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, the best trade of 2013. >> smaller than bikini, it's a thong. >> it's not that, alex, it's gold. we'll tell you why it's going even higher. an emerging threat. >> the day you talk to me like that. >> we'll tell you why the weakness in the markets can ruin the rally here at home. the action begins right now.

welcome to new york city times square. i'm melissa lee. there are three people who couldn't brave the snow. check out the banks, and look at bank of america, busting out the five-year high. is it too late to get into the names? can they continue the run this year and citi lit a fire under the bank of america shares yesterday. >> yeah, the stock is up 5% in straight line, it acts really well. technically, we have a couple of charts, when you look at it breaking out like that on gold volume, the moving average is trending higher. there's no resistance overhead here. as we come into the next two weeks, wee get a lot of earnings and when we get the outlook for 2014, in a lot of the banks. but put it another way. you know, some of the banks are

consolidating. when you look at citi, it's traded between the high 40s and the low 50s since the spring. others don't look like so great. but to me i think there are other ways to play it. i like the banks who have absorbed the idea of the tape pretty well and they have some legs. >> mike, i'm wondering if you think the run we saw in 2013 across the board in the financials, they're pretty big runs in 2013. anticipation of the rate environment getting better as the interest rates will rise in 2014? in other words is the price into the stocks right now? >> a lot of the stocks have had a phenomenal run over the entirety of 2014. but the financials were so cheap to begin with, i think there's what gave them that much room. i mean, if you take a look at where these things are priced relative to earnings and to book value and go back to precredit crisis levels, you'll find that most of the big money center

banks look reasonably priced. which is hard to say things like consumer -- say like things about consumer staples. financials might actually still be a reasonable place to be. >> scott, going to make it a clean sweep, you like the financials? >> very much so. rising rates hurts some consumerers, they help some savers, but particularly when the differential between short term rates and long term rates expands that's fantastic for banks. mike makes a good point. you look at some of the banks, like bank of america andsy ci c they're a long way away from their highs. i think you want some diversification. don't load up in any particular name. get the diversification, interestingly three calls trading every -- for every put in the xlm. >> bullish activity.

that's where you're putting it? >> yeah. the stock -- the etfe has acted really well. for the trade today we'll talk about, four of the five largest components of the xlf report earnings in january, bank of america, wells fargo and jpmorgan. these are going to set the tone not only for the core four results but the outlook for q1 and the balance of the year. to me, i think there's a trading opportunity here. i think they have momentum. outperformed this market in the last two days. the s&p is down 1%. some of the ba, banks we talked about, it's an easy trade you that in two weeks. i don't want to load up like scott said in one of the names and make a bet on the guidance. when the stock was at $21.85 you can buy the january calls for 18 cents. i know it sounds like a simple trade here, but there's 1.5% away is the break even and you

have that event. and implied volatility is near two-year lows, meaning the option prices are cheap. to me, this is an easy way to take upon some of the largest bank earnings in the next who weeks. >> it's important to look at what's in the etf, and the top weighted stocks are the ones in most favor is bank of america and citi. is this the way to express your bullish conviction on finance shalds in general? >> i think it's a good way to do it. because xlf represents a basket of stocks that compresses the price of the options even a little bit more. we have seen that also because of the way that the market has been behaving. all of the index types of products that's where they have been declining most. so you're actually able to get the levered bets by doing something like dan is recommending for a small amount of premium. you get a lot of upside min plummet and you're mitigating any risk to the downside if we

see any news that pushes them in the wrong way. >> do you like the trade? >> i do. dan says implied volatility in xlf is as low as it's been in 24 months but it's low an an absolute basis. 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, you look to spread out of it. you get yourself in a great situation once you have done that. >> all right, stocks versus options here. want to buy 100 shares of the xlf it ain't cheap. it will set you back $2,500. risks just 18 bucks. moving on here, think gambling, you think vegas or movies with joe pesci and tomato sauce. now add japan to the list. jane wells has more on this story. hi, jane. >> hey, melissa. you know, las vegas is

recovering, and macao hit it out of the park with gaming revenues up 19% in a year to $45 billion. mgm's gm calls those gargantuan results. and japan, gambling is illegal, but legislators are looking to change that especially with the 2020 olympics coming along. las vegas sands, wynn and mgm has been waiting. >> 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 who knows for sure what's going to happen are the people that live in japan today.

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, myrrhen says here at home you have to pick your spots. the company delivered a 7,000 page report to massachusetts authorities as they hope to develop a resort in springfield and capitalize on the northeast. he's positive on the 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 said has washington ever had a bad day? >> all right, good point by him. thank you for joining us from the strip. so mike khouw, who could this mean for mgg? -- mgm? japan seems like a long-term catalyst, what do you think of the stock? >> it's interesting of course, all the gaming stocks have been performing wonderfully for some time now. macao being a big driver. mgm unlike las vegas sands does gets more of their revenues from

the u.s. and the stocks being propelled like this has only not happened because we have seen gaming revenue increasing and seen ebitda increasing but they have been expanding up to 18 times ebitda for all of the gaming stocks in general. mgm which obviously has a lot of potential is also seeing a lot of that priced in. i mean, the street's very positive on this stock, but trading pretty much right on the average price target. it is trading almost 23 times ebitda which is sort a crude may he is of free cash flow. to me, basically what i'm seeing in the stocks they have a lot of optimistic news priced into them already. >> sounds like you're bearish. using a put spread tonight, but it's good to see how it works. sell a lower put at the lower exploration, you do that when you're bearish and you want it to go to the strike of the put that you sold. that's where you make the most money and where your profits are

capped. mike, walk us through the trade. >> i'm looking at the march 23, 19-put spread. you can buy those 23 puts for about a $1.20 and then sell the 19 puts against its for 20 cents and that's a net debit of $1 or 25% of the distance between the strikes. you know, i would point out that these gaming stocks, carter and i talked about these in early december when we were bullish at the time, but they have moved 20% to the upside. you'll notice that the strikes i have chosen are looking at that movement over that time frame. so you know, looking at things fully valued, i'm trying to make a relatively inexpensive bearish bet and shorting stocks is unlimited risk. >> scott, you followed this after a lot. do you like this directional bet? >> well, i think this was interesting. you mentioned the overall section. macao a lot bigger than the las vegas strip now. if you look overseas, that's the

only place you're going to find growth where i think -- for i think the names. mike's trade is interesting. people ask us all the time, how do you pick your strike prices and mike has laid it out. it's gone from 18 to 23 1/2 in two months. the math on this is perfect. you're risking a dollar to make $3 and you're getting at the money put or the out of the money put. math wise, this makes a ton of sense. >> wow. ridging endorsement from scott nations. >> i would say we have seen the early weakness in asia so far today. if this is a trend that continues we'll talking about -- with regard to eem. to me this is a sector that probably gets hit first. you may want to move the put out a little further. >> got a question, ask us. we have a nifty tip for making good trades better and in addition you'll find educational material. you'll want to check it out. here's what's coming up next.

>> don't look now, but bouillon is breaking out. we'll tell you why 2014 could be the year of the golden comeback. plus, the only thing that can 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 ] [ 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." question look back on the losers

and find out what to do next. carter made a big bet on bouillon, they haven't lost much money and here's why. on "options action" just because we risk less doesn't always mean we make more. sadly, that's just 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 would set mike back over $2,000. so to spend less, he bought the january 25 strike call for $1.20. he needs the gdx to rise above $26.20 by january expiration. but she feeling out more than a dollar just to bet on gold -- >> you're killing me. >> so to spend less, mike then sold the january 28 strike call for 40 cents.

now between the $1.20 he spent on the lower strike call and the 20 cents he collected by selling the higher one, he reduced the total cost of the trade to 80 cents. now to make money, mike needs the gdx to rise above the $25 strike price by more than the 80 cents he spent by january expiration. >> how's that for a slice of fried gold? >> it's good. but there's a tradeoff. mike has capped his profits to the difference between the striker 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 to save even more on the trade. specifically, mike went ahead and sold the january 22 strike put for 70 cents and created a risk reversals. between the $1.20 spent, the 40 cents he collected on the 70 cents on the 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, he sees profits if the gdx rises above $25.10 by january expiration. >> i had a dog and his name was bingo. >> sure, ace, but keep in mind there's a tradeoff and because he sold that put, mike is now obligated to buy the gold miners etf for $25 even if it falls below that level. and it's plunged over 10%, leaving mike in danger. now the biggest fan -- >> i love gold. >> -- needs 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. if it were to stay here by expiration, he as to buy the shares by 22 bucks but if it can close above that level he's off the hook. where's it going?

well unfortunately carter is on vacation, but he did drop us this postcard. gold adored at $1,900 an ounce two years ago, yet, gold is showing all the signs of stabilizing. we remind buyers of gold and bouillon stocks. back to the beach. so clearly, carter still likes the trade. staying long. mike, where do you stand? >> you know, this is an interesting situation as you pointed out. for one thing we have the trade itself to consider and then of course we also have to think of gold and the miners. like carter, i think we probably do have some potential upside in these names. even though i have never been a big gold bug an wonder if we might be in the longer term sector bear market. it seems like we're setting up okay as far as the upside. the next issue is the trade itself though. we are short at the money put and this is decaying about as

quickly as it could from now until expiration. do i want to put the shares not exactly. but i want to stay put, and keep an eye on it going into expiration. take a look at the out of the money call, that's a teeny option. we don't like to be short teeny options. i would cover those. watch your limits. >> i would leave that call alone. that's not going to come into play. i like this trade at the time. i think the 10% decline that you had in the last month or so, i think that it's a lot of technical stuff. i think they want to get this off the books. i thought the rally this week is pretty impressive. i think there were some asymmetric a rally here. i'm long it. just the stock, the etf here. i think you'll see a move to 25 at some point in the next couple of months. >> i hate gold. i hate anything to do with gold. 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 can take it off. you can lose your 80 cents. you're a lot better off than if you had bought edx. i don't want to stay short that put, but if you do, mike is right about the time. you have to watch it. >> all right. a reminder, guys, as we head to break, if you know updates on the trades be sure to follow us on twitter and dan posts on twitter at risk reversal. coming up next, could that chart be a threat to the market? it's the emerging markets index and it hit a four-month low. we'll tell you why that could be trouble. ♪ [ 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.

welcome back to "options action." it hasn't been a happy market for the emerging markets. it's hitting a four-month low today. it kcomes as the china drops lower. a massive scandal in turkey has brought 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 is up to you decide. >> dan, why should we here sitting in the united states care if the eem has broken the 200-day moving average or any of that stuff? >> well, one of the things that kayla missed there, samsung one of the largest companies in the world is the largest components of the e em. makes up 3.6% and there are whispers they'll miss their sales estimates when they give their numbers next week. the technical set-up is really interesting. we have a one-year chart right there. the stock at 40 just broke the 50 and the 200-day moving average which were both declining this very week. right in the middle of the nine-month range. it's probably a different press on the short side here. i would say if you're a u.s. investor and you're long and strong, and you believe in the pace in the pace of the u.s.

recovery, maybe china is the one area to keep an eye on here. if you want to stay long, to me, i think there are 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. we'll get a good read on q4 profits and outlook for 2014. but again, it's emerging markets that make me nervous. >> dan, you mentioned a hedge. do you think your trade is a hedge on the u.s.? >> yes. i would look out in the next month or so, because we'll get a lot of data in emerging markets. we want to see if the thing in turkey picks up. if you're worried about emerging markets, i would look out to february when you could buy the february 40 put for $1.15. that's about 3% of the underlying and between $38.85 you can lose up to that and i would keep an eye on the 35, 36 area. that's probably really big long term support. >> i like this trade. i think it's a good play against

the long u.s. equities position. i'm not going to give any second opinion on dan's thoughts on samsung there. but we have seen some skepticism for a lot of emerging market plays like caterpillar. so when we look at the potential risk factors seems like the emerging markets would count among them. >> we have a quick programming note here. coming up next on "mad money" it's a growth stock face-off. cramer has the two hottest companies slugging it out. plus, don't miss the game plan before trading gets underway. coming up the final call from the options 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. ♪ v

♪ [ 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 now for the final call. the last word from the options pits. >> we'll find out what we mean by spreading out of the options. >> i like put spreads and mgm. >> dan? >> if you're long and strong,

u.s. equities i like eem puts as a nice hedge. >> looks like our time has expired. thanks so much for watching. for more "options action" check out the website on cnbc.com and check out the daily segment every day at 5:40 eastern time. 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