remember this -- people first, then money, then things. now, you stay safe. bye-bye. this is "options action." tonight -- >> the only thing we have to fear is fear itself. >> you said it, fdr. that's because the vix has fallen to a new eight-year low and that has some traders downright scared. we will tell you how to protect your portfolio. plus, ichaos. >> assume the crash positions. >> we'll tell you why apple's historic 7 for 1 stock split could cause mass confusion and rare opportunities for you to make money. we'll show you how. and streaming mad.

>> i am as mad as hell and i'm not going to take this anymore! >> netflix is lashing out at the internet providers, but did the premiere of "orange is the new black" just give netflix the upper hand? we'll have a special report. the action starts right now. live from the nasdaq market site, i'm melissa lee. these are the traders in times square and have no fear, the vix the volatility index, hitting its lowest level since 2007? how can you use the low vix to make money? let's get in the money and find out. you know there might be trouble when the resident bear gets bullish, dan. contrarian indicator here sitting at this desk. >> i think it's hard to look at the vix with a ten handle. we haven't seen it in a long time. and say that all is well. i mean, it is well. the s&p is at all-time highs and we keep grinding higher. so when you look at that chart right there, it shows the inverse relationship between the vix and the s&p. but it doesn't speak to health. it speaks to complacency. that's one of the things that

when you talk about how do you use low implied volatility? well, you can put on some protection for things you own, things that pay you a nice dividend, things that are working. why get out of it if everything is working. especially the last thing for those trying to pick a top in what is summer trading right now. you know the old market saying, never try to short a dull market. >> the vix is sort of screaming like kevin bacon at the end of "animal house," all is well. the thing i would say here is when complacency is very high, risk is actually higher than it might otherwise be. think about it this way. if you had a stock with a really high short interest, you often expect that those people who are expressing some skepticism are there to buy the market as it falls. we don't have any of that implied in the options markets right now. right now what the options markets are saying it can only go in one direction. >> vix is not really telling us anything we don't know from the market itself. it's a coincident indicator. trading it has been futile just as shorting the market.

is there any incremental wisdom in the fact the vix went to new lows? probably not. we're almost at already rows. it's just, again, it's coincident. it doesn't lead in any way. i don't think there's any information in it. >> that's the good news though because actually one thing is that the vix does get to basically a floor. so there's always going to be some movement in the market. as long as it's moving a little bit, that is going to essentially create a floor for options prices which means it's a great opportunity regardless of which direction you're looking to play it to use options because they can't get a whole lot cheaper. >> but, carter, in terms of the charts, the s&p chart -- >> the s&p chart is the definition of complacency. if corrections are good, it's incorrect to go too far without a pullback. we've gone 18 months without a correction. not good. >> not just equities. look at bonds. >> everything. >> that's the other thing. this is the worst week for bonds in months, so, you know, complacency is all over the board there. >> let's get to your trade.

you're looking at ge. >> you say i'm getting bullish. to me this is a trade. if we're going to go -- if the s&p is going to continue to go, one thing that we have been talking about this week, the iwm, the russell 2000, if the small caps join the party, then it's on. you know what i mean? some of this thing is going to start to play catch-up. one of the names i was looking at, if part of this whole thesis is global growth is improving, we saw data in the u.s. that looks a little better, if everything is getting better, then you want to go for some laggards, cyclical names that will improve. ge is one of those. down 3.5% on the year. i think we have a five-year chart, it is at the lows here. that chart is the price. to me $28, that's the previous high. that's where it closed on the last tick of 2013. that's what i want to gun for. in july they report on the morning of july expiration, july 18th. options are cheap. the stock looks poised for a breakout. if there's any good news -- joy global this week -- >> monster move. >> monster move.

>> earnings and then upgrade on wall street. >> chart boy, take it easy here. >> it's not about the charts. >> it was up 11% in two days. it broke out to 52-week highs. this is the same trade. i'm targeting ge's earnings on july 18th when the stock was $27.12 today. i bought the july 18 calls for 16 cents. that's less than 1% of the underlying. if that stock does a joy global and gets back to the highs, if it breaks out, you have asymmetric potential upside. you're risking very little. >> carter? >> joy is a $5 billion company. ge is $270 billion. >> short interest. >> all it does is mine and it's a very high beta stock. ge is a gdp stock. on an operating basis, they are not performing on -- >> the largest market cap company in the world just went up 15% in a straight line, apple computer. >> there's an opportunity here. first of all, i want to point out something. ge is trading at below market multiple. it's a couple turns cheaper than the s&p. that's the first thing. the second thing is look at how much he's spending on these 28 strike calls. 16 cents.

that's just a little over a half a percent of the current stock price. it doesn't need to move very far. here is something else, those options aren't going to decay that rapidly. here's the reason. he already highlighted, they have earnings coming out that day. there's always going to be a little bit of a bid for optionality going into that event. that's a really, really cheap way. this is the opportunity we were talking about. options are so cheap, i don't see how if you're going to make a bullish bet in ge that doesn't look like a favorable trade. >> to carter's point, ge does not have the same beta as joy global. do you think ge will meet expectations and/or beat by upon penny because that's what normally happens. that's as exciting as it gets. >> if we're going to have the s&p at some point later this summer at 2000, stocks will get back to the highs. i'm not saying buy at the money or in the money calls. these are cheap out of the money calls. they're dollar cheap and vol cheap. >> stakes are high in the buffering battle between verizon and netflix. with netflix second season of

"orange is the new black" out today, so if you get that dreaded buffering sign, who is to blame? julia boorstin joins us to explain. >> it's very complicated here. if you're buffering it's hard to know who is to blame. "orange is the new black" travels from netflix to you through a spider web of connections. netflix sends data to servers from a third party data center to verizon's hubs and then roughly to the 9 million internet subscriber homes where there could be an issue with a wi-fi connection or even the netflix players. verizon along with comcast has an interconnect deal where netflix pays verizon for direct connection to improve streaming. other internet service providers like at&t and time warner which don't have an internet connect deal, have an extra step. their data also goes through a company called a transit provider. this paid deal has paid off for netflix subscribers on comcast. streaming speeds have improved by more than 50% since their

deal in february. but verizon speeds have only increased just slightly since their deal was made over a month ago. it can take a while to implement changes. this buffering battle, the back around forth between verizon and netflix, isn't hurting either company's shares but this weekend the pressure is really on for them to perform and avoid that terrible buffering. >> julia, thanks for that. well, netflix's stock has had a remarkable month rising 25%, finishing up in 18 of the last 21 trading sessions, but that's got the chart master worried. so, carter, what's the problem here? >> i think just what you said. that's a lot of sessions up in a row. let's look at the chart and try to figure it out together. so what we have here from this low point is a 45% advance. but it's not so much about percentage. it's where we've returned to. if you were to look at this top and you were to look at where we are now, this is exactly 28 days down, exactly 28 days back. we've returned, if you will, to the scene of the crime. this is where the stock really plunged and now you've returned

to where there is memory, which is to say dead bodies. people who bought poorly, endured a lot of losses, and now have the chance to get their money back. so the presumption is that ricochet of 45% has reached a level where it stops. we would fade the move. here is the same chart. remove the drawings and look at this. broadly speaking, if i were to give you a trend line of sorts, we've come back to the throat, if you will, meaning the underbelly of the trend line. that's also a difficult level. now, finally, let's say ultimately this is going higher longer term and ultimately you were to call this an epic cup and handle, yes? a cup and handle forms and when it gets to the top, it consolidates or backs away a little bit ever ultimately going higher. we think we're at the moment. we would fade this stock. too many sessions up in the row. take your profits and try to sell short if you can. >> carter is very clear about where he thinks the stock is going to go.

dan, what do you think? wall street is getting more bullish because of the international component of the story and also, you know, "oranges is the new black" is coming out, another season of "house of cards" in the works. >> if you're just buying it on the idea of hits, i don't love that. the international expansion is important but they have to show they're going to get leverage off of it because ultimately in the time now, it just means more losses right now. so to me i'm not a fan here. i have actually gotten turned around. i had my best and worst trade of the last two months both being short the name. i'm out. it's on my banned list. mike, your turn. >> at a $27 billion enterprise value, any one hit is probably not going to propel it that much further. that said, this is a name i've long been skeptical about because the valuation has seemed pretty extreme. this is a company that has been seeing about 20% revenue growth and finally looks like there's actually some of that flowing to the bottom line and at a very good rate. still the valuation at 70 times next 12 month earnings is nose bleed territory for most companies even those that are growing a the a rapid rate. i'm inclined to go with carter

on this. one of the things we were talking about also is the fact that options are cheap. they're not quite as cheap in a name like netflix because there is some skepticism based on the valuation and volatility isn't baked in. what i'm going to do here is simply put on a calendar put spread. specifically the one i'm looking at is the august 380, january 380 calendar put spread. i will buy longer dated puts for about $30.50. sell the near dated ones for 13.50. if the market continues to do what it's doing, if the stock consolidates, what's going to happen is that near dated options will decay more rapidly. if it stays right here i can win. of course, if it declines, i have ways to win that are much better. if it goes down to that 380 strike, then there's a better chance the longer dated one will increase in value as the other one continues to decline. >> you have been skeptical. is there something about -- is it just the technical picture that carter lays out that makes you want to put this trade on? we could have made the argument for a similar trade many, many times and we could have lost a lot of money.

>> well, you know, actually if you did a trade like this, you probably would not have lost a great deal of money. this is just one of those situations where we're actually looking for the market to kind of grind and we're looking for this stock to kind of grind and maybe even go a little bit lower. these are two ways we could win here. the only way you lose is if the stock really rockets from here and i don't really see that happening. >> this is a great trade. if you want to buy puts in a name like netflix, you have to finance it. one thing on the technicals, this came all the way to the prom, is going to probably kiss the prom queen. i think you see $450 in the cards. if you're going to own puts, you have to look to finance it. that's why i really like the calendar. >> kissing the prom queen. >> never did it. >> that's a new one. not surprised. got a question, send us a tweet @cnbcoptions. we'll answer it right after the show. in addition you will find great trader blogs, educational material, and the most salacious gossip making the rounds in the options pits. some call it the tmz of derivatives. check it out.

here's what's coming up next -- it's the split heard round the world. >> pretty nerve-racking. >> not you, gwen. we're talking about apple's split. which could spell a once in a lifetime opportunity in the options pits. we'll explain 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.

[ 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. one is the loneliest number but apple shareholders won't

have to worry about that now that they have done a 7 for 1 stock split. that could lead to problems when apple stock starts trading on monday. the professor is breaking that down for you. mike, explain what we need to know. >> this is what's going to happen. we're going to see some modifications, some adjustments to the options contracts. let's start out with a simple example and assume that presplit you own one january 700 strike call. we know it's going to be a 7 for 1 split. take the number of contracts you have, that's nice writing right there. multiply that by seven. so now that's how many you're going to get. one sometimes seven, seven contracts. the strike is also going to be adjusted. you need to divide that by 7. 700 divided by 7, 100. if you owned one january 700 strike call before the split, after the split, easy, 7 january 100 strike calls. it gets a little more convoluted

when you start dealing with some of the strikes that aren't easily divisible by 650. if you owned 1 january 650 call, well, you're still going to have 7 contracts but now you need to divide that by 7 also. that gets you to the number 92.86. going to round it to two decimals. what happens? 7 january 98 spot 86 strike calls. the amount of premium you hold will be about the same. take however much the options are trading for and divide that by seven. >> is there a magnet to 100 post split? >> there is. two things, while the stock doesn't actually have any change in valuation after a split, there's a lot of psychology to that so we know in a way it does. two, there is something about past tops. we have a big stock that's acting well. a lot of momentum that's not expensive, however you want to measure that. i would say $700 is in the cards. >> dan? >> i agree. it's back to the old prom thing. it's gotten up here, 8.5% away.

>> going to kiss the queen. >> i'll tell you this, if it gets up there and they disappoint in the fall on products. they were suggesting an iwatch could be in the offing in the fall. if that doesn't materialize and the phone is a dud, that will be the most epic double top you have seen. >> what happens to the cost of premium? what happens to the premium now? is there anything that changes? does it become more expensive at all? >> that's a great question. it used to be if you went back about ten years ago, there was sort of a common sense that lower dollar stocks could move more on a percentage basis. the premium would actually rise. the idea was it was easier for a $10 stock to move $1 than $100 stock to move $10. i think actually investors are a little smarter now than they were and they recognize that the valuation of this company probably shouldn't become a great deal more volatile just because you have increased the share count. so i'm actually expecting it to probably remain just about where it is and that's why i think if you take the premium for your options going out, divide by seven, that's probably where they will be on monday. shares of family dollar surging on news carl icahn has

taken a 9% stake in the company. prior to this news we saw a very large bullish options trade. hmm. we will tell you what it was when we come back. [ male announcer ] what if a small company became big business overnight? ♪ like, really big... then expanded? ♪ or their new product tanked? ♪ or not? what if they embrace new technology instead? ♪ imagine a company's future with the future of trading. company profile. a research tool 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. i'm eamon javers in washington where we are seeing for the first time a large and significant class action lawsuit that's been filed in the united states district court for the southern district of new york. this is a class action lawsuit filed against 13 different stock exchanges on behalf of one customer, a harold lanier. it's been filed by a raft of prominent lawyers, including at least one of the lawyers who was involved in the massive tobacco settlement back in the late 1990s. what lanier and the lawyers are alleging in this case is apparently the exchanges violated contracts with their customers by providing high frequency customers preferred access to data. let me read you a little bit from this complaint which was filed back on may 22nd but is just becoming public this afternoon. they're saying that the subscribers paid hundreds of millions of dollars in

subscription fees to the exchange defendants for the provision of data in a nondiscriminatory matter. nonetheless, the exchange defendants the lawsuit says breached the contracts by depriving the subscribers of the value for which they had contracted. they did this, they say, by engaging in side deals with preferred data customers to provide faster advance access to market data that breached the subscribers' contracts and was designed to enable the exchange defendants to use their data monopoly to generate profits for themselves. it could be a significant new front in the battle over high frequency trading now that we have what appears to be a significant and large class action lawsuit. we've called all the exchanges, but this is just breaking right now and we're getting our first look at it as we speak. >> eamon, thanks a lot for that. family dollar shares surging in the after hours session on news that carl icahn took a stake in the company. carl took to twitter and says disclosed a 9% position in family dollar.

hope to continue our streak of value enhancement. the news was preceded by some unusually bullish option trades in the pits. almost 2.5 calls traded for every put. so, mike, what stood out to you. >> first of all, unusual volume always stands out. that's why we call it unusual. the fact that somebody -- >> thank you, professor. >> the fact that somebody is buying a 5,000 lot of the 61 strike calls, i think that's pretty interesting. dan was pointing out the expiration -- >> let me just say this though. we love to make it sound a lot more mysterious than it is. let me tell you really what happened here. it was a roll. most of the volume today happened in one roll where a trader sold 4,000 of the june 60 calls to close. they were already long and they rolled them out to july 25th expiration and bought 5,000 of the july 61 calls for about -- i think it was about 205. so really what was happening, this person already had this bullish bet on and they extended the time. the company is set to report july 10th -- >> enlarged it a little.

>> yeah, enlarged it a little. when you see a roll if you had just seen 100, 100, people picking at these sorts of things. you wouldn't go do it in a big block if you knew this sort of news was coming out today. let's be frank. >> you wouldn't do it like they did it in clorox and stuff look that? look, it was a large trade. it was a bullish bet. they were bullish before and they continue to be bullish. >> and the stock has been act willing for a while. if one tries to figure out how a stock bottoms, this has been going on for several months. >> let's talk about some other unusual options trades. let's take a look at gmc, green mountain. we saw a big spike in the afternoon trade and we saw a weird trade on the options side. >> in general motors, pete was talking about the ford trade earlier. what happened in general motors earlier is much of the same kind of activity. people are taking advantage of the fact that options premiums are low.

in many cases they've made profitable bets. they're taking the profits and extending their bets out. what we saw in general motors specifically was a buyer -- a substantial buy of the 3943 call spread going to september. it seems in many instances these guys are going after the previous highs which in that case in general motors' case was $41.50. >> i was actually asking about gmcr. i said green mountain keurig. >> but gm is very fascinating. >> that's also fascinating. >> the gmcr at 2:00 the stock took off. options volume ran massively. traded at 59,000 calls to 18,000 puts. most of that options activity took place in the last couple hours of the day. no news. >> all right. coming up next, 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.

[ 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. final call time. carter? >> any given day you don't need to monitor the vix ticker.

>> ge upside calls are cheap. >> mike? >> options remain cheap, buy them. >> our time has expired. i'm melissa lee. thanks for watching. see you next friday. have a great weekend. stay tuned because "mad money" starts at the top of the hour. >> announcer: the following is a paid presentation for the nutribullet brought to you by nutribullet llc. special tv offer. stay tuned to find out how you can get the nutribullet superfood nutrition extractor free! that's right. get the complete nutribullet system free! details just ahead. >> my muscle aches, my back aches really started to decrease significantly in one week. >> first night that i actually used the nutribullet, i actually slept really well. that was exciting. that was phenomenal. >> the bad cholesterol which was