things. now, you stay safe. bye-bye. ♪ this is "options action." tonight -- >> it must be some kind of hot tub time machine. >> the sell-off has investors thinking ever 1987. maybe the market is more like 2000. we'll tell you how and how you can protect yourself. plus -- ♪ >> first internet stocks. then biotech. but you won't believe what sector traders say is next to fall. we've got the setup. knocked down but not out. >> everybody can change. >> solar stocks have taken a hit but they're showing signs of getting off the mat. why they could be a good buy now. the action begins right now.

i'm melissa lee. these are the traders here in times square. the selling on wall street continues for another week. the banks playing a big role in the sell-off today. the lousy action in the financial stocks was only half the story. dom back at cnbc headquarters with the latest. >> the xlf, the etf that tracks those financials closed down more than 1% today, but the invest the options pits was fev feverishly bearish. they traded for every single one call or bullish bet. in today's trade, the biggest one, someone actually bought 30,000 of the april 21 1/2 strike puts for about 30 cents each. that's nearly a $1 million bet that it will get even worse for these financials before next friday's options expiration. now, remember, next week we're getting earnings from the likes of other xlf component banks citigroup, bank of america, goldman sachs. others.

next week very heavy overall for the banks and reporting season. could there be more pain for the banks? that's going to be the real key. >> how worried should we be as we head into another big week for earnings and bank earnings? let's get in the money and find out how. jpmorgan specifically for a while seems like jpmorgan really deliv delivered. >> we did a trade a month ago when the stock was about 59. what i was looking at the the time, the company had guided down. they talked down earn,s back in mid-february. frankly, i'm actually very surprised that investors were surprised today by the disappointing quarter. you know, the down 3.6%, one day decline was the worst decline after earnings in two years for this company. this is a company that has routinely beat. so, you know, listen. i don't thing sky is falling here. these are cheap stocks. one thing that's very important is that this is going to be a very tough year. a lot of cost cutting. a lot of loan -- a lot of stuff

that manufactured earnings over the years. >> it's been an underperformer anyway against its peers. >> sfrn you look at wells fargo, the most profitable bank. that's a little bit of a joke when you consider, of course, that jpmorgan had a lot of one time instances. but wells fargo's earnings, also included a lot of one time positives. they had big gains on their equity portfolio. >> taxes were favorable. >> a lot of these things going on. that's obviously helpful. if you take a look at what's going on. a lot of people talk about, net interest margins normalize. they talk about a steep yield curve being a benefit. it compresses mortgage demand. we can see right now when we take a look at all of these banks, they are telling us that's a big part of the problem. >> the problem with jpmorgan, and dan mentioned this. if you'll lower expectations, then you better meet or beat them. when you miss the lowered expectations you'll get crushed. now we've talked about higher rates need to help the banks. god knows the banks need some help. the problem is we've been saying that for a long time.

we've been saying that for months and months. if you look at ten-year treasury yield, it's not going to help the banks. they all rolled over. it's going to be really ugly until we start getting good news on the treasury front. >> i'd make one comment. the xlf is not a great proxy. these are short-term options. i think this trader most likely was looking at the dollar cheap premium or maybe from some cheap -- >> why isn't it a good proxy? >> berkshire hathaway is the second largest component and it's not reporting. a couple others not reporting in the time period of this expiration. sometimes on days like today, traders scramble for -- to lower their downturn exposurexposure. what's the cheapest premium i'm willing to lose against some of the big longs i have on a down day? >> the interesting ghing this trade, they are almost right there now. this is not a bet that the stock market is going to drop a ton. it's a bet that the xlf is going to drop a little more.

>> let's get more on the financials. call to the charts with carter braxton worth. what do you see? >> a lot going on. this is the second biggest sector in the s&p after technology. it's held up, but it's not holding up as of now going forward from what we can see. so here's the best part of the financial. this is the regional bank index. it is still on trend, albeit a t closed right at the trend line today. this is the fifth time we've touched the trend line. the presumption is this is going to give way. let me look at others that have already given way. let's go to bigger banks. this index starts to pick up things like wells fargo, citigroup, jpmorgan. this violated trend once and then today, it's a definitively broken trend. take it further. here's a stock i like to pick on. morgan stanley. this is not only broken trend but it's now considerably below trend.

we think this has more to go. for comparison purposes, take a look at the same chart of morgan stanley versus goldman sachs. goldman sachs, we believe, is leading the way telling us where morgan stanley is headed. back to morgan stanley chart. we broke trend today. earlier this week, it closed at $28.50. we'd think this is headed toward 25. >> all right. mike, you also agree with the bearish stance on morgan stanley? >> it looks like the sector is fairly week. morgan stanley is an interesting case. it's not overwhelm league expensive. trading at less than one time tangible book value. obviously, weak in the investment banking space compared to goldman sachs. that's not their only core business. they are really big in the asset management business. it's been more stable and benefited from rising asset prices. that said, i don't see a lot of growth for them in the immediate horizon. they're going to be reporting on the 17th. this is a name where, in fact, options are relatively cheap compared to how much the stock has been moving around, which is kind of interesting.

so i'm going to look to put on a trade that will capture that earnings. specifically looking out to june. the 28, 25 put spread. spend about 90 cents to put on that trade. not risking a great deal of money. take a look at what the market is doing. it's easy to imagine this could move $1 one way or another between now and june expiration. >> let's say the markets bounce. what happens to this trade? do you need to believe the markets will go lower? >> i think after the week we had and it's down in the last two weeks alone a new 52-week high. you have to be careful pressing some of these things. i was long into this week for this sort of stuff. i actually closed them today. you don't like to press things on lows. you could be doing that here. to mike's point you can see 26 over the next month or two. the activity on the capital markets is really, really bad right now. i can see it from where i am. there's a lot of deals on the calendar. they are smaller. >> that's a great point. the options are not that expensive. why am i putting on a put spread.

this is going to come in a lot less if the stock moves up $1. especially if that happens next week. otherwise, if the stock was at all-time highs and facing the same thing you'd probably just buy a put and tlook spread it. >> also, carter has a target. target 25 bucks. mike is happy to sell that. reduces the cost of the whole thing. also reduces the penalty from that vol sock or vol crush we talk about once earn,s are released. this is a case where doing a put spread makes a whole lot more sense than doing an outright put. >> let's move on to a question every investor has to be asking right now. what will be the next sector to fall? first it was new internet stocks like twitter and facebook. then the biotech bust which we called on this show. which is the next one? >> to me, it doesn't have a whole heck of a lot to do with the real sexy technology stuff or biotech. to me, listen. the world is convinced or at least the fed is convinced in the investor world that the economy in the u.s. is improving. i'm not so certain about that. i'd rather be a bit skeptical

based on price action we've seen in the equity markets up here. to me, i want to look at economically sensitive sectors like the transports. this is a group when you look at the iyt. the i shares on the transport. when it broke out $1600 in early 2013 it went up 40%. you would have thought this thing was a social media company last year. it's not, okay? to me, when i look at the iyt, we have some big transports. about the top five holdings in that etf make up almost 50% of the weight. i actually think it just recently made a new all-time high. this is a sector where i think if we get mildly poor economic data, the market stays the way it is, i think this is the next sect tor drop. >> do you agree? >> what's interesting, fedex and u.p.s.,mentioned there. these are valued essentially based on a recovering economic growth story. they are not overwhelm league cheap at current levels. if you are dealing with a stock trading 17 times earnings and

you think that's going to flatten out, there's probably more troisk the downside in the near term. i agree with that. >> the interesting thing about these names, energy a huge component of their costs. also we saw crude oil was up a ton. it's been up a ton recently. rolled over a little bit today. you know middle of the day, crude oil made a new high. that's really going to impact the margins for these names. >> what's the trade? >> today when the stock was -- the etf was 132.35, i looked out to may and bought the may 130, 125 put spread. i sold one of the may 125 put spreads. that cost me $1.20. that's my max risk. between $128.80. i like the risk/reward. i targeted these strikes because 130 is a nice breakdown level. should be good support at 125. and relative to some of the

components, the etf, implied volatility, price of options is really cheap. this is going out of the money a little bit, but i like the potential risk/reward. >> the fact the options are cheap on an etf like on an index. when the market starts to roll over and correlation rises, that's when you are getting them at a bargain price. >> these options are vanishingly illiquid. >> if you tor bet that the transports are going to go down if you are a dow theorist, that means you believe the market is going to go down, too. >> transports have held up better than most. it's a specific index. what's kept it up are the bill airlines which have found a spot that is unlike any other in their last 10, 15 years. i'd watch the airlines and use that as a sort of an indicator for the group. >> before we head to break, we've got a little news of interest. leslie moonves full-year compensation, near $67 million. pays to be a media mogul these

days. got a question out there? send us a tweet. scott will answer it in the web extra tonight. he's looking at a bullish trade on twitter. you'll find great trader blogs and educational material. here's what's coming up next. what do these three men have in common? >> i think they are vain. >> no, it's that they've all made alarming calls in the market. we'll tell you how you can protect yourself. plus, after a terrible week, could now be the time to buy solar stocks? a little known indicator says yes. we'll reveal what it is when "options action" returns. ♪ ♪ ♪ ♪ [ tires screech ] chewley's finds itself in a sticky situation today after recalling its new gum. [ male announcer ] stick it to the market before you get stuck.

get the most extensive charting wherever you are with the mobile trader app from td ameritrade. [ indistinct shouting ]

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all on thinkorswim from td ameritrade. ♪ it's very likely that we're seeing in the next 12 months an '87 type of crash. and i suspect it will be even worse. >> i think it's not if. it's when. i think there will be a major correction. i can't tell you when. it may be three years. it may be three days. but that's my belief. >> two legendary investors and two men with very thick accents. that was marc faber and carl icahn making bearish predi isis. we have three wise men sounding the alarm here. what do you think? >> for one thing, haven't we also been sounding the alarm? i think we have.

but it's sounding a little shrill at this point. we haven't seen a huge downturn yet but it does make some sense for all of the reasons we've previously discussed. equity market valuations is a percentage of the overall economy. really approaching highs at this point. valuations, while not overwhelmingly expensive, across the board, are a bit above average. a couple names where they are off the charts. a lot of speculative names. people talk about 3d printing and other things. tesla, netflix. hard to get your armed arns these evaluations. a lot of potential troroom to t down side. >> faber was making comparisons to '87. >> these are charts that are sent around the trading floors when there's a big pullback. we see these time and time and again. >> they all have one thing in common. they happen after great periods of strength.

we know this is a fairly mature bull market. bull markets have expiry dates. for what it's worth, only six other instances in history where the s&p has gone five years in a row consecutively closing higher. and we just saw that at the end of 2013. i spent some time looking at what happens in the ensuing year. and some of them are up. some down. here's what happens every time after a five-year consecutive bull run. volatility increases dramatically. we're seeing that this year. and the draw down from high to low in the ensuing year is almost double what you'll see in any given year. i think you can expect that kind of behavior here in 2014. >> so given that overall market outlook, dan, you think it's going to be -- >> the cues make me nervous. the top ten holdings make up 50% of the weight. they're names people are hiding out in right now. google and apple and some of the likes. if you own these things you'll not sell them but you may be worried about those crash calls.

i think, like i said earlier, i don't young go in monday morning and start buying puts. vol is up. it's expensive. this is the one that i think could be vulnerable. it's doubled the -- it's down 8% from the highs. did not confirm the s&p high. the s&p only down 4%. i'd be looking at the cues. and again, hypothetically, you want to do this probably back towards 86. i priced it up when they were 84.15. you could buy the july 80.70 put spread and you get max protection or bearish exposure from 78.50 down to 70 over the next three months. look at that chart. right at the breakdown level. to me, i think you want to spend as little as possible to get the widest amount prove techs on something like this. because you are really doing this section something you own for the most part. >> i'm not certain this is where i would go if i was a big bear. the three big names which are apple and microsoft and google are not particularly expensive.

if you go a little further down you get some hideously expensive names like amazon. but i think i would look some place where the names are actually a little frothier and a little more overextended. i just don't think these names are extended. >> the amazons and microsofts of the world don't have a lot of upside. their growth story is finished. even if they oar. >> but they'll not go down. microsoft is not going to go down. >> it just went from 30 to 40. i think there's a lot of risk in those names. i think there's a lot of money parked in it. we've seen this rotation out of the high growth, high valuation into these. if we go to hell in a hand basket, these are going to get hit. apple has flat lined for weeks or months now. if they have two disappointing quarters before the iphone 6 comes out, you could see 450 on this stock that's down 5%, 10%. shares of solar city have gotten crushed. but is it a ray of sunshine around the corner? find out when we return. [ indistinct shouting ] ♪

[ 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. ♪

[ bell ringing, applause ] five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays...

that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade. time to do something we haven't done in a while. it's called getting called out. you look back on a trade that felt so good but went so wrong.

mike and carter decided to get into solar city. here's what's happened next. on "options action" just because we risk less doesn't always mean we make more. that's just what kouw and carter found out. they said they were forecasting good things for the solar company. >> this is a great time to buy the stock. we like to a lot. >> and mike was picking up what carter was putting down. 100 shares would set him back over $6,000. mike instead sold the main 60 strike put. to keep all that money, mike needs solar city shares to stay above that $60 strike price through may expiration. the problem is that mike is now obligated to buy solar city shares for $60 no matter how far they fall. >> no! >> so to define his risk, mike then bought the may 57.50 strike put for $4 and created his bold

put spread. he did something else. he put the odds in his favor. here's how. between the $5 he collected by selling one put and the $4 he spent on that other put, mike took in a credit of $1. that's the most he could make on the trade. by taking in that $1, mike can now make money whether solar city goes up, down or nowhere at all. even if the stock drops below $60, mike doesn't see losses until it falls below the put strike price by more than that buck he took it or below $59. below that, mike will lose money. by buying that 57.50 put, mike protected himself below that level. good thing he did because since the time of the trade, solar city shares have fallen nearly 10% making this trade a loser. and now options action fans all around the globe are asking the same thing -- >> how many earths do you think would fit inside the sun? >> actually bill nye, what they are asking is, what will mike

and carter do now? carter, what do you do now? >> we're going to stick this one out. a big decline. 40%. 88 to 54. back to where it started on the year. we still thing rebound potential is high. stay long. >> rebound potential is high. what do you think? >> this is a situation where our options trade is set whereupon it has more leverage to the up side. i wouldn't close it here. the spreads are a little bit wide. you have 5-1 leverage if you hang tight rather than selling it here. you have to stay with it. >> what do you think is going to happen to the stock near term. these are stocks that have gotten massively crushed. >> they deserved to. we've been talking about high flying names. this certainly fits the category. you had -- >> this one in particular. >> but that's -- >> how many of us have man crushes on eli. >> once you start losing -- >> it kind of goes away. >> the better entry for this

stock would be $40. >> coming up next, the final call. ♪ ♪ ♪ ♪ [ tires screech ] chewley's finds itself in a sticky situation today after recalling its new gum. [ male announcer ] stick it to the market before you get stuck. get the most extensive charting wherever you are with the mobile trader app 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. ♪ coming up on "mad money," up in smoke. cramer talks with the ceo of private ecigarette maker njoy to see what the rise of the ecig could mean for the industry. meantime, time for the "final call." the last word from the options pits. >> weakness in biotech and tech and high-flying casino names. if they go lower, there's no wisdom in that. watch financials. if they start going lower, it's going to get worse. >> this week's web extra is how to do that sensibly. sensibly in twitter. >> i would also add to carter's point. transports. keep an eye on that. you see stable sectors like that breaking, be careful. >> mike khouw. >> the market is down a bit here. vol is a bit higher. if you are going to make bearish bets and use options, use things like the put spread that we're

talking about in morgan stanley. that mitigates the impact of that vol pop. >> our time has expired. i'm melissa lee. for more "options action" check out our website. and also, of course, watch "fast." "mad money" starts right now. (female announcer) the following is a paid presentation brought to you by my pillow incorporated. ♪ music playing >> i definitely just got a much better sleep. >> try it, that's what i would say. >> without realizing what i was missing. once i had it, i loved it. >> it really did change my life. >> my name is patty reilly and if you're anything like me, you have struggled for years trying to get a good night sleep. i wake up in the middle of the night. i can't get back to sleep, tossing and turning. that is just no fun. so it wasn't until recently that i actually discovered something that a lot of people were talking about. and it's called my pillow.