now, you stay safe. bye-bye. this is "options action" action. tonight. >> what's going to happen? in there something wonderful. >> why they could be if for a disappointment. >> sorry, dave. >> plus. don't dance too much. because europe's amess and that could translate into a big problem for u.s. stocks. we'll explain why and how to protect yourself. and talk about an electric shock. elon musk says tesla shares might be recovery is e

overvalued. so why are so many betters betting on games to come? we'll explain. the action starts now. live from the nasdaq market site. i'm melissa lee. this year, another record for stocks, but the big mov wasn't equities. it was the euro. the central bank desperately tries to revive it's stuck economy. the euro having it's last week since september. why don't they care and could this mean trouble for u.s. stocks? it certainly has been ra depressing month in europe, should we be worried in the united states? >> i think they haven't cared for all intents and purposes. we've had this underperformance in the caps t. dax sells off over the course of the summer. now it's made back a lot of. that to me, the u.s. has been a safety trade. it's been the safest block on a

pretty messy street right now. you didn't mention the other geopolitical stuff. we had that surprise rate cut by the ecb. it's telling us we basically have this liquidity. it will be here in almost every region of the world until things do get better. >> i don't know that the liquidity will be enough to mix fix the problems we have there. everyone has always said, don't fight the fed. the question is can you fight ecb where european stocks are concerned. they have bicker problems than we do. they have negative growth and far higher unemployment in places like spain. there is some question will ecb has as much regional domestic power as the feds domestically. to really fix a problem, you probably need a lot of policy and fiscal changes, what's even more astonishing if anything could be is the fact that the european markets in many place are trading at about the same multiple as the u.s. ones.

they are trading about the same price as the ecb. >> at this point with the big currency moves, would that be a head wind for u.s. stocks and a tail wind for european stocks, therefore, tipping the favor maybe to europe. >> the dollar it had made exports tough here. that's the flip side, you have to think about u.s. multi-nationals. we have been talking about it. there are these new highs and under performers like mcdonald's can't get out of their own way for good reason. i will fake issue a little bit with what you said. if you don't fight the fed, the fed got european equities where they are. so you know, i don't think it's really trying, i don't think you have to pick a top right here. >> let's go to the chart master, see what he thinks, carter braxton worth.

>> europe is sort of amess. the bagging system is much more prone to trouble there than here and, of course, they're basic contracting where we are not. let's look at charts. long-term chart of the s&p. i wanted to point out the high in 2000 the high in 2007 and of course this powerful breakout of these stops, juxtoppose that. europe, france, italy, spain, it's the same proposition, not all is good long term him meaning it hats a high in 2000. 2007 there is a lower high. it hasn't gotten back, whereas you got the circumstance, europe is not even close, now not only is the long-term not even close, the here and now is starting to diverge. take a look at these charge. this is europe, s&p on a near-term base over the past 12 months, all of a sudden, we are starting to get real divergence,

the long term is under performing. now the day-to-day is coming apart. the is europe into the s&p. the big player, germany, ewg which tracks the dax. look at this divergence relevant to the s&p. so we think there is a warning. here's how we would trade this. here's the ewg itself, it's broken trend for the first time in about a year. that's important. when we throw back bit here we would favor this throwback. i think what you will get. here's our line, here's the break if trend. i think what you will get is about a 10% decline back into this support. so i'd say be careful and consider this a place to take profits if you were long. >> that's considerable, 10% decline. >> like we were talking about, you can't get short something like this into central action like we are seeing. when you look at the equity, the big stocks, daimler, bayer,

volkswagon. these are international companies, much like dan was talking about. volkswagon gets most their sales from europe. i don't think this is enough to fix europe's problems. generally speaking when you look at an index like this, "options action" prices tend to be less, i'm looking at specifically the germany put. this is a dollar trade. if you get a pullback, you can look to get profits or roll trade only if the market continues upwards unabated on the bullish move we have seen if that persisted with this trade not having to work out. >> would you sign a buck on the trade? >> probably not. i have done this, even with applied volatility low for index or an etf on an index like ewg, you pay want to look to make it a calendar and finance it. it's not a single stock. you're not going to have this 5,

17% downmove. it will grind, if you do the calendar, it offsets the decay and the time tom me i think you got to be careful with something like an ewg. it doesn't move a whole lot. >> that's a fair point. we're not buying an option that ends next week. the longer dated "options action," maybe january isn't the longest example that we could find. they won't decay quite as rapidly. >> but you could peck up a premium by selling a shorted dated option. >> one could do that. >> okay. let's turn now to tesla, the stocks slid hard today in case you haven't noticed. elon musk said the stock price is kind of high right for the you. the "options action" were active with twice the average volume trading. water interesting is that the calls were far more active tan the puts. of course, maybe the bulls have a reason to keep buying a. year ago, musk made similar comments saying the mark is being very generous in valuating the stock,

sense then shaers have nearly doubled. what do you expect this team? a repeat, round two? >> here's the thing. he made comments over the last year or some the stock is up 85% to make that comment phil lebeau last summer. listen, the stock is a mania. it's an amazing story. elon musk has half the pickscy dust that a guy like steve jobs does, he will be a major player. the stock is up a to you percent in the last few years here. it's not something na i think you have to go out and hear a headline about a gig ga factor this and that. i would make one other point t. company has been smart. they have raised a lot of cash along if way. since their june ipo, they have done three secondaries, one each year. secondary share offering, raising cash, earlier this year they raised $2 billion in convertible note. they know it's going to cart a different course for this company. so that being said, when you

hear a guy like musk make a comment leak this with a stock here, maybe you do take some lumps. >> i would say he is being rather understated. >> this is valued per cars sold. versus 7500 valuation on an enterprise basis for a company like ford. there is a lot of future prospects, probably outside the car industry, itself, within they look at this king thing. >> you would have said 100 carter. >> i think the valuation can't even be discussed here. this is on the comments in the future. let's look at the carts. i think the most important things, despite the percentage gains, one years, two years ago

it's paid no progress since february. in that sense, it's not extended at all. in principle, this is a well formed process, a nice response backed off today from the high and the principles i would say is a backing and filling and after responding to the prior top, exceeding the prior top. we like this long. >> you know that nice line he has from the february highs. >> right. >> you have a failed breakout. these comments caused it to fail. when you look at that chart here, to me this is not something you want to press on a down day today. i want to give this until next week. if this stock has weakness, i can consolidate. that's that high. one other point. in the last year the stocks had two 30% plus sell-offs from the highs here. to me if have you this sentimentship. it could be happening. it could be out of the words of

tear ceo. this is probably a good sought if you get an opportunity early next week to put a trade on isolate a consolidation back towards 265. the trade i looked at today when the stock was down 3%, i don't like to press stocks. i don't like to try to pick top. i do like every once in a while to put "options action" to put the trade in my favor. i looked at the september, october 265 put calendar, that cost $5. that would be selling one of the september 265 puts at $3 and buying one of the october 265 puts for $8. what i'm really trying to do is use the next two weeks to get the stocks to inch a little lower towards that breakout level. consolidate. >> there is no event here in this next one. >> you are trying to find a way, you can't get short the stock, itself. it is a company, i can see doing $20 billion if revenues. that's where it's priced like it's going. that would be $4 billion.

i don't know. >> i do think dan's got the right track here. >> you keep saying people item break. this is the word of the ceo. prior to that, tesla is doing just fine. >> okay. let's see this, they've done these capital raises every year since their ipo. they will have to raise more capital for this gigafactor. if they bring a deal soon. this is potential catalyst, why wouldn't you bring a deal when the stock is at an all time high. they sold stock if 2011 at 28. they sold it at 92 in may of 2013. why the heck wouldn't you still stock at 276? >> we'll see how the stock reacts in the days ahead. right, that itself the key? is there when they sold stock if pay, 2013, elon musk bought $100,000 on the print. >> got a question out there, send us a tweet at "options action" action. we changed our twiths handwitte

handle. here's what's coming up next. "options action" traders are expecting a $26 billion move for apple shares next week and we'll give you the best play. plus, talk about a bank job. >> this is too much. >> pike doubled his money in less than two weeks in banc of america. now he's got a way to make even more. we'll explain how when "options action" action returns.

$27 billion that's how much "options action" tradesers think apple will move next week when it releases it's new iphone 6 and iwatch. some think it's cheap. except to my left, mr. dan nathan, why not? >> let's walk through some charts. as we head into this event, it's really important to remember. the right here, that was the much anticipated iphone 5 launch back in 2012 when the stock was at the prior high, what did the stock the do? it ran right into it. there was a huge rotation into the stock this year because of the product launches that are upon us. when you look at this, carter, like you laid out, tesla, that might be a thing for the

breakout. i'm not so certain where you have this massive sentiment shift into the event. okay. that being said, let's look at water going on u. mentioned a $26 billion move priced in for federal government week alone. it is higher when the company reported their fiscal q3 earnings in july. it's treating this like a massive massive event for the stock. we want to talk about valuation. listen, this was that september 2012. okay. the stock is trading at about 16 times trailing earnings on a pe basis. here's the thing. we know they have a ton of cash. that's a multiple. this is when they weren't buying back stock. they are buying it back now. everybody wants to quote pe. fiscal 2012. that's when the iphone 5 was released. this year they're expected to have $6.25 in earnings.

sales is up 6%. gross margins, okay, they're down five percentage points over that two-year period, there is pricing pressure from competitors and that sort of thing. some of the products are becomibecome commoditised. the company has bought back stock, taking shares off the mark. that makes this pe number much higher. look at what's here, the next income is declined. this product cycle comes and goes, all the people who bought it for, to me i think you have to keep track on sentiment and na net income number, because if all those people that brought the product number and it's so so, and it continues to decline, the company has to use that $265 billion. buy back that stock to manage earnings. >> you are skeptical overall. how critical is the value piece

here? >> i think that 106. i'm sure mike has an opinion on this. that $165 billion on the balance sheet should not trade at a market multiple. it's cash. they may need that cash to continue to manage earnings. if they flop on the iwatch and the new service thing and the iphone 6 is an okay release, they will have to invest if r&d. two-third of that cash is offshore. they will be $30 billion if debt. >> one of the justifications for buying apple here is we will see a multiple expansion. what justifies multiple expansion, one is revenue growth, the other is income growth at a gross level. you can pull tricks as we pointed out doing share repurchases. we do not expect this year we will see quarter on quarter versus 2012 higher fet income

than we did then. all tow we will probably see marginal revenues. if that thing starts to drift off, i don't see why the multiple will expand at all. >> carter, how do the carts look? >> the principle, if you reach the top, you respond to the on the. apsome responding and responding well. what do tesla and one of the largest banks have in common? we reveal when we come right back. [bell rings] ♪ time and sales data. split-second stats. ♪ its so close to the options floor, you'll bust your brain-box. all on thinkorswim, from td ameritrade.

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inspirations come in many forms, something mike khouw learned on his winning trade with banc of america. take a look. on "options action" action, sometimes risk less to make more just isn't enough. sometimes we want more cash and that's exactly the case with mike's winning trade on bank of america. meek was stumped for an idea some he went to his favorite delicatessan for inspiration. >> yes, yes, yes! oh! >> no, not that kind of inspiration, something more leak this. >> in 1845, do you have any

options that are cheaper? . >> hmm, mike thought, an option that is cheaper than $18 bucks, programs more delicious than a cat's pass tremaine sandwich. then it hit him, banc of america. >> you can buy the september 16 calls and those cost only about 15 cents. >> so mike bought the september b of a strike calm for 15 cents. at katz deli pastrami and rye goes for 18 bucks. pike's bank of park call for 15 cents actually costs $15, making it cheaper than the favorite sandwich. >> i'm have what she's having. >> before you do, in order for mike to make money, he needs banc of america shares to rise or above $16.15 by september expiration. but it gets even better. that's because if b of a shares

rise that, call will gain true faster than the shares will, meaning more money if mike's soming a, i mean, pofkt. since the shares have risen 7 cents that, makes this a quick double. now "options action" fans have one question. >> what are you saying? >> get your head out of the gutter, billy. all they reallyp to know is how mike can make more cash. before we answer that, we've got a little surprise for mike. now, today is mike's birth di, so we got him his pastrami sandwich. mike, you don't look a day over 80. >> i don't feel a day over 90. >> now what do you do with this trade? >> this is a little atypical. we are right here. you know, my inclination is we stick with it. we didn't do it just for a pasrami sandwich and that's all it cost to get.

you no i got my sandwich, i'm content. >> how happy are you? >> tastrami, katz is the best. the stock can't get out of its own way. it had that move after the last settlement. it's settled back if here. i'm not a huge fan. >> i don't know, it's come to life some of the banks, j. p. morgan, regional banks have been struggling. i think you got a good trade here. i will stick with it. >> are you going to eat that? happy birthday. coming up next the final call from the "options action" pits.

reduce it. >> i love the stock, i want to play for consolidation in the near term. >> ewg,er those calls you own,

stay with it. >> check out the options actions website. we have a daily segment pence "fast" every day, see you tomorrow. now to the pastrami sandwiches. >> phenomenal. . >> a better back and a better body. since 1981 that has been my passion. i created teeter hang ups so people could live healthier, more active lives. i know what it's like to have back pain. when i found inversion, it changed my life forever, and i believe it can change yours. i am proud to present the newest and best teeter hang ups. >> if we wanna live not only a long life, but an active, healthy, pain-free li