money and it is this. people first, then money, then things. now you stay safe. happy new year, everybody! bye! this is "options action". tonight -- why are these two guys moving to japan? >> i don't even know what you're talking about, nick. >> 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. >> smaller than a bikini, it's a thong. >> it's not that, alex. it's actually gold. we'll tell you why it's going even 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 here at home. the action begins right now. >> live from the nasdaq market

site in new york city's times square i'm melissa lee. those are three people that couldn't brave the snow. want to know how to make money in 2014 check out the banks. the financials hitting their highest levels. bank of america busting out to a five-year high. is it too late to guess in these names? dan, that is a question everybody had on their minds, big performers last year, can they continue their run this year and sit ty came out and lit a fire under bank of america shares yesterday. >> yeah, it did. the stock is up a straight line in two days. it acts really well. technically we have a couple charts here. when you look at that thing breaking out like that on good volume, moving averages trending higher, technicially it looks great. no resistance overhead here. as we come into the next two weeks we're going to get a lot of earnings and that's going to be the driver. when we get the outlook of 2014 in a lot of these banks. put it another way, some of these banks are consolidating when you look at citi it's

traded between the high 40s and low 50s since the spring and looks ready to break out and others don't look so great but to me, i think there's other ways to play it. i like the banks here. they've absorbed the idea of the taper pretty well and probably have some likes. >> i wonder if you think the run we saw in 2013 in the run in financials their apretty big runs if that was the anticipation of the right environment getting better as interest rates will rise in 2014? is this priced into the stocks at this point? >> it's interesting because, of course, a lot of stocks have had a phenomenal run of course over the entirety of 2013, but the financials were just so cheap to begin with i think that's what gave them that much room and they may still have some room still. if you take a look at where these things are priced relative to earnings and relative to book value and go back to pre-credit crisis levels you're going to 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, particularly things like consumer stapesle. if you are going to look at a space that has potential and improving economic environment financials might be a reasonable place to be. >> scott, going to make it a clean sweep? do you like the financials here even after the big run in 2013? >> very much so for the reason you nexted rising rates. rising rates hurt some consumers, help some savers but they aare unal lloyd good news for big banks. that's just fantastic for banks. mike makes a good point, you look at some of these banks, for example, bank of america and citi, they're still a long way away from their all-time highs. one thing all of these names now have some headline risk so i think you do want some diverse it itfication. you don't want to load up in any name. wait for the diversecation. the xlf. three calls trading every -- for every put today in the xlf. >> bullish activity there. dan, that is where you're putting your trade on the xlf,

the etf that tracks the financials? >> this is a trade i've had over a month and the etf is very well. one of the things i really want to focus on for the trade today that we're going to talk about, for the five largest components of the xlf, report earnings in january expiration it's citigroup and jpmorgan. these will set the tone not only for the quarter results but outlook for q1 and balance of the year. i think there's a trading opportunity here. i think they have momentum, outperformed the market nis year in the last two days. it's flattish but some of the banks we talked about citi up to a half. to me it's an easy trade. you have that catalyst in two weeks. i don't want to load up in one of the names and make a bet on their earnings or guidance so when the stock was today at 21.85 you can buy the january 22 calls for 18 cents. i know it sounds like a simple trade here but that's 1.5% away is the break even and you have

that event. implied volatility near two-year lows, the option prices are cheap. to me this is an easy way to take a punt on the largest bank earnings in the next two weeks. >> it's important to take a look in the etf itself and the top three weighted are jpmorgan, wells fargo and berkshire hathaway. on the street it seems the one in most favor the bank of america and citi. is this the way you want to express your bullish conviction on financials in general? >> i think it's a really good way to do it. because xlf respects a basket of stocks that compresses the price of stocks a little more, we've seen that because of the way the market has been behaving, the index types of products that's where the options premiums have been declining most. you're able it to get these bets by doing something dan is recommending, purchasing an upside call for a relatively small amount of premium. you get a lot of upside leverage and you're significantly mitigating any of the risk you take to the downside in case we

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

recovering, single corp is doing well, macau has hit it out of the park with gaming revenues up to $45 billion. ceo jim calls those gigantic results. what's next? japan where gambling in a casino is currently illegal but legislatetures pushing to change that with 20920 olympics coming along and they need money. all the companies have been there, las vegas, sands, wind, caesars and mgm, building, waiting, as jim says, japan will be bigger than vegas. >> i believe that the japanese process will be similar to the singapore pro se. it will be very transparent, it will be specific, it will be protracted, take a long time, and everyone's 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's going to happen are the people that live in japan today

and i'm not sure they know 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 your 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 and he's very positive on their new maryland property, 12 miles from washington, d.c. melissa, when i joked to him, hey, you'll be near at lot of money, he answered, has washington ever had a bad day? >> all right. jane wells, good point by jim murren, thanks for joining us from the strip. mike, what could this mean for mgm? 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 the gaming stocks have been performing wonderfully for some time now. macau being a big driver. mgm, unlike some of the other big names like las vegas sands actually does get more of their revenues 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 been seeing it increasing, but because the multiples have been expanding and expanding significantly up to almost 18 times for all of the gaming stock in general. mgm which has a lot of potential is also seeing a lot of that priced in. the street is very positive on this stock, but it's trading pretty much right on the average price target and it's trading almost 23 times ebda, which is a crude measure of free cash flow. what i'm seeing in the stocks they have a lot of this optimistic news priced into them already. >> all right. so mike, sounds like you're bearish, using a put spread tonight. it's good to crack open a playbook and see how it works. you buy one put and sell a lower put to reduce your cost. you do that when you're bearish and want that stock to go to the strike of the put you sold. that's where you make the most money. that's where your profits are

capped. mikewalk us through the trade. >> i'm looking specifically at the march 23, 19 put spread. you could buy those 23 puts about 1.20 and sell the 19 strike puts against it for about 20 cents. that creates a net debit to the buyer of the put spread of 1 or about 25% of the distance between the strikes. you know i would point out these gaming stocks, carter and i talked about these, in early december, when we were bullish at the time, but they've moved almost 20 percent to the upside. you'll notice that the strikes i've 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 this sector a lot. do you like this directional bet? >> i think this is really interesting and you mentioned the overall sector. macau about 7 times bigger than las vegas sands or las vegas strip now, so if you're going to look overseas, that's the only place you're going to find growth for i think these names.

mike's trade is really interesting. people ask us all the time, how do you pick your strike prices and mike has laid that out because this stock has gone from 18 to 23.5 in just two or three months. that's why mike is picking these strikes. the math on this is perfect. you are living rivging $1 to make $3 and doing that by getting long the at the money put or the just out of the money put. so math wise, this makes a ton of sense. >> wow. ringing endorsement from scott. dan, what do you say? >> i would just say we've seen them early weakness in asia so far this year. if this is a trend that continues we'll talk about it later in regard to eem, to me this is a sector that probably gets hit first. you may want to just move this bet out a little further. >> got a question out there, send us a tweet, @cnbc options and we'll answer it in our web extra tonight. scott has a tip for making good trades better in addition to scott, find great trader blogs and educational materials. here's what's coming up next. >> 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 can ruin the rally. we'll tell you what it is when "options action" returns. ♪ [ 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 find out what to do next. cohen carter make a big bet on bullion but the trade has gone bust and they haven't lost much money and here's why. on "options action" because we risk less doesn't mean we always make more and sadly that's what happened with mike and carter's bullish bet on the gold miners. carter figured that gold miners were set up for a rally. >> let it ride. >> but 100 shares of the gold miner's etf would set mike back over $2,000. so to spend less, mike instead bought the january 25 strike call for 1.20. to make money mike needs a gdx to rise above $25 by more than 120 or 26.20 by january expiration. shelling out more than $1 to bet on gold. >> you're killing me smalls. >> to spend less mike sold the januariry 28 strike call for 40 cents and between the 1.20 on

the lower strike call and the 40 cents he collected by selling the higher strike call, mike has reduced the total cost of his trade to 80 cents. now to make money, mike just needs the gdx to rise above the $25 strike price by more than the 80 cents he spent or above 25.80 by january expiration. >> how's that for a slice of fried gold. >> it's good but a tradeoff and by selling that call mike has capped his 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's not done yet. because he found a way it to save even more on the trade. specifically, mike went ahead and sold the january 22 strike put for 70 cents, and created his call spread risk reversalp. now between the 1.20 on the 25 strike call, the 40 cents he collected on the 28 strike call and the 70 cents he collected on the 22 strike put, mike is spending just 10 cents on the trade. that means that instead of

needing the etf to rise above 25.80 to make money mike sees profits at the gdx rises just above 25.10 by january expiration. >> i had a dog and his name was bingo. >> sure, ace. but keep in mind that there's a tradeoff and because he sold that put mike is now obligated to buy the gold miner's etf for $22 even if it falls well below that level and sadly since the time of the trade the gdx has plunged over 10%, leaving mike in danger of getting put the shares. and now "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 just below the 22 strike put that mike sold, meaning if the stock were to stay here by expiration he would have to buy the shares for 22 bucks. if it can close above that level he's off the hook. so where is it going? unfortunately, carter braxton is

on vacation but 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 gold is showing all the signs of stabilizing. we remain buyers of gold bullion and gold mining stocks. buy gdx. ta, ta for now, back to the beach. carter likes the trade staying long. mike, where do you stand? >> you know, this is an interesting swaying 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 some po it terrible upside in these names even though they've never been a big gold bug and wonder if we might be in a longer term secular bear market. seems we're setting up okay here as far as the upside in these names. the next issue is the trade itself. we are short the at the money put.

this thing is decaying as well is a it possibly koods could. i'm going to stay short that put for now and keep a close eye on it going into expiration. the one thing you could do to modify this trade, though, take a look at the out of the money call we're short. that is a tiny option, we don't like to be short tiny options, that's the only thing i would modify. watch your limits when you to it. >> i would leave that call alone. that's not even going to come into play. listen, i like this trade at the time and i think the 10% decline you had in the last month or so, i think that it is a lot of technical stuff. portfolio managers want to get this off the books. i thought the rally this week was pretty impressive. some asymmetric sort of potential for a rally and i'm long 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, really have to watch it. you coulds just take it off, you

could lose your 80 cents, you're a lot better off than if you bought gdx then you would have lost $2.20. i don't want to stay short that put but if you do, mike is right about the time decay if you do, you have to watch it. >> a reminder, as we head to break, if you want updates on any of our trades follow us on twitter @cnbcoptions and dan posts his trades. could that chart be a threat to the market? the emerging markets index and it just hit a four-month low. why that could spell trouble when "options action" comes right back. [ 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 ]

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♪ [ 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." i'm kayla tausche. it hasn't been a happy new year for the emerging markets. emerging markets etf is already done 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 has brought the turkish lira to record lows against the dollar. and brazil's benchmark is down almost 5% in the last three months. melissa, what was once thought to be taper weakness looks more

like fundamentals but we'll leave it up to you and the traders to decide. >> thanks for that. dan, why should we here sitting in the united states care if the eem has broken its 200-day moving average or any of that stuff? >> yeah. you know, i just throw one thing that kayla missed there. samsung one of the largest companies in the world is the largest component of the eem makes up 3.6% and whispers they're going to miss their sales estimates when they give the preliminary estimates next week on january 7th. that also weighed on the etf this week. to me the tech enicle setup is interesting. the stock at 40 just broke the 50 and 200-day moving average both declining this week. it's sitting at 40 on that support level right in the middle of the nine-month rage. 44 at the high and 36 at the low. it's probably a difficult press on the short side right here. but i would say if you are a u.s. investor and long and strog and you believe in the pace of the u.s. recovery here, emerging markets and maybe specifically

china is the one area you have to keep an eye on here. if you want to stay long your u.s. stocks there's ways to hedge it. i don't know what the other guys are thinking on this thing, but all clear we absorb the taper here, get a good read on g 4 profits and outlook for 2014 but again 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. this could be. so i would just look out in the next month or so because we're going to get a lot of data in emerging markets. we're going to see if the thing in turkey picks up. if you want to stay long u.s. stocks and worried about emerging markets i would look out to february when the eem was 40 today you could have bought the february 40 put for 1.15. that's your max risk, about 3% of the underlying and between 38885 and 40 lose up to that 1.15 but below you have protection. i would keep an eye on the 35, 36 area to the downside. that's probably really big long-term support. >> i like this trade. i think it's a good play against

a long u.s. equity position. i'm not going to give any second opinion on dan's thoughts on samsung there, but we certainly have seen some skepticism for a lot of emerging markets plays including domestic names like caterpillar. it seems like the emerging markets would certainly count among them. >> we have a quick programming note. coming up next on "mad money" a growth stock faceoff. cramer has two of wall street's hottest stories slugging it out and the game plan before earnings season gets under way. coming up next on "options action" the final call from the options pits. ♪ [ 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.

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. time for the final call. the last word from the options pits. scott? >> this week's web extra explains what we mean by spreading out of our option trade. >> mike? >> you know i think the canoe stocks look a little stressed to me. >> dan? >> if you're long and strong u.s. equities i like eem puts as

a hedge. >> our time has expired. i'm melissa lee. thanks so much for watching. for more "options action" check out website and also check out our daily segment inside fast money at 5:40 eastern time. have a great weekend, stay warm, everybody, see you back here next friday for more "options action." >> announcer: the following is paid presentation for focus t25, brought to you by beachbody. >> [ echoing ] it's about time. the number-one people have for not working out is they don't have time. >> i have four kids. >> i work 60, 70 hours a week. >> i don't want to work out for no hour. are you kidding me? i don't have the time. >> announcer: no time to work out? no problem. introducing focus t25, the breakthrough in-home fitness program guaranteed over an hour's results in only 25