live from the nasdaq marketsite, this is "fast money." i'm melissa lee. worst week since july. the fourth quarter opens with profit taking. should you do the same? these "fast money" traders know when to fold them and when to hold them. let's stay all over this cracking market tonight. a top strategist will tell us why this correction will be shallow and short. and tim, welcome back, will break down brazil's olympic win telling you which south american stocks you should samba with.

but first let's get to the word on the street today. i have to tell you i was at the stock exchange prior to the open and it looked like all doom and gloom on the back of that jobs report and then somehow we struggled higher. that seems to be very good price action, debbie downer. >> yeah, let's not get carried away there, though, young lady. i know you were down there on the nyse feeling all frisky and stuff, but it wasn't as great a day as you would like to portray. yeah, it struggled back to unchanged. but you know what? actually, it struggled to unchanged. it never really made it back through. if it was a did day, it would have closed positive today after yesterday's debacle. and frankly, the week was pretty lousy. i thought today was not as good as it should have been. >> no, and we still finished on the lows. and i do think that if you look at the s&p, although we held -- you know, we certainly held the 50-day, we held the trend line, there's a lot -- look at the

people that have had a good rally this year. you've got mutual funds actually going into their last month of the year. i think you could see some profit taking there. then there's all the hedge funds we talk about all the time that have missed this rally that want this thing to go lower. i think they're positioned to the weaker data giving them what they want and we start with non-farm payroll. >> steve, what did you make of the action? >> i tend to disagree. i thought the action was really interesting and the fact they started buying it down there when it looked like it was every excuse in the world to keep on selling, keep the pressure on. but the banks, when they started to turn over, that was what was relate interesting. turn over back to the up side. that's what led the options world. 15 million contracts. he had an average day, which actually is above average for a friday. very, very nice activity there. and i look at the big cap banks. every one of them led the charge. and for the most part you look at wells fargo, jpmorgan, citi, bank of america, all traded over their 20-day moving average as far as the contracts are concerned. a lot of activity. bulk of the activity on the call side looking for up side. >> the tell once again in today's market was the

financials as pete had mentioned, goldman sachs as soon as that started turning it seemed like the whole market was turning. karen, what did you make of it? we did manage to hold the 50-day moving average on the s&p 500. >> i agree with pete. i didn't think the action was that bad at all. the volatility index moved only slightly. there really didn't seem to be any sense of panic out there. and i still found stuff i wanted to buy. >> such? >> becton dickinson is a name we like in the medical supplies business. trading at 13 times earnings. that's an attractive thing to own. the market's giving you a chance here. >> so you were one of those money managers out there waiting for that pullback to pile in? >> right. only to be smashed probably on monday. >> i agree with karen, by the way, on the volatility itself. you look at the volatility, it didn't panic. you saw bigs whooshed in the day early right out of the gate. then once we started to flatline you look at that volatility index, it pulled back

dramatically. really pulling back toward 28 after getting 2960, that was a big pullback, pushed back up toward the end of the day. still under 30. that's the new norm or the old norm again. looking at 30 for the next signs of panic. >> but listen, my golden gopher friend. that's the university of minnesota's mascot. what is a golden gopher? >> they're going to beat which is which is this week. >> i don't know about that. but look at wells fargo, we talked about shorting that for a while that was actually down a percent in the quarter here and i still think it has further room to the down side. some financials did well, some not so well. i thought most interesting stock of the day was am, again another apple upgrade out of nowhere. that stock has some giddy-up. >> when you're moving to a 265 price target which ubs did on apple that is giddy-up. let's look at the chart of the

day. this was the tell of the markets over the past three days, and that is the dollar. you know, at least for today i remember talking to bob pisani and as we were speaking the dollar was giving up some of its strength and we were seeing at that moment the markets turned. >> we were sort of the dollar is the death star in our shop because it kills emerging markets and kills commodities and it is definitely a leader and it is what happened today. intraday the dollar after the non-farm payroll disappointment spiked higher and intraday when we started to work and get to the positive trend pete's talking about and financials rallied, it weakened 1 per. if you look at the dxy, it started to strengthen into the close. i pointed out 77.50 on the dxy. for people playing that at home you can do that with the uup, which is an etf which is essentially that same basket. if we break through that on the up side i think the dollar's going to be tough to stop in the short run but i don't see anything here that tells me the dollar is going to go through that area and i think if you look at the dxy today it is the story of today's market. we were all over the place and i think the dollar's finding direction now. and the other place we saw the reaction very sharply and very quickly to the jobs report today was the bond market. we did see that yield on the 30 go below 4%, remain below 4%. the ten-year hitting 3.16. karen, your position on the tlt -- >> that's not what i want to happen. rather the tbt rallied. the tlt short started to go down. maybe overreaction -- this has been coming for the last few weeks. and the strengthening in the bond market. the long end of the bond market

has actually obviously not worked for this trade. when the market started to come back, i am more optimistic this data we've had in the last few days is not indicative of a trend south but that the recovery isn't going to be straight up, it's going to be a little bumpy and that's okay. so i am still keeping that trade on. >> speaking about how the recovery will shake out, let's delve deeper into the story of the day, and that is of course the employment data. 9.8% on the unemployment rate, the highest rate since 198234. are we going to see a double dip recession? let's bring in michelle myers, chief economist at barclays capital. michelle, certainly a weak jobs report almost no matter what you look at in the report. does this make you ratchet down your expectations for the rest of the year or even the first half of next year? >> we can't look past the fact that it was certainly disappointing, not only did the non-farm payrolls come in below expectations, a drop in the work week, an increase because of a big drop in the labor force and drop in household employment. not a good report. but it doesn't change our overall outlook. we still think we're going to see positive growth in third quarter. we're still looking for a big cyclicality bounce and pretty strong recovery. i think karen hit it exactly right. it's going to be a pretty bumpy beginning of the recovery and that means we're going to see some indicators that don't look that great.

>> will we not have a good read on the economy for maybe another month or so? steve liesman this morning was making a point that a lot of the data, especially the manufacturing and the industrial production data for the last month, we were taken by cash for clunkers, we don't have a sense of whether there's any sort of sequential improvement. >> yes and no. i think cash for clunkers is certainly the -- but if you look at the industrial production report, manufacturing x automobiles has actually increased the past two months. so you're seeing improvement even outside the auto sector, even outside this cash for clunkers stimulus. i don't think it's fair to say it's just policy induced and it

will reverse. i think you're seeing fundamental strength, you're seeing the beginning signs of recovery, and i think it should continue. >> michelle, it's guy. mike darda put out a piece today, it said unemployment peaks about two months after the business cycle troughs. do you agree with that, and do you think the business cycle troughed? >> yeah-f you look at his historical analysis, it's about right. i think it the probably going to take a little bit longer in this cycle. we think the recession ended in june, and we don't think we've seen the peak yet in the unemployment rate. part of the reason is there's been such a big shock in this recession where maybe businesses are a little more cautious to start hiring in the beginning but once they do, once the momentum builds in the economy, once you're more confident about this, recovery and demand starts to pick up, then you're going to have to see payrolls increase and the unemployment rate come down steadily. >> michelle, we have to leave it

there. have a great weekend, michelle meyers, barclays capital. let's talk tech. >> let's do it. come on. >> the space led higher today by apple. we mentioned the ubs upgrade as well as the price target increase as well as intel, ubs positive here on a name that just keeps on chugging and chugging and chugging. at this point though, does it start to get a little scary, pete? >> i think it probably gets a little scary. but when you look at some of the numbers, you drill down, you're talking about the growth of ipod, applications, so forth, that was the big story. when we looked at the market early and the market was selling off, apple had given up some of that premarket gain it immediately reacted once the market started to turn and pushed to the up side. i also like that oppenheimer upgrade going in front of the earnings. about two weeks away from intel as well. and the $28 price target. seems a little rich. i'm not sure it can quite debt to that level anytime soon. but when you look at intel and you get the opportunity to see what they're doing right now,

the growth in the pc cycle, as well as when you see windows 7 coming down the line-u see the chips continue to have acceleration on the up side, six months in a row they had the report out of growth there. you've got to like everything that's moving for the chip sector. and i used that as an opportunity to buy intel, sell the upside call. >> before we leave intel or apple for that matter how's the implied volatility still, pete? >> in apple? >> yeah. >> unbelievably cheap. i was looking at it today and talking with several folks. 31 volatility in the front month right now. so if you're going to get in there best opportunity you have right now to buy the puts to protect yourself. >> the pc growth that's going to drive intel. that's interesting. it seems like we're getting a delayed reaction from the developer forum last week. as pete pointed out these guys guided positive on the third quarter, they're delivering it and i think they are growing it see the growth. the semiconductor index has been getting crushed over the last few days. intel has been outperforming amd by 9% or 10%. i think this trend shows this stock will continue to outperform. around 18.90 it held up on its 50-day.

i think this stock wants to go higher and it is fundamentally grounded. >> let's talk about that for one second. they put a $28 price target they being oppenheimer on intel. that's a 47% rally from current levels. embedded within that call is a pretty bullish call in the broader market. if you believe them. we'll see. rimm, we told you folks it will trade down to 65 don't chase it in the 70s. take a look where it traded today. 88.08 was the september 23rd high. the march 9 low was 35.0 pa-5. these current levels are about a 38.2% retracement. we said don't chase it, now it gets interesting. >> i've got a question for pete on the apple options when you're talking about the near month volatility you're talking about october? >> right. with two weeks, by the way. >> but it looks to me like their earnings will be released on the monday following options expiration. so you don't get earnings in that option. >> right. you're exactly right. you're not going to be able to take participation in the earnings but right now if you

look at the bumpy ride and today and yesterday gave us an idea of what kind of a bumpy ride we're in for just over the next couple weeks, this is a very cheap way to buy protection for those two weeks and then maybe you can make your decision and start to roll out to november after that. >> talking about financials, at the start of the day they were down by as much as 1%, 2% across the board but then we climbed higher. jpmorgan, goldman sachs, teem managed to end the day higher, which indicates there is some willingness by investors to go in and buy on the dip. these are the names that seem to be attracting the buyers on pullbacks >> maybe some short recovery to. -- short covering, too. jpmorgan was down 11% going into these payroll numbers. they were widely flagged yesterday and a lot of people felt they were being traded into the market yesterday. they're not particularly good when you look at the consumer, the workweek hours to tell you these guys are holding on to their jobs. i think today was more short covering, there wasn't a lot to see the financials are turning. there was certainly no data or

news flow to tell you they're turning. short covering. >> last year meredith whitney made a lot of news saying some of the things she said. a lost people didn't listen to her. he should said some things today and if you don't listen to her now it's at your peril. she said we're probably halfway through this credit crisis thing. she talked about credit being a -- >> actually, let's bring up her quote. >> well, bring it up. >> i believe we are only in the early stages of the second half of the credit cycle. i expect another 1.5 trillion of credit card lines to be removed from the system by the end of 2010. >> let me nail that down. that's not bullish. either you listen to her and agree -- >> wait, wait, wait, wait, wait. >> go ahead. >> i am not disputing anything she's saying. we've seen small companies that really are having trouble accessing the credit markets. the question is everyone knows there's a lot of losses coming. do the stocks already reflect that? have they already taken into

account another year of significant losses? i that i lot of them have. so if you're a company looking to borrow money, you're in the midst of the crisis. small company. but we're starting to see the capital markets -- i mean the big cap companies, the amount of money that they're able to raise in the markets right now, it's amazing. i don't know how long -- >> so this is a tell for the financials, not on some of these large financials, it's more of a tell on small companies out there who are looking for the credit? >> right. >> i was just going to say as karen said if you look at citibank, ge cap, these guys are going out the door at the end of the fdic government-backed paper which is going to expire at the end of the month, they raised $8.50 billion this week because in fact i think the good getting is gone. so i'm a little concerned by that. i don't think a lot of these guys have in this environment the way to raise that kind of capital and i think that's part of what meredith was talking about. >> and if you're looking for velocity you're looking for movement. goldman sachs we talked about it all the time. jpmorgan, far more violent mover right now on a percentage basis.

i'd keep an eye on jpmorgan right now. if you're looking for the place to be, you want to find it, something that's going to give you a bang for your buck, jpmorgan's moving much faster right now than goldman sachs. >> i have to ask you guy about jefferies, a name you've been positive on for quite some time. it was also among the camp that finished the day higher. >> go figure. >> do you think this is a fundamental move based on its business outlook or is this partly a short squeeze as timmy had brought up? >> i think a lot of people -- listen, people have been short this stock, they've been wrong. i think they have been squeezed they continue to get squeezed. fundamentally, i happen to think the stock is headed higher in the very long term. the valuations, though, right now given what i think is going to happen in the market don't make a lost sense. so if you're buying jefferies right now for a long trade i think you're in the late stages p the easy money's been made. it doesn't mean it won't continue to go higher but it's not going to ratchet as high -- >> that was a good call, guy. >> it was the best. coming up next, do not get caught without your prince william. we'll head to the options pit and tell you how to protect yourself in the potential downpour.

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welcome back to "fast money." time now for some option action. rough start to the month of october, and that has the volatility index, the vix, going higher. when that happens, prices for options and protection becomes more expensive. in fact, over the last two octobers the vix has spiked by 30%. so what is a cheaper way to get some protection right now? brian sutland is the president of sutland equities. he specializes in the vix. some in fact call him the fear merchant. he is also an "options action" trader. so brian, how do you buy cheaper protection these days? >> well, one thing is that we

learn from last year, actually, is that you couldn't just diversify your portfolio and then be a little bit safer if there was a market downturn. one thing you had to actually do in your portfolio is own volatility, own that as a component to your portfolio. and right now in taking a look at some of the call spreads in the vix, when you buy a call spread, meaning you buy an at the money call and you sell a further out on the money call against that. that allows you to have exposure, direct exposure to the up side in volatility moves. and typically, when the market tanks you're going to spike in volatility and you're protected that way. >> and that typically -- we see that spike in october. what happens for the rest of the year? how long do you -- how far out do you go? >> one thing i was looking at is the second half of the year there typically say spike in the vix about 50% up off its lows in the second half of the year. i tend to put these plays on in the fall time. october's a great time to do it. i'm looking at october, november, december, through the second half of the year until the end of the year is when you buy some volatility, get some exposure in your portfolio and you're protected against the downturn in the market. >> all right, fear merchant, let's switch gears and talk about a specific stock strategy. you've got one on bank of america, a name certainly in the news this week.

>> you don't always have to go out and buy puts or buy put spreads or get long volatility. there's other ways to bet that protection and get that volatility protection. one thing i do is a own bank of america right now and i'm looking at the stock it's kind of been moving sideways but certainly the market's on some skittish turf right now. so what i've done is taken a look at it and what you can do actually is look at the november 15th put and the november 17th call. this is called a zero cost caller. you don't outlay any cash. so your premium doesn't decay over time. and what you do is you buy that put to the down side. it stops you out on the down side. but you also get called away on your stock if the stock moves above 17 1/2 through november. what that does is when the market moves down and bank of america were to sell off, you actually start to pick up volatility and get long that put down there and it protects from you any sudden down move in the market. >> love that strategy, brian. looking ahead right now as you're looking at the volatility index itself and i know that's where you trade, do you expect -- first of all, it sounds like you expect volatility to go

higher and if so when it breaks through 30 is there a target range you're looking for, the traders are looking for right now in the pit? >> i'm taking a look at the 32 1/2, 35 level. somewhere in the mid 30s if we get a significant sell-off right here. that's why i was talking about a call spread where you buy a 30 call maybe sell a 35 call against it, $35 is my target price right now on the vix. >> thanks. going to see you tonight on options action. >> what time? >> it's on at 8:30 eastern time. >> no kidding. outstanding. >> i'm glad you asked. time now to take your position. alcoa officially kicking off earnings season. reports earnings after the bell on wednesday. the stock has doubled the performance of the broader market in the last three months rising 31%. so do you buy this stock ahead of the result? tim, what do you -- >> i tell you what.

i think aluminum prices are going higher. if we were doing the ever-famous "fast money" slow money segment this would be a dock i'd put in there because i think alcoa's a great two to three-year play. i do think aluminum prices will recover. however, in the short run there's a supply imbalance and aluminum is oversupplied. at around 1280 our rest of resting on the -- i think she should bounce, she being alcoa, right off that level but -- >> how do you know alcoa's a she? >> well, you know, come on. all nice things are women. we all know that. she's going to bounce. >> deutsche bank upgraded them yesterday. the bottom line is they're going lose money this year, you're hoping they make money next year. they're due to make money. to me sort of on timmy's camp long term i think you own alcoa. especially it could be a potential takeout candidate. we've talked about that forever. but the stock has basically gone down forever. at this price it's probably okay to own but not into earnings. >> you're not a fan of hers? >> no, i'm not a fan of hers. >> awful. >> "final trade" after this break.

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it is time for the final trade. tim. >> the brazil olympics trade is moving passengers and freight around. gol airlines, gol. >> guy? >> rimm looks interesting now. >> karen. >> we covered some borg warner today. bwa. >> unbelievable cash flow for pepsi. i like the action we saw in there today. highs or not, this thing's going higher. >> all right. i'm melissa lee. coming up next, "options action."