night, and i'll be here waiting for you. you stay safe. bye-bye. this is "options action." tonight, i lovers. >> i enjoyed it. i enjoy the company of him. >> could tim cook and carl icahn become best friends after all? we'll tell you why carl may get his buy back wish. and talk about social climbers. >> squeeze me. >> no, not you, ladies, we're talking about web 2.0 companies and we'll reenvelope which $5 stock is poised to join the party. and -- >> it's evil. >> that's what investors said about small caps this week. we'll explain why it's about to

get much worse. the action begins right now. >> welcome back to the nasdaq market site. these are the traders on the desk. gravity was suspended on wall street. if you were a stock, you were up. the s&p 500 closing the week higher. if you were a bond, you were up, too. bonds and stocks had company. gold and oil were also higher. the only thing that fell was fear. the vix tumbling on the week. mike, what gives here? >> you know, it's interesting. in the past we have frequently talked about equities and said not too hat or cold, just right. i would argue that taking a look at the economic data, everybody was looking for something that they wanted and everybody got a little bit that they did want. we have indications in the number of new jobs created that suggest things aren't too hot. we saw something in the unemployment that said it was maybe not too cold. i am not necessarily a complete

buyer of all of that though. i think you had a sharp selloff. there will be a little covering and then maybe people got a little out of hand. i look at this and not really as enthusiastic as everybody else. some realities remain. stocks are not incredibly cheap. economic growth is not particularly buoyant. the fact that vix dropped is good news. if you share my view, you're getting a better opportunity. >> there you go. listen, after all the hemming and hauing all week long we had a volatile week. the s&p 500 closed at almost the exact spot where it did last friday at this time. so the drawdown from peak in january 15th to the trough is about 6%. the deepest drawdown we had all last year is 7.5%. we almost got there. look at where the vix got on monday's selloff. it back up to the levels last year. so, you know, we had the data here like mike talked about. the data on monday we deserve to

be down. today, we deserve to be down. we didn't go down, what does it tell you? positioning. >> so where does that leave us now? we're mostly through earnings season and have the jobs report. now we're kind of in no-man's land. where do you see stocks going? >> okay. i think that's a phenomenal point. we don't have any obvious catalyst. the things that really get markets to roll over is when you get hit with something you don't expect and the only way you're going to get hit with something you don't expect is when something comes along that is not on the calendar. we don't have a lot on the calendar. my view of it right here is we've had an extended period where we haven't had a material correction in the markets, meaning, 10% or more. we usually go maybe 18 months when we see something like that. we're now plus 30. i think we're overdue for a little bit of that. anybody running in and saying, okay, it's all clear and i should be chasing equities is being fooled. >> i think the technical setup is important. what did we do? we went to the previous low in

october. down about 6% from the highs. now we're testing 1800. that came quickly. the 50-day moving average, that's that yellow line, you should see a bunch of resistance. if we open up there on monday, i think that is a good spot if you're looking for protection or looking to make bearish bets to get in there. this could be it. >> if you felt the pain on monday and saw volatility spike, now is a great opportunity to actually put on some sort of trade if you have a directional lead when you do, mike. >> i think that is exactly right. the whole issue has been that very often you rarely get a situation where everything sort of sets up perfectly if you have a directional bet. we obviously if we want to be using options on the long side to do that are looking for an opportunity when volume tilatii are low. we're not quite back where we were. we're starting to get there. >> one last point. janet yellen is our new fed chairman. if she signals she's going to stay the course that, can be the

thing that disrupts markets next week. we also have emerging markets. they bottom this week. they got grog before we started getting going. who knows what's coming out there? i think it sets up really well. if you get a follow-through next week and prices of options and you were sweating it on monday and you wish you had put protection, now is the time to do it. >> what is the trade? >> i want to look out to march 31st expiration in the spy. when it was $179.50 today, you should buy a put spread. $165 put spread cost $1.50. volatility is lower and stock is higher. i was only risking $150 for a $10 wide protection. if you look at a chart of the s&p 500 or spy that, is a really important level. i that i is the sort of protection that will act very

well if we were down 5% to 10% in the next month and a half. >> the math works out very nicely. usually we look for 25% less or well less than. that this sets up nicely. the one thing i say is options really come in a lot more, you might be able to buy it and like it. >> that's the great point. listen, if volatility goes the way we think it will next week, if the market continues to rally, you'll want to leg it. i want to do this for instructive purposes. we're looking at the levels. that's why we have the main man carter. we want to sell options where we think there is support to lower the break even. >> let's start this off with a little stocks versus options. moving on here. call them the social climbers, despite the trouble at twitter, a number of internet stocks hit highs today. facebook shares flirting with $65. the company is now three times more valuable than type warner. yelp hitting new highs and twitter rebounded strongly. there is one lagger that could

soon join the party. let's call to the charts with the original chart master himself. what are you looking at? >> zenga. in the context of other high flying internet stocks. we have a lot of movement in the last two, three years. these are all stocks that have ipo'd in late '11, early 2012. and, of course, you can see these are incredible results. one after another. zillow, facebook, except tore down here on the bottom, zynga. this is quite atrocious. it looks to us as though zynga is about to come to life in a big way. take a look. here is a one year chart. what is important is how well the stock responded to this trend line. but then most recently this huge bounce off this trend line here with this gap. this was 170 million shares that day, average daily volume is down here at like 20 million. so a massive resent with a gap.

it stops at the past top. so pay attention to this $450 level and look at the next chart. we are literally. this is one of the most gorgeous bearish to bullish line that i've seen. if you look at the authority of this $4.50 level, the presum sgs a big move to the upside. the foreshadowing is the 170 million share day that got us there. >> do you have a chart of the revenue decline. yes, that looks washed out. it was a travesty. but two years ago they had $1.2 billion in revenue. last year they had $84 million. >> i think that's a good point. it's the most gorgeous bearish to bullish reversal, but make the case. like dan said, they have other problems here. >> the interesting thing is i'm not going to make the case. this company hasn't made any money. you know sh it's interesting.

there are situations when sometimes can you use options to make directional bets when the fundamentals don't back up the story when you have a fairly interesting technical case which i think is what carter is presenting. so everything that dan just said was true. this company hasn't made any money. it's interesting to me because it seems like they should. you take a look and say if they could do a little overed 1dz billion in revenue, how can they not bring that to the bottom line? year on year they've proven that they can't. i'm not going to pretend that i think next year will be a math imbullet. >> so the sole reason you're getting into this trade is because of carter's chart analysis. >> it's a combination of his chart analysis and something that i observed in the options markets which i thought was interesting for a very specific trade structure. and that was a kaline. >> mike is bullish. he is using a call fly and this one can get tricky. open the playbook. a call fly is a bullish strategy. you buy one call and sell two

higher ones against it. to protect yourself, you buy a higher strike call. here's the bottom line. you want the stock to go to the two strikes that you're short. that's where you make most money. that's the target for the stock. so mike, walk us through the trade. >> the interesting thing here is april, $4.50, $5.50 and $6 call. i could pay a quarter for that. when you buy a call fly, you're really targeting that short strike. in this instance, if you pay 25 cents for this which is approximately where it was trading today, the maximum profits are at $5.50. you can actually capture 20 cents if this thing goes to the moon. this is unusual in a stock that has a volatility level this high where can you risk 5%st current share price to make a bullish bet that's going to allow you to participate. technically it may not go.

there you're only going to risk 5% of the stock. >> you know what's funny? i don't like this trade at all. i think at a $4.50 stock, they have new manage. there. this company wants to be bought by microsoft. to me, i think you give up all that potential risk for this thing to double. you could put that trade on trade. it's on options in that fly. you could lose money if the stock goes up $1. >> actually, if it doubles, you'll make money. you'll make an 80% profit on the 25 cents you put in. if it goes $5.50 which is approximately 20% increase from where it is now, you're going to crush it. >> so let me ask you. you were totally down on the trade from the beginning. you're down. you respect carter. you wouldn't put the trade on yourself. >> i wouldn't. >> why not? >> some of the loyal viewers here may remember that last year we did a trade on zynga. we did a risk reversal. the stock was $3.

he told that down side put. they have half the market caps in stocks. there is a floor for this stock. i just don't think right now you have to try to thread the need well a fly. >> the thing up is 50% since then. so it's really easy for me to -- >> it's a phenomenal trade. >> i don't like it adds much here. >> got a question out there? send us the question. you'll find great trader blogs and educational material on our website. here's what's coming up next. carter and mike join leo's entourage because they need a ton betting against a small cap index together and they have a way to make even more. >> plus? make love, not war. >> that's what tim cook and carl icahn might do. we'll tell you how can you profit 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. ♪

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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. to me, you know, the options activity has spoken to the fact that the company is whying back stock because a lot of delta one trading going on. options -- well, between it could speak to the fact that there's some banks out there doing accelerated buy back for the company. >> there's our own dan nathan, predicting that apple is buying back stock. however, it was not enough for carl icahn who took to twitter, surprise, surprise to say this. google at same multiple is worth

$1,245 per share. ridiculous. keep buying, tim. you still have $145 billion cash. well, carl, today might be your lucky day because that's what apple could do. dan and mike to explain why at the plasma. >> well, the activity in the options market was the tell that something was going on. there were large blocks that were trading, it was similar to activity we saw when the company did accelerated buy backs in the past. they introduced the initial buy back of $10 billion worth of shares back in 2012. okay. that was in march. then they added to pressure buy a lot of activists or investors in general, they added last year another $50 billion to that buy back. so what's going on right here? they bought $16 billion worth of shares. that probably brings you between $40 billion of the $60 billion. maybe even higher.

by the time they have the february 28th shareholder meeting this is where mr. icaan who owns $4 billion worth of stock is pushing the company as a proxy in place for that investor to vote on, for them to buy up to or excuse me $50 billion or more worth of shares. what's going on here? you know, they may achieve the same goal. the company does not want investors to vote for mr. icahn's plan. obviously mr. icahn does. but you know what, apple may be full up in the next month or so. they may need to do their own massive buy back again and you know what? both sides may win on this trade. >> yeah. i think this is really interesting. first of all, carl's right. a situation like this is absolutely absurd. carrying that much cash. they obviously have floated a small amount of debt on a relative basis. rates being where they are, they should be expanding it. one of the things that people might look to do, take advantage of the situation and just look to sell some puts on this. because effectively buy backs are the put to you. when you're selling a put you'll

get support from buy back and from the hopes there might be one. so simply what i was looking agent today was telling the puts, you can get $25 for that. so you're capturing the stock price. the worst is you're compelled to purchase it and they're buying prices higher than that. i think that's a comfortable place to get in. also, if they're not buying back right now, that's probably one of the reasons why volatility in the stock is going to be suppressed. that's why we'll do this instead of running -- >> that's an important point that the buy back of this size is -- it means over time the price of options should come down. you want to net short the options. at some point they're attractive, but if you're long stock you can sell calls against your stock and take in some added deal there. >> a great point. one of the things you're looking at, if you don't own the stock that's when you sell the put. >> i want to bring carter in in terms of your view on the stock, before apple's earnings you were bullish on the stock and apple

tanked on the earnings. >> what's interesting is where it tachbinged and -- it touched on the average, and we think the bounce continues. we like it a lot. >> carter likes apple still. coming up next small caps had the worst three-week stretch since june of 2012. why it could get much worse. what's your favorite sport? >> curling. >> hockey. >> ice skating. >> what about curling? it is mine. >> quit sucking up to the host, it's "options action" on the web. all through the games, watch "options action" on line and on demand. go to options action.cnbc.com. or follow us on twitter. "options action" is going for the gold.

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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. ♪ time for i want more cash. time to look back on the big trades to see if we can make more big money.

they made big profits weeks ago and here's how. on "options action," sometimes trading like stars just isn't enough. sometimes we want more cash. and that's just the case of mike's bearish trade on the market. carter thought the box office success of wolf of wall street could be a signaling time for the market. >> this is 1987 peak and the movie wall street with michael douglas came out. boiler room was at the market peak. the rerun if you will or the anniversary of wall street, wall street money knows no sleep, at or near the top in '07. and now here we are the wolf of wall street, leonardo dicaprio and this is not a bottom. >> not quite, because it gets better. that's because at the iwm does fall, that put will increase faster than the iwm drops.

meaning more money in mike's pocket. >> i'm talking about this. >> and since the time of the trade, it's fallen 5%, making this trade a winner. while some on wall street are celebrating his success -- >> the whole firm is going nuts. let me open up the door to my office. [ yelling ] >> others are left unsatisfied. >> i bumped those numbers up. those are rookie numbers. >> forcing us to ask the street's biggest question. how could mike make more cash? >> now, before we answer that, let's explain why buying that was better than shorting small caps. if you went short you would have made 3%. nothing to complain about. but mike's put can be sold back today for $5.50. 25% return. now, carter got us into the trade. what does he see now for small caps, carter? >> i think there's more damage coming, you have a well defined

trend and the high was 117. we broke the well defined trend, and now we have thrown back to 110. the high level sell of 7 or 8%. we think this throw back gives you a chance to reshort the thing. >> how do you manage a traded? >> >> i would roll down to the 108. and try to do what we were talking about when we put this trade on initially. look for opportunities to

spread. keep an eye on twitter too because we will talk about opportunistic times to do that. >> to carter's point, that trend line they broke, that's a nasty looking chat there, i think you look to short charts like that. >> coming up next, we have the final call from the option pits. >> "options action" is sponsored by -- ♪ [ 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. ♪

[ 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. now, what you're watching now is incredible footage of our very own mike khouw trying out for a brand new olympic sport. freestyle sitting. sad did he didn't make it to sochi so you can find him and the rest of the gang breaking it down in exclusive online segments over the next two weeks. find us on twitter where our handle is @cnbc options. mike going for the gold. all right.

time now for the final call. >> take advantage of the two or three bounce in equities to reduce your exposure. >> i agree. wait for the price of options to come in, look at the spy, look to spread into the trades. >> mike? >> consensus. i agree with these two guys. >> our time has expired. see you on the web. check out our website. "mad money" starts now. >> 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 minutes. t25 was created by a guy who