rise above 25.80 to make money mike sees profits if the gdx rises above 25.10 by january expiration. >> i had a dog and his name was bingo. >> sure, ace.

keep in mind, there is a tradeoff. and because he sold that put, mike is now obligated to buy the gold miners etf for $22 even if it falls below that level. and sadly, since the time of the trade, the gdx plunged over 10%. leaving mike in danger of getting put to shares. options action's biggest fan -- >> i love gold. >> needs to know one thing. what will mike and carter do now? now, this is sort of an interesting trade. because the gdx is trading below the 22 strike put that mike sold. meaning, if the stock were to stay here by expiration, he would buy the shares for $22, if it can close above that level, he's off the hook. so where is it going? unfortunately carter braxton worth is on vacation, he did drop us this postcard. he writes, gold, adored at $1900 an ounce two years ago is now despised at $1200 an ounce yet quietly in unassuming fashion golds is showing signs of stabilizing. we remain buyers of gold bullion

and gold mining stocks. buy gdx. tata for now. back to the beach. >> so clearly carter likes the trade staying long, gdx and gld. mike, where do you stand? >> this is interesting. as you pointed out. for one thing, we have the trade itself to consider. and then of course we also have to think about gold and the miners. like carter, i think we probably do have potential upside in these names, even though i have never been a big gold bug and wonder whether we might be in a longer term secular bear market. it seems like we're setting up okay here, as far as the upside in these names. the next issue is the trade itself, though. we are short the at the money put. this thing is decaying about as quickly as it possibly could from now until expiration, do i want to put the shares, not necessarily. i will stay short the put for now. and keep a close eye on to it going into expiration, the one thing to modify the trade, take a look at that out of the money call, that we are short. that thing is just a teeny option, we don't like to be

short teeny options, that's the only thing i would modify. i would cover those, watch your limits. >> i would leave that call alone. that's not even going to come into play. listen, i like this trade at the time. i think the 10% decline, you had in the last month or so. i think it is technical stuff, they want this off the books. the rally was impress itch. there is asymmetric potential for a rally here. i'm longing it. just the stock. just the etf here, i actually think you probably see a move to 25 at some point in the next couple months. >> i hate gold. i hate anything that has to do with gold. including the gold miners. if you're going to stay -- keep this position on and stay short that put, then you really really have to watch it, you know, you could just take it off, you could lose your $0.80 you're better off than if you bought gdx then you would lose $2.20, i don't want to stay short that put. but if you do, mike is right about the time, if you do, you have to watch it. >> a reminder, we head to break.

if you want updates on our trades follow us on twitt twitter @cnbc options, and dan posts his trades. coming up next, could that chart be a threat to the market? it is the emerging markets index, it just hit a four month low. we'll tell you why that could spell trouble, when options action comes back. ♪ [ bell ringing, applause ] five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade.

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and new car replacement, standard with our auto policies. so call liberty mutual at... today. and if you switch, you could save up to $423. liberty mutual insurance. responsibility. what's your policy? 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. welcome back to options action, i'm kayla, hasn't been a happy new year for the emerging markets, emerging markets etf down 4% and hitting a four month low today. this comes as a key measure of chinese economic activity also dropped to a four month low, china has company, a massive corruption scandal in turkey brought the turkish lyra to record lows against the dollar. brazil's benchmark is down almost 5% in the last three months. melissa, what was once thought to be taper week looks more like

fundamentals, we'll leave it to you and the traders to decide. >> kayla, thanks. dan, why should we here in the united states care if the eem broke it's 200 day moving average or any of that stuff? >> well, yeah, you know i just throw one thing in that kayla missed. samsung one of the largest companies in the world is the largest component, makes up 3.6%, there has been whispers they will miss sales estimates when they give estimates next week on january 7th. that also weighed on the etf. but to me the technical setup is interesting. we have a one year chart right there. the stock at 40, just broke to 50 on the 200 day moving average which were declining this week. it's sitting at 40 on the support level right in the middle of the nine month range. you had 44 at the high. 36 at the low. so it's probably a difficult press on the short side. but i would say, if you were a u.s. investor. and you were long and strong, and you believe in the pace of the u.s. recovery, emerging markets, and maybe specifically china is the one area, that you

have to keep an eye on here. so if you want to stay long, to me there is ways to hedge it. i don't know what the other guys are thinking, but all clear, we absorb the taper here. we get a good read on q4 profits. but it's emerging markets that makes me nervous. >> dan, you mentioned a hedge. do you think your trade is a hedge on u.s.? >> yeah. so i would just look out in the next month or so, we will get a lot of data in emerging markets. we'll see if turkey picks up. if you want to stay long u.s. stocks and you're worried about emerging markets look out to february, when the eem was 40 today, you could have bought the february 40 put for $1.15 that's 3% of the underlying, and between 38.85 and 40, you could lose up to that 1.15, below 38.85 you have protection. the down side is probably really really big long term support. >> i like this trade. i think it's a good play against

long u.s. equity position, i won't give any second opinion on dan's thoughts on samsung there. but you know, we certainly have seen skepticism for a lot of emerging market plays including domestic names like caterpillar. so when we look at the potential risk factors it seems emerging markets would count among them. >> quick programming note. coming up next on mad money, a growth stock faceoff, kramer has two of wall street's hottest stories slugging it out. don't miss the game plan before earnings season gets underway. coming up next the final call from the options pits. [ 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.

♪ [ 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. ♪ time for the final call, the last word from the options pits. scott nations. >> this week's web extra explains what we mean by spreading out of our option trade. >> mike khouw. >> you know, i think the casino stocks look stretched. i like put spreads. >> dan.

>> if you're long and strong u.s. equities i reich eem puts. >> our time has expired i'm melissa lee thanks for watching for more options action check out our web site and also check out our daily segment inside fast money every day at 5:40 p.m. eastern time. have a great weekend, 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 just trying to make you a little money. my job is not just to entertain but to teach and educate, so call me at 1-800-743-cnbc. . as the first day of the year goes, the second day doesn't? that's the thesis i'm operating on. better than i heard yesterday when the experts