this is option action. dr. doom strikes again. >> i think lower than today. maybe 20%. >> a bold warning about the '87 crash is burning up the web and freaking out wall street. a shocking chart shows he might be right. we'll tell you how you can protect your portfolio for free. plus, how high? no, not those guys. this stock. because tesla continues to defy gravity. why were all the options traders in a tizzy over this crazy hamburger? a fast-food mystery that could

mean money in your pocket. the action begins right now. from new york city's times square, i'm melissa lee. the board room brawl playing out on cnbc sending shock waves across wall street and the main street. that is jcpenney. bill ackman calling for the replacement of the chairman and his call for a new ceo. the board struck back. one of the largest shareholders threw its support behind ackman. moments ago, howard schultz scolded the hedge fund manager. can the company survive. let's get in the mope right now. any way you slice it, a story aired on tv, in the media, in the public spotlight for all to see. >> it's not a good thing. when you think about it, yesterday with the news, they put a time frame on it. they should have a new ceo in 30 to 45 days.

that's also not good. if you get close to that timeline, and there's no real names bantied about, that's going to be a problem for investors. the stock would continue to sink. we've seen what's going on in the credit market. not good. the story is becoming very distressed kind of quickly. you don't really want to be an individual investor trying to get in the middle of these big guys. >> is there anything ackman that is involved in right now that isn't playing itself out in a very ugly way in the media? every story is a bad one. but for him to start looking for any kind of a management change right now, he kind of lost credibility the last time around. when ron johnson left, it basically said ackman had a strategy for penney. penney was a declining story before -- >> hold on. we didn't get a chance to find out. they burned through $1 billion of cash in the last three months. >> what he was trying to do is turn around a sinking ship. it was sinking slowly.

it obviously needed big changes. anybody who had been in a jcpenney realized that. doing $18 billion in revenue is now down around 13. >> before, if ackman were saying, we want this person as a ceo, the people might have said, you know what, you got it ron last time. >> now he's got one guy on his side. mike makes the point that this is playing out in public. everything ackman is involved with is playing out in public. mr. ackman, when everybody has a problem with you, you're the one that has the problem. people are lining up for the bearish case in jcpenney. >> speaking about playing out publicly, here's what schulz had to say to maria bartiromo on the "closing bell." >> for ackman to do what he's done the last 24 hours, it's not only irresponsible, but it's destructive behavior. if i was sitting on that board, i would be asking for bill ackman's removal.

>> it does seem to go against the interests of the company to act in such a public manner, releasing a letter to the public as the same time he's releasing it to the board members. >> he's got a lot of things going against him right now. one of these stories has to turn around and quickly or he'll lose all credibility. really, who he also needs to show he's doing something to is his own investors. i think that's who he's trying to play to right now. >> carter brackston, and carter in today's session, this is at least a 12-year low here in jcp. >> that's right. it's quite poor. actually, it speaks to the wisdom of price. let's say this didn't have jcp on top and it was just any chart. the chart tells you something's wrong with the business. and in fact, it's been going down for two years, as the stock market's going up. it's tracking the trend line beautifully, fails every time it gets there. now hovering at these lows right at 12, take a look at the long-term charts. the 12 level is not random. it is exactly the lows of '09,

of about two years ago, and we think this breaks sharply. the short interest is huge. so what. it looks like it's getting much worse. >> huge, 18% huge. >> fundamentally, if you drew a graph of the revenues of this business, since 2007, it would look almost exactly like the price chart graph you just saw. now, i strongly believe that this company actually needs to change its business model. as dan was pointing out, an effort to salvage a balance sheet more than anything else. it is still sinking. that's the reality. trying to bail it out isn't going to work. they have to change the structure of this business. it's not going to make money this year, or next year, which means the balance sheet is going to get that much worse. whether or not you believe the cit business, they're losing their funding, that really isn't the issue. they have to turn around the business. >> from a trading perspective i don't think it will take a heck

of a lot to get the stock back up into the teens, back towards 15. the sentiment is so bad, to me, i think that this sets up as a very dangerous short for people who want to enter it right here. >> mike obviously tonight is bearish. let's crack open the playbook and see how this works. you saw one call, and purchasing a higher strike call on the same expiration. in the structure you want the stock to trade below by the expiration. above that level, you will lose money. but your losses are capped at the strike of the call you bought. >> i'm looking at selling the september 13-14 call spread. pay 95 cents for the 14 calls against it. take in a net credit of 40% of the distance between the strike, which is only $1. the idea here is i get to collect premium. the math much like it does in foot spreads works in trades like this. even if it does in the near term happens to spike.

as dan suggested it's not going to go to the full $1 as the distance between the strikes, unless you carry it all the way to expiration. >> another 15% today, so you want to be expressing your point of view by option spreads. one thing, a bunch of the $10 puts, if you bought those on the close, you see that stock below 860. mike has a sentiment and trend on his side. >> would you say this is an adult swim sort of name to play? no matter equities or options? >> i think equities definitely. options, there are a lot of opportunities. i'm long on the august call calendar. they had their earnings coming out on the 20th. i think the worst news right now is in the stock. you think you may have an opportunity for the thing to pop in the next couple of weeks. >> being on the calendar is a short premium trade. >> carter, what do you make of the $14 level? >> that's the key level. we don't think -- we're hovering at 12. here's the interesting thing about this. let's pretend this was best buy

or something else that was going to go bankrupt and turned. if one's going to start to go long, wait until it starts to turn. there will be plenty of upside if it's not going to go out of business. but buying it here is nothing short of reckless. >> maybe jcpenney's fortunes would have been better if they simply added a little stock short of options. mike's option trades nets $40, can make money if shares go up or down. the most you can lose is 60 bucks. send us a tweet ask nbc options. scott has a way to hedge your portfolios from rising rates. you'll also find educational material. so you'll want to check it out. here's what's coming up next. dr. doom says we're heading for an '87-like crash. carter weighs in with the shocking chart everyone needs to see. plus, it's electric.

last week mike made a bullish strike on tesla. how can you make even more money. find out when "options action" returns. ♪ [ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade.

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[ 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. ♪ in '87, we had a very powerful rally. but also earnings were no longer rising substantially. and the market became very overbought, and the final rally into august 25th occurred with a diminishing number of stocks hitting 52-year highs. 52-week highs. if you look at the last two days, it's remarkable.

we're close to the all-time high at 1,709 on the s&p. yet yesterday and the day before, there were 170 new 52-week lows. that's a very high figure. >> that was dr. doom himself on the online sensation, now warning that the market is looking eerily similar to what it looked like leading up to the crack of '87. according to the charts, it not only resembles '87, but equally dire days for the markets. we want to find out why. and carter braxton with oppenheimer, what do you make of this? >> 'wi87 was the one that was s draconian, because it was so fast in one day. the tops have a look and feel over and over and over. the trouble ensues. what i've got here are several tops. a recent top and epic tops. you'll see that the similarities are quite the same. so let's look at a recent period

of trouble. what i've juxtaposed is the current two-year market against where we were into the top of may 2011 before the u.s. got the downgrade. stripped by standard & poor's triple rating. that's a fairly benign thing, 20%. but it's the shape and look of the ascent that defeats the top. let's go back to 1937. of course, we had the '29 crash and spent most of the '30s coming off those lows. then we encountered trouble in '37. it was, frankly, in february, and we plunged basically 50% through to the end of the year. what's important again is the correlation with the current two years that we're in right now. it's about 90-plus percent. take a look at '68. in 1968 a very similar two-year trajectory, just like the one we're in now, and then the trouble started. in this case, it was december of

'68. over the next 18 months, a little bit longer, we dropped about 40%. let's look at '87. and it's the same thing. in fact, of those four or five periods i've cited, the one that's the most correlated, it's running at a 96% correlation, is this one. if you juxtaposed the current two-year s&p against the two years preceding the crash in 'wi '87, this is the overlay. does it have to play out that way? no. but it really does speak to what is one playing for by staying long. upside is limited, and by staying in, you embrace, or prospectively take the punishment that is coming. >> all right. pretty scary stuff here, mike. >> yeah. and it's interesting, last week i think maybe a little bit prematurely i felt that buying the puts was the call. but you look at something like that, and you can't help but feel a little bit uneasy. what we also feel uneasy about is the fact that overall growth

is really not that stellar. and we have, of course, the feds still with their foot on the gas pedal. are we going to be able to keep up even relatively anemic levels of economic growth of 2% without that kind of stimulus behind it. the troubling thing is, of course, if we don't, equities are obviously going to be under a lot of pressure. >> if i'm long the market, sitting at home, dan, i want protection. how do i do this? >> a lot of people who are somewhat sophisticated, oftentimes like to lower their exposure to a down move by sometimes just selling an etf, like a spy, if they have a long portfolio heavily correlated to it. i don't really like doing that, because like carter said, when you talk about the risks here, they're not that symmetric. you probably have a few percent to the upside, but you could have a down sharp 10% move. i would like to sell an out-of-money call and use those proceeds to buy a put spread. you do not want to be buying puts all the time or you'll kill

your returns. carter thinks we're at an inflection point. >> i think this is absolutely right. another probably with '87 is the fact that the u.s. government threw in the towel in supporting the dollar. the fed's about to throw in the towel. so i think you have to have some protection. >> mike? >> in the type of strategy that i really do like is you still preserve a little bit of upside. you're not getting naked short the market which i also think is exceptionally risky. time is also working for you here. longer dated options to the end of the year are higher priced than the ones we have right now. wing options, they're going to decay away. that really helps you. >> walk through the trades. >> i looked at the december 31st quarterly, last day of the year. basically when the spy was at 169, you could sell. december 31st, 175 call at about 250. you could buy the december 31st 165 put for $5. and then sell a further strike.

but the december 31st 154 put at $2.50. you basically don't get short on the december expiration up to 175. up $6. you have 165 to 154 of protection. down almost 9%, 10% to the june lows. if we do start to go down, we'll probably pause. >> if you want to see the full marc faber interview, go to cnbc.com. you'll find a lot of great articles there as well. so check it out. it's a bird, it's a plane, it's a rocket. actually, it's just shares of tesla. according to our guys, this rally just might be starting. we'll explain why when we come right back. ♪

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♪ [ 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. ♪ pumping up the volume this week. wendy's, at one point call volume was six times the ampl daily volume. wendy calls were active, and scott, why was this? and have you tried the pretzel bacon cheeseburger? >> i have not. this was on wednesday, the stock was up 5%. big buyers of the fed, $8 calls. some say it's because their brand is going to do a refresh. some say it's because of the pretzel bacon cheeseburger. >> we take a look back at some of our winning trades. few stocks catch the imagination like tesla does. here's how they made a fortune on the name.

when "options action," it's how we trade like scientific geniuses. mike tried to make more on tesla. mike was on the fence about tesla. carter made a crazy comparison to amazon. >> one can say voodoo. >> not so fast. 100 shares will set you back almost $14,000. so to spend less, january 150 strike call for $17.75. now to make money, mike needs tesla shares to rise above 150 by more than the 1775 he spent. or above $167.75 by january expiration. i'll tell you just what i think. we need to do this for less. mike? >> sell the september 150. >> to cut his cost, mike sold the september 150 strike call

for 350. but he did something even better. he put the odds in his favor and here's how. between the $17.75 he paid for the longer dated call, and the $8.50 he's collecting by the shorter dated call, he cut the cost down to $9.25. above $159.25, by january expiration. but it gets better. that's because the value of the data call mike sold will decrease faster than the value of the longer dated call than he thought. something we impressed doc brown himself, turned time into money. >> what did i tell you! >> let's not gloat yet because there is a tradeoff. in order to make the most money, mike needs tesla shares stay

below the shares he called before the first expiration. in this case, above $159.25, by january expiration. since the time of the trade, tesla shares have risen more than 10% on earnings. >> do you know what this means? >> we sure do. it means mike's trade is looking fine. now fans have only one question. >> can you tell me you built a time machine? >> well, not that question. what they're really wondering is, what will mike and carter do now? >> before we answer that, let's just see how much money was in fact made. have you bought 100 shares of tesla at the time of the trade, you could have made 12%. before we get mike's next move,

carter got us in, so we've got to go back to carter to see if you still like the chart. >> we do in the sense that we think the road map for this stock is much, much higher, like amazon. instant gratification is a nice thing as well. day to day, hour to hour we would capture gains here. >> mike, would you capture the gains? >> you know, one of the reasons that we actually got gains like this in a relatively short period of time is the news that came out on the stock the past week. it went right to the strike which is where we want it. in an ideal world we can just sit here and look to collect the premium over the weeks that precede the september ex per ration. i'm inclined to go with carter on this one. >> what would you do, dan? >> i'm kind of with carter here. i think the story will continue to go. i think you may have a little bit of an option on the buy side. 25% short interest. a lot of good news. i think you want to see it fill in the gap. maybe toward 130. >> scott, would you be tempted to even -- wow be tempted to put

on a directionally short trade? >> no, not with your money. at this point, calendars can be bearish or neutral or bullish. this went right to the stripe. it was a bullish calendar. now the stock is bouncing around so much, you still have a month to go, i think you have to take it off. >> reminder as we head to break. if you want updates on our trades, go to twitter, and dan posts his regular trades. if you're on facebook, go to facebook.com/options action. coming up next, the final call from the options desk. ♪ [ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars.

and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade. we're cracking down on medicare fraud.

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call to report any suspected fraud. we're cracking down on medicare fraud. let's make medicare stronger for all of us. ♪ [ 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. ♪ we want to thank carter braxton, and special hello to his father, toby worth, who was good enough to stop by the options action desk. now we know where carter gets his if looks from. the final call now.

>> it's only appropriate if you're long. if you don't do this, you're a dope. >> i wouldn't say dope, but you look for premium ways to buy protection here. >> one of the things about his trade we didn't actually discuss is the fact he'll still get my mission is simple. to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere, and i promise to try help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money," welcome to cramerica. other people want to make friends. i'm just trying to make you a little money. my job is not just to entertain but i'm trying to teach and coach. so call me at 1-800-743-cnbc. every time you think you've seen it all, every time that we're -- we thought there can't be any more scandals as bad as the last