>> and you've been bearish for a while now on this rally. >> thank you. >> i'm very, very cautious here. a lot of defensive trades. and i couldn't continue to be more negative. that said, we saw similar setup in july, in early july in the q-2 cycle. what do we do from there? we ripped. we took off. i'm just telling you, i've been bearish and i've been wrong in the market overall, but just be careful here. if you go down to 1000 in the spx, some of the earnings are a little better than expected. >> if you set your expectations low enough, you shouldn't be all that surprised to see the rally that came out of it. ask >> and you don't get a rimm, for example. what do you make of the action in terms of the protection buying versus individual stocks. people are buy progress text on

the etfs rather than making bets on individual names. >> one of the issues we talked about last week, we talked about one by two ratio spreads. i think people are looking to those etfs to hedge their portfolios. to both dan and mike's point, you're heading into earnings. earnings last season. you saw similar type of trading and you're also heading into october. this is just historically one of the more volatile months. i don't look at it as the sky is falling. i think it's looking at their positions. looking at their individual stocks saying what etf is the best hedge. what i think is one of the more interesting point is it's not just the xlf trading for people to protect their positions. regional bank etfs, they're buyers of the november puts. normally trades around 500

contracts. they're looking for etfs that are going to protect their portfolios. >> it's not just the qs that people are buying protection on, but it's like these smaller etfs out there. >> we've seen a number of etf and put buyers come in. we saw people do one by twos. i'm willing to get long at a price below the market. people put on their best trade first and then they say hey, we're coming up on earnings. there's bad news. the next trade is to buy some general protection and we've seen that with put buyers and etfs. expectations last quarter were really low. i don't think we're going to fall for that again. companies can't miss on the top line and beat on the bottom line and have everybody say hey, that's great, because we realize how that's going to end. that can't continue forever.

>> that's a really good point. almost like risk management when you talk about the sector etfs. you get tapped on your shoulder by your risk manager. you can go into the banks and semis and that sort of thing and just kind of dissipate some of that risk. >> and it's cheaper than going out and buying insurance on the individual names. one of the things we start seeing correlation drop, try to protect the individual names, it gets very expensive. that's a better way to do it. by the way, if we do have a huge rally like we did the last time off of this, buying protection is going to be something you can absorb easily. if we're really going to pop you're not going to miss the money -- >> let's say we do want to buy protection on one individual name. goldman sachs comes to mind. we saw a key reversal in the stock midday.

we saw it below the mark. >> goldman is up roughly 27%. slightly underperforming the xlf. but overperforming the s&p 500, which is up roughly 18%. i like protection. we talked about it a lot on this show. specific to goldman, i was looking out for the january options to protect myself going into year end. looking at the 160 strike put in january, which is offered at $6.70. you want to finance that as i always do with collars and i'm call by 6.75. so net-net, collecting a nickel for this. the stock pulls back roughly 11%, i'm going to be protected down 11%. the flip side, the cost for that, if it rallies more than 11% i'm going to have my stock called away from me. as we said repeatedly on the show, just because it's january expiration does not mean you need to hold it till then. if we go to october or whenever

it may be, you can always choose to buy back that upside call. sell out that put. you can choose to trade that position with a move in goldman. it doesn't have to be by january. if you don't want your stock called away, just be prepared you may have to buy it back. it's the risk to buy that protection. >> people are using etfs to protect themselves, but in this instance, goldman is its own kind of name. you actually do want to put a position on in this stock. that's one of the first things i like about it. second, you're always basically fighting the odds. and finally, this gives you ample upside. so i actually like it. and goldman is one of the ones trading richer to its peers. it probably deserves that, but if something turns negative, you do have down side risk.

>> it hit an intraday high. the plunge in rimm today, no stock has personified the rally more than apple. its shares up 130% from its lows, although it was off this week, joining rimm and goldman in the losing column. you've got a strategy for the faint of heart, similar to what stacy laid out. >> it's very similar. this stock is up 114% year to date. it's one of the only stocks in the entire technology sector that innovates. look at rimm. it's an absolute disaster. one of the things, i don't want to give up a whole heck of a lot of near-term upside. but if you hold the stock, you may want to think about a january put spread collar. i'm looking to sell the january

220 call for $3.90 and i'm going to use the proceeds of that and i want to buy the january 175-160 put spread. what does this do for me? if the stock is 220 or higher on january expiration, i get called away, up 20%. that's higher than the all-time highs in the stock, but i'm also getting pretty near the money protection between now and then. down 5% to 10%. so that put spread i'm buying the january 175 put 10.90 and selling the january 160 put for 5.90. so below 160 i basically don't have protection anymore. but if it goes below 160 i've mitigated losses. >> i really like these put spread collars. a key point here, though, with dan's trade is you are picking a level to get back in. if you're doing this versus long stock. if you're comfortable with that it's an interesting trade. if you're getting that protection at a much higher

level, that stock is being called away at a much higher level than if you have just a put. >> dan has been on fire with apple. i mean, this is a -- first, the risk reversal and then he rolled his call up. he made money coming and going. this is a situation where i'm going to bet on the jockey and not the horse. >> i appreciate that, scott. you're softening the blow when you all come at me on rimm. we'll do that in the next segment. >> that is a song, and that is a song. why are we playing this tune? up from the ground comes the bubbling crude. we're going to have a discussion on the fate of oil. yes, it's time for america's favorite segment "put up or shut up." dan and mike agree on the direction of a stock but little else.

both are near-term bearish. both think economic activity could weigh on the price of crude and both don't like the technicals. we didn't come here to talk fundamentals. we came here to talk options. >> the commodity is down about 10% here. i'm looking for another 10% pullback on the economic activity. i want to use the etf. i want to buy uso, the november 33-30, one by two put spread. i'm buying one november 33 for $2 and selling two of the november 30 puts for $1.950 combined. i'm paying 20 cents for that package. my max gain is 2.80. i have a payoff structure that trails off between 30 and 27.20. and i wouldn't get long the etf until 27.20, down about 19% from current levels, which i actually

feel is a kind of comfort level and i feel would be a reasonable pullback to go long. >> the bell didn't even ring. you're seeding your time. oh, there it is. >> there's about 9.1% more in storage right now over the five-year average in this thing. crude if it is a little bearish fundamentally, it's not like a stock. it can't go to zero. i'm going to sell a down side put, the november 32 put and collect $1.50 for that. i'm going to sell call spread. sell the 37.50 call and buy the 40 call spread. i'm going to collect $2.30. >> ding, ding, ding. all right, now we have done an

audit here of past put-up or shut-up judgments. and because of the high leaning of stacy towards mike, we will allow scott to judge this bout. scott, what do you say? >> i think dan had a great trade in apple and i think he just ran off the rails. >> oh! >> uso has been between 30 and 40 since may. so i think mike's trade makes all the sense in the world. plus if there's something really going to happen, oil is going to spike. i like the fact that the-up side risk is capped. >> i'm risking 20 cents. if the stock goes higher, i'm risking 20 cents. >> i know you think it's conspiracy theory. i'm glad scott chose mike's trade. but mike's trade has hidden risks in there you have to think about. it's going to require slightly more margin. if it does rally you're going to end up owing money on that call spread. dan is absolutely right. he's risking 20 cents. that's it. if you rally, you lose 20 cents.

dan is picking a lower entry point. mike picked a $30 entry point. mike wants it to be sideways. very different. >> dan, don't feel too bad. always next week. disagree with the verdict, got a question about options? send me an e-mail. coming up next, an option strategy to play rimm's underperformance against apple. that trade is not working too well but after the break, we have your next move. >> time for pump up the volume. the sizzle index next week. this company was founded in 1913 when a few amateur chemists discover how to make bleach from brine water. they now make everything under the same brand name. but this week it was options traders who were cleaning up. who is it?

>> the one thing that's probably most notable is that number you

just said. 85 times that average daily volume. the rumor this week was procter & gamble. does it make sure? sure it makes sense. i'm not sure the timing makes sense given they're selling out their pharmaceutical business. the concentration was the 60 and 65 calls. i just don't know the timing makes a lot of sense. there wasn't a lot of follow through. premiums held for about a day and then it died. >> time to get called out. winners are great but it's often the losers who can teach us the most. last week offered a bullish strategy on rimm. so far that's not working out so well. >> just because we're risking less to make more doesn't mean we'll come out ahead. >> what i'm suggesting is the december 70-100 risk reversal. >> generally when options traders buy a risk reversal,

they're making a bullish bet on a stock by selling one out of the money puts to reduce the cost of buying one out of the money calls. the goal -- to profit from a sharp move higher. but there's a catch. you're obligated to buy that stock at that put strike price. so let's take a look at how dan's trade went down. he thought rimm's shares looked attractive relative to apple and palm. >> the valuation isn't that stretched here. >> so he sold the december strike put for $3.10. and then dan used that money to buy december 100 strike call, which also cost $3.10. so in effect, dan put the trade on for free. >> that structure cost me nothing. >> of course, there's no such thing as a free lunch and by selling the 70 strike put, dan could be forced to buy rim stock at $70 a share, if it is below

that $70 level on december expiration. >> here's a trade structure that could actually help you get long at two different levels. one level lower and one level higher. >> on the other hand, if rimm rallies, that call that he bought increases in value and dan can buy back that put he sold for a lower cost. so what happens to rim? >> the company did beat on the bottom line. look at the revenue, $3.35 billion. that's much lighter than what wall street was looking for. there's no other way to characterize this report than in a single word, and that is ugly. >> since the time of the trade, rimm shares are off 15%, and now dan is losing money on the call that he bought and the put that he sold. with rimm stock hovering near the 70-strike put that he sold, dan must make a choice. buy back that put and cut his losses or keep the trade on and hope rimm's stock stays above that $70 level on expiration.

now gadget enthusiasts around the world glued to options action, and they all want to know the same thing, what will dan do now? okay. here's a great illustration of why we talk options and not stocks. had you bought 100 shares of rimm, you would be looking at a loss of about $1,600. as for the december $7100 reversal between the call and the put that he sold, he's looking at a loss of $650 if he sells today. expiration is, of course, three months out giving him time to let the trade work out. this was not an earnings call, we should note. but rimm is trading below that short strike price. so, dan, what are you doing now? >> i blew it, the company blew it. it is a pretty disappointing situation if you put on a trade structure that gave you long exposure and you got long at a certain level. unfortunately, i will tell you this, the stock has a history on these gap lowers on earnings misses going a lot lower afterwards over the next month or so. i think you got to be really, really careful here and i think you may want to think about taking that put off.

you leave that call out there because it's not worth a whole heck of a lot and you learn that for free but the stock has potential to go lower here and you really have to be careful on this one. you just don't want any more downsize. >> is that what you would do, dan or roll the quick spread? >> one of the things he points out is the new data on rimm. i wasn't supportive of the trade itself. i have a little bit of the blame. i did like it because it did inflate. you can make a bullish bet but it turned out you wouldn't lose as much as if you bought the stock. couldn't be a whole lot more wrong than we were with rimm. we have new data. it's not looking that great. stock doesn't have a great track record in these events. cover the downside. >> have a question, send us an e-mail and we will try to answer it. go to optionsaction@cnbc.com.

time now for "the final call." the last word from the options pit. scott, kick it off.

>> i am watching whether or not chicago's going to host the 2016 summer olympics. we find out late next week. that's what i'm watching. >> i thought you were going to give a trade. stacey? >> i'll be watching that too, scott. but in addition to that, look, next week starts october. i will look to collar some positions, especially as you head into earnings. >> mike? >> i only watch the olympics on tv so i don't care so much where it's actually being held. but i will say that in the uso, i think it will be rainy. i gave myself a lot of room. sell to november. 37 pushes to 37 calls and buy the upside calls to protect myself. >> i think we have another 10% downside in the uso. november 33/31 and pay 2 cents worth. >> looks like our times have expired. go to optionsaction@cnbc.com. see you back here next week and see you monday.

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