live on live on a friday night from here in times square. dan over there getting pumped. here's what's coming up on "options action" -- >> get back in there and sell, sell! >> that's what traders could soon be saying about oil because it's flashing a secret sale sign. we'll tell you what it is. looking to play catch-up on stocks? here's a hint how. and we'll tell you why now is a time to get in. and there's something very strange happening with disney, apple and facebook. >> i'll give you just a little hint. >> no need for that, bob, because one of our traders has already figured it out and it could mean trouble for stocks. the action begins right now. ♪ might as well face it great day for stocks today.

that means if you've been sitting on the sidelines, it's time to catch up. let's get in the money. dan, let's look at some of the laggards. which ones? >> it's google. it's had disappointing earnings over the last few quarters. they've actually missed. the stock is up 3.5% on the year, a little less than the nasdaq, outperforming the s&p a little bit. it's a big component in each. over the last year the stock has underperformed. the s&p is up and the nasdaq is up about 24% and it's only up about 5%. you say what's going on here? obviously we know facebook is eating in this once monopoly in certs, a lot of competition as far as social media. to me, i think there's an interesting opportunity here. i think google, there's a couple things to look out on the horizon here. they have a new cfo they just hired. they guaranteed a $70 million pay package, she's coming from morgan stanley and starts on may 26th. i think the sentiment is going to start to change as investors

start to get focused on the potential for her to return some of the $70 billion in cash on that balance sheet to investors. and it reminds me a little bit about apple. they have this huge cash pile sitting there. it's burning a whole here. apple a few years ago before they went out on what has been an epic, epic cappal return play the next few years. >> mike's looking so buttoned up in miami with that tie. what do you make of this notion that the cfc is going to be a huge catalyst for the stock? >> the catalyst they need isn't necessarily a cfo. they need to broaden out from search a little bit. they don't really have that many other lines of business. apple, believe it or not, is in some respects more diversified than google is. the one thing i would say, though, and dan pointed this out, they have a huge cash pile. and when you strip that cash out, this company is actually trading at a little less than 16 times earnings, that's a big discount to the broad market. to me it seems like a safe place to lay low if you want to take a long position with the market at all-time highs. >> brian, what do you think about google and the notion that there is a catch-up trade you

can play with stocks near all-time highs? >> i think that is a great play. basically google has lagged, and mike mentioned about that earnings multiple there. you know, when the analysts look at it, they say hey, maybe 10% growth this year, but people are looking down the road, 15% earnings growth. when you have a 16 multiple like mike mentioned after you strip that cash out if they can start to monetize that, to me the stock looks very attractive from a valuation standpoint. and technically you look at some of the technicals and movements in the stocks, it looks like it's trying to form a base and move to all-time highs. a little tick higher, i'm looking for a 5.55 print and i think we move a lot higher from there. >> dan, what's your trade? >> real quickly, we have a chart. look at 5.80 over the last few months here. it's kind of been a level. it's kind of hit some resistance there. i think what brian's talking about, what's the next catalyst. we know the cfo is coming. really you want to look at q2 earnings and sales and buck the trend. and i think investor focus is going to shift. i think they'll start to focus

on the potential for cash return. i want to set up owning calls for that july q2 report. and the way to do that is probably try to finance in the near term that premium because i don't want to buy the call premium. the markets are not moving a heck of a lot. while volatility options are pretty low, without a lot of movement they're just going to bleed. in the near term, the stock was 5.50 today. i sold the may 29th weekly 5.70 call at 2 bucks and i used that proceed to help pay for the july 5.70 call paying $11 for that. that call calendar cost me $9. that is my maximum risk. what do i want to do on may 29th expiration in a few weeks? i want the stock to move up about 20 bucks to 5.70. i know i'm threading the needle a little bit. and then i own that july call. at that point i may further reduce the costs of this or turn it into a vertical. and one very specific point, why am i choosing may 29th weekly as a short strike? we have a long weekend in that

memorial day weekend. and i think if we have a move and things start to settle down, i think that helps finance the purchase of that longer dated call there for the q2 event. >> mike? >> what's interesting is a lot of these calendar trades i haven't been that crazy about because the price of options have been low. actually in google i think dan's trade does make a decent bit of sense because the options premiums haven't fallen as much as they have in other places including the broad market. so i think it makes a lot of sense. there's not a near-term catalyst that would propel it through the strike before that first option expires. this is probably a better way. >> i think there's interesting technicals to look at the stock here. i think if the stock trades above 5.60, i think you have to get a little nervous about holding that short strike. maybe you cover that strike, you ride out the long because i think we get a print, 5.55 is my price target where that takes the stock to another level. 560 is maybe the level you want to look at and play continually to the upside. i like this trade. i like financing trades like this because a lot of ways the

option premiums play into your favor if we just kind of sit around especially all the way through memorial day. >> do you need the markets to go higher or is google such a trade where it's a catch-up, it will be okay? >> that's a great question. generally it's not a fantastic idea to pick a bunch of laggards, but we know this is a phenomenal company and a great balance sheet and double-digit sales and earnings growth. to me if you get a combination of investor base looking for capital return and the potential, some smart m&a. i think they should buy twitter and the stock would go up by 10% if they were to do that. so the combination of capital return and some smart m&a and i think you have the stock back up at highs at some point in 2015. moving on, oil rising alongside stocks. back at cnbc headquarters with this. dom. >> crude managed to close higher at least on the west texas intermediate side of things. in doing so, it helped cap off its eighth straight week of gains, something that hasn't happened since february of 2013. when it comes to energy stocks,

we've seen a nice rally coming off the lows this year. however, not all energy companies have had the best of weeks just this week to date. now, among the top gainers, cabot oil and gas and transocean both up by about 2% or more week to date. remember earlier this week at the conference, oil and gas fracking companies came under sbre intense scrutiny. pioneer natural resources as well as eog, although those two stocks may be not on the same side of the discussion, but still, you want to watch the fraccers. those guys had some pretty interesting walks. melissa, back over to you. >> dom chu, thanks for that. we go to brian who tracks volatility of all sorts including oil volatility. i'm curious what has been going on with the ovix, and is there a direct correlation with the volatility? >> yes, absolutely. you're going to see that reflect and some of the big oil names. the refiners have done exceptionally well despite oil having some of its problems here.

but when you talk about the ovx, the oil volatility index, it has a lot of fear indication. if you look at it, when it broke above 28 and it spiked all the way up into the 50s here, that was extreme fear. once we broke that 28 level, that was people panicking, getting out of the oil markets, right? now we've seen that actually come off its highs here. and it looks to be trending back to 28. so why is that significant? because if we get less movement every day in the price of oil, the real natural hedgers, the airlines companies out there, the petroleum makers, plastic makers that hedge themselves using oil will start to come back in the market, feel good that they know where the price is supposed to be priced at to hedge themselves. and that's going to put a little lift behind oil. so i love seeing oil volatility come off its highs in order to indicate to be a buyer here. certainly 58, 59, we've had a huge run in oil. we'll see if that can hold. >> mike, you're looking at an integrated for the trade this week. >> yeah, i'm looking at an integrated partially. i'm not sure that i feel like crude's got a whole lot more legs here. i do think it's probably going to be above 60 at the end of next week.

right now it's had a heck of a run. we've already seen eog, pioneer, a lot of names have suggested that you might see production or land drilling increases. so i think we might stabilize and a lot of the integrated names have not dropped as much as long-dated crude has still. so i'm looking at exxon mobil out to the july 87 1/2 puts. spend $2.5. you can actually play a little bit of a reversal potentially in crude by making a bearish bet here. i mean, right when everybody's getting bullish on crude, a lot of people get nervous. also, let's remember, iran, if sanctions are lifted, there's going to be more production there. that's more of a brent market issue. that's going to put pressure on crude globally. >> do you like spending $2.35, dan, on this trade? >> if it's running out of steam, the balance in exxon wasn't particularly impressive off of the recent lows. so i suspect if crude oil does go back down, you know, equities could get a bit panicky here. and the ones that didn't perform that well off of the lows make

sense. and mike said, volatility -- implied volatility is pretty cheap here. if you do get this turning south and volumes go up, you can reduce the premium at risk. >> i think you make a good point spreading them, right? yes, we might get a little backoff in oil. i expect it to probably trade 55, 56. that would probably push exxon lower. at that point i'd probably jump out of this trade here. i don't want to hold it all the way. we talked about oil volatility starting to come in. that should start to affect some of the individual names in the equity market and affect the premium of options there. so certainly we could see downward pressure on option prices in individual equities. as soon as you get that move lower, you'd jump out. it's a great way to be a trader. buy a put option. one it happens, take it off. >> mike, is this a trade you'd put on integrateds? >> this is the best way to play it because this is actually the most expensive of the integrated stocks. i think it applies equally to several of the others like a royal dutch shell would probably be first on my list if i wasn't

looking at exxon to make the same play. >> send a tweet to @optionsaction. there's only one place to go, optionsaction.cnbc.com. it's like a fortune cookie specializing in derivatives. sign up for our newsletter. here's what's coming up. what do disney, apple and facebook all have in common? >> those people have never been in my kitchen. >> no, cliff, they're all down since earnings. what that could mean for the market. plus, live long and prosper and send us a tweet at optionsaction, because if it's nice, we'll read it later on in the show. >> seems logical to me. >> "options action" back after this. i'm here at the td ameritrade trader offices. ahh... steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series.

okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this.

here at td ameritrade, they work wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart,

plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this. dan, why dan, why don't you break it down for us. >> potentially troubling. when you just listed those names, they have been some fabulous performers in the latest leg of the bull rally here. what i want to do is look at a chart of the s&p and then let's get to those stocks in particular. the s&p, this is the one-year chart of the s&p 500. it's obviously come up to this 2100 level on numerous occasions. it had this massive day today here, was a little knee-jerk. it was a little giveback from the selling earlier in the week. but really what i'm trying to figure out is what's going to help us break out. where's the leadership going to come from. and those names you just listed before, they have been leaders throughout this whole bull market.

and in some ways they're kind of like a teflon portfolio of u.s. consumer stocks here. and i just want to look at some of these stocks since they recently reported earnings. here's apple here. it's obviously up in the mid to high teens. it was up that way at a new all-time high headed into the earnings. this was the earnings. the stock has sold off. it was down about 5% since they reported earnings. and we're going to notice a trend here. here's disney. same thing. it was at all-time high headed into earnings last week. the stock sold off about 4.5, 5% after the earnings. here's nike, same sort of thing. this is reported back here. it spent the last couple weeks coming back. and then starbucks, same thing. what all these stocks have in common is there is a massive premium on them, other than apple as far as the way consumers think about their products. obviously apple fits into that category, but the multiples that the stocks trade at. one thing about the 5% average selloff on those four stocks since earnings is that, listen, people are kind of full up on these things. they're crowded trades.

everybody knows the news was going to be good. so there was no incremental buyer and you had some selling. and i just kind to kind of juxtapose this against facebook. this was also a huge gainer leading up to last year. but look at this massive range the stock has been in for almost ten months now. this stock also made a new high and was trading that way into the earnings report just a couple weeks ago. and it has since sold off, and now it's back in that big range. so here's the thing. when we're trying to figure out what's going to cause the s&p to break out, we'd like to see stocks like apple and disney and nike and starbucks get us there. but here's the thing. if they can't, if they're showing waning momentum, then i would actually be skeptical of a breakout in the s&p. and that's my only point because if those stocks fall back into the trend like facebook, we could be losing some of the horsemen of this bull market. >> so you're using these charts to make a conclusion about the s&p 500, which is that it is in trouble. >> you'd have to tell me where the leadership's going to come from, that's the point if it's not going to be these guys. >> mike, i would push back on

dan's argument and say these stocks ran up into earnings and yes, they've come off a bit, but the s&p 500 is still close to record highs at this point. it doesn't look like it's rolled over along with these stocks. >> no, that's true, but there is one thing that the s&p has in common with the stocks that he's mentioned. and he's talking about multiples. it's really interesting. if you go back all the way to 1950 and you take a look at how the s&p forms, over a 90-day window, you know, typically it's up, believe it or not, because the market trends up most of the time almost 3% in that period of time. but when multiples get into the range where we currently are, 17.5 to 19.5 times earnings, the s&p's growth during a 90-day window actually drops by about 33%. and that's exactly when you're going to start seeing it is when the leaders in the market that are trading at those high multiples, people are trying to figure out, okay, what's the next great thing that's going to come out of them. and it's hard to figure out what that is. i'm not necessarily thinking that the market's going to roll over here. but i do think that the chances for really sharp upward moves in the next 90 days are significantly limited now.

>> so dan and mike are, like, siding with janet yellen. brian, come in here. we see leadership in the financials which have actually been up about 3% over the past couple sessions. new leadership rotating in. >> i do. i think you make a good point and i'm probably more in your camp than dan's. >> i'm not in any camp, by the way. >> you sounded a little biased there. anyways, you look at financials, i think you look at some of the higher beta names, some of the growth names, some of the small caps that have lagged, and maybe it's time for them to take the next level here. i want to touch on, dan makes great points in the charts here. that little rollover in some of these big names that happened, the key reversals that happened post earnings, i like looking into the options market, trying to find volatility and seeing what is is that telling us, right? i look at what's call an apple vix, right? typically after earnings, over the last couple years, apple vix plummets. volatility plummets. option prices get crushed. and that usually trades below 25. almost down to the 20 level. this last earnings, it hasn't

broken 25. it's sitting right about there. what does that tell you? it tells me people are out there bidding up options, maybe putting up hedges thinking we're going to get another rollover in big names that have done well so far. now it's time to buy a hedge. look out for the downside on names like apple. coming up next, they say diamonds are a girl's best friend, but the dow etf has been trouble for one of our traders. find out why when we come back. i'm here at the td ameritrade trader offices. ahh... steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this.

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ahh... steve, other than making me move stuff, ces. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this.

positive positive jobs numbers soaring today, but that was bad news for dan, and here's why. on "options action," it's how we trade like superstars. risk less so we can make more. that's what dan tried to do on the dow diamonds. he thought they were coming under pressure. but just shorting the index could lead to big losses. so reduce his risk, dan instead bought the 180 strike put for $2.50. now to make money dan needs the diamonds to fall by 180 for more than the cost of the put or below 177.35 by may expiration. but paying $2.65 just to bet against the market?

>> i declare bankruptcy! >> reporter: so to cut costs, dan then sold the may 170 strike put for 65 cents and created his put spread. here's how it works. between the $2.65 he spent on buying that higher strike put and the 65 cents he collected selling that lower strike put, dan cut the cost of his trade down to just $2. and now dan can see profits of the diamonds fall by the reduced cost of the trade. or in this case, below 178 by may expiration. ♪ diamonds are a girl's best friend ♪ >> reporter: that may be true, but keep in mind that there is a tradeoff. and by selling that put, dan's capped his profits to $170. and since the time of the trade, the diamonds are up slightly, meaning this trade isn't looking so hot. and now "options actions'" biggest fans have one question. what will dan do now? ♪ and we dance >> so let's answer that. what do you do for you? >> well, yeah. so we put this trade on, it was

a few days before q1 earnings season started. and the premise was that this was some pretty cheap, very near the money protection in large-cap stocks, u.s. multinationals that i thought if there was going to be a downdraft, it was going to be focused in this group of stocks. you know, as of wednesday, this trade was a winner here, and so this is, you know, again, what do you do a trade like this for? if it's protection against a large-cap portfolio, it's kind of done what it was supposed to do. you still have another week. i think the 180 puts is the only thing you really have to worry about over the next week. they were offered, i think, around 60 cents here. you paid 2 for the spread. i think you give it another day or so, but they're going to quickly go to zero. so you have to make a decision early monday or tuesday how much premium you want to try to recoup. >> mike, given all the charts dan had walked to in terms of showing the rollover of big-cap stocks and the impact on the markets potentially, do you think the trade was just ill-timed? could now be the time to put on a trade like that? >> i think this makes a lot of sense, actually, to put a trade like this on. this isn't saying the market's going lower, it's just being a

little skeptical which i think is deserved. a quick point about put spreads, look, these are trades that you do want to adjust because basically what's going to happen is the two options, the decay rate on that one that's at the money is going to accelerate relative to the other. so you do want to adjust these trades to take advantage of the benefits that a put spread offers. >> bri? >> yeah, i'm always out there looking for hedging strategies myself. certainly with volatility and fear this low, it seems to make sense to maybe roll this over and maybe look a few more weeks out and put on another put spread. certainly it makes sense. that downside put when you go further out in terms of expiration is relatively high. so you can sell a downside put, capture some premium there. that's why these put spreads are so cheap to buy. and certainly it makes sense. if you've been long in the market and want to take long in the market, buying a put spread makes sense as a good hedge. next, reach into your pocket, think some nice thoughts and send us a tweet. we'll answer our best questions after the break. here at td ameritrade, they work hard.

wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this. i'm here at the td ameritrade trader offices.

ahh... steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this.

♪ all right, ♪ all right, let's take a tweet. md asks, what do you think of getting long amazon now? dan? >> here's the thing. the stock has had a massive run off the lows, the 52-week lows, and it went up to 50. it looked like it was on its way back to 400. that was the breakout level. if you're a true believer here, you think they're going to continue to get leverage out of the investments and show their ability to put up some margins here, i think you have to wait for a pullback back to 400. it's not my bag here, you know what i mean? you may want to define your risk, call spreads. >> mateo has a deep and probing questions here. stones or beatles? mike ko, kick it off. >> rolling stones all the way. >> i'll go with stones, too, on that one. it rocks out a little bit harder. >> stones all the way. >> stones. clean sweep. i'm for the "final call." mike ko from miami. >> i would say sell some covered calls and apple is looking range

bound. >> brian, good to have you in studio. >> google call spread makes sense. it's the new leader for the next few weeks. >> bridan. >> i'm with brian. google. >> see you back here next friday. "mad money" starts right now. >> announcer: the following is a paid presentation for the worx air, brought to you by worx. prepare to be blown away. [ whirring ] you're not looking at an ordinary blower. there's no cord. there's no gas. it goes where no other tool could ever go, does things no other tool could ever do. it finds every kind of dirt in every kind of space... and makes your whole home cleaner in just minutes so you get to spend more time enjoying it. the incredible worx air -- so versatile, you'll wonder how you