we're watching whales first so they don't get in the way. >> but i think we're done fly fishing for now, right? >> no, you're not. no. >> no, you're not. no. >> oh, yeah, i think... ♪ this is "options action." tonight markets go psycho. but could the fear actually mark a buying opportunity? we'll give you a surprising case for a stock turnaround. plus how would you like to make 1,000% off goldman sachs' earnings next week? >> gee, i would have done that. >> well, today is your lucky day, lloyd. because we'll show you how to do just that. and mad about losing money in energy stocks? >> i think i'm in touch with that emotion. >> that's all right. because we have a way to get your money back. the action starts right now. live from the nasdaq market site, i'm melissa lee.

these are the traders here on times square. a brutal week for stocks. large tech stocks got hammered. texas instruments, intel, cisco, google shedding billions in market cap today alone. is this the start of a bigger decline or a golden opportunity to buy? dan, we've got to start off with the tech sector down almost 3% today. you've got to wonder are megacaps now in trouble? >> i think so. it was a blood bath in tech today. there were probably decent fundamental reasons why. but i think you have to think about what we've seen over the last few months. we've seen the deterioration in small caps, okay. we've seen now the nasdaq close below the 200 day moving average for the first time i think since late 2012 or january 2013. and now we have all these megacaps here that are stuck on top of the s&p 500 which is still up on the year. the dow's erased all the gains. when you think about the damage that was done in semiconductors that flowed into internet services. then into 3d.

some of the higher valuation stuff. i don't think it's over here yet. i know we've been talking about these technical levels, but you have to remember especially in the s&p 500 we didn't get that close to the moving average. >> came close. >> we did come close. it's likely to come. that's the moment of truth. that's what you have to watch for early next week. >> you look at these tech stocks and one thing really stands out. i'm going to take google out of this list. you look at intel and cisco and these types of names, these are stories where there's not really any top line growth. the only thing you had to propel them to the upside and the reason i think people got bullish on them is they looked cheap on a relative bay decision compared to the rest of the market. but that actually isn't true anymore. what we've seen is if those names had really rallied. if you're looking at a name that has flat revenues or has seen declines in revenues, this is a name that should trade on a discount to the market. if people are getting concerned they should -- >> that's the key point here. so what happened today? microchip, they sound the alarm here and they talked about the whole sector seeing lower revenues. here's what we know about all

the names you mentioned. i'm going to name six names right now. apple, alibaba, facebook, google, intel. $2 trillion in market cap. fine. they are all really well set. they have nice balance sheets and buy back a lot of stock. but there's not a heck of a lot of growth like you said. they're buying back that stock. they're all helping the earnings growth. >> engineered. >> a little bit. here's the thing. if microchip -- if this warning is correct and we start to see cyclical tech that isn't the pc and smartphone -- then we've got problems. >> it seems sentiment changed. jeffrey si there's no e.p.s. or revenue or little of it. and they are also engaged in this financial engineering in terms of buying back stock in order to make the numbers look a little bit better. so everybody's sort of questioning where we are right now. >> yeah. i don't question what the companies are doing as far as financial engineering is concerned. it actually makes a lot of

sense. if you have a lot of positive cash flow and you take a look at what the cost of capital is, what they're doing is boosting eps. but ultimately we buy stocks at higher valuations because we think we're going to get revenue growth. if you don't get that, ultimately what you are doing is buying a bond. that's scary to do here. >> let's talk about microsoft. >> they've the this transition in management. it's up 17% on the year. it's outpacing the nasdaq. they have $85 billion in cash. more than a third of their market cap in cash. this is a company that's doing a lot of things correct. i think it's basically a little bit too far appreciated given what i believe has been a honeymoon period for nadella, the ceo. let me tell you, this little mistake, that snafu he has with the talk about pay speaks how he's going to run his company going forward. we don't know about this guy running a $400 billion market cap company. to me, i'm not going to put too

fine a point on this, but it's an interesting thing. the sentiment changed. karen finerman had some terse words for him on the internet today. so when you think about that, i think there's a potential. i want to say this, we have a one day chart on microsoft. remember, these guys sit in the same supply change as a lot of these. so when the stock was $44.60 today, i bought the november 44 puts. i paid a $1.30 for those. when you think about it, it's not a tremendous amount of premium especially where implied volatility is in the name. considering that the stock is up 17%. i think that all of these names despite the fundamental merits on different names, i think they're all very crowded. and if we see a continuation of this week's selling, this stock is going to be at 40 in the next few weeks. this is a great way to play it. i didn't make it really sophisticated spreads. if we get a sharp move down to the 200-day moving average. that's the yellow line.

i will look to spreed spread these and lower my break even. >> if the take is okay, then what happens to this trade? >> one thing, if we see early next week where the market seems to stabilize, these will decay a little bit. but they're not going to go straight to zero. one of the important things you need to look at when looking at options, we drive as if we're looking over the hood and we're looking only three feet in front. these go to november. a lot can happen between there. really what you are interested in is not is it going to move that much this week but now and expiration. that kind of movement is easy to see happening in a market environment like this. >> just like i named target where i'd like to see this go down 10%. you have to think about what your exit is. if everything does calm down and i'm freaking out here -- you know what i mean? >> which you are apt to do. >> every once in awhile. where would you sell these and cut your losses? this option is going to catch their earnings event and that should keep them from a volatility point. >> let's move on here.

after the worst week since may, 2012, could third quarter earnings save the rally or what was it. kicks off in earnest next week as we hear results from a ton of big banks. analysts show a growth of 11% -- options traders have been placing big bets on goldman sachs. at one point this week we saw three times their daily call volume trade. what do you think of this activity? >> this was interesting. what we would normally expect to see and what we did see is a lot of bearish activity generally. what we did see was three times the average daily call volume in goldman sachs. i think pete actually talked about this. the november 195 calls is what one was picking up for about $1.35. they traded over 5,000 of these. that was more than ten times the open interest in those options going in. now, there's a couple interesting statistics about goldman sachs going into earnings. first of all, name only moves

about 3% on the day following. it's actually implying a 3.7% move. options are pricing in a little bit more volatility for goldman sachs next week. here i think is the interesting thing when you take a look at it. if you're buying a november 195 option, like we were talking with microsoft, you're actually going out much farther in time. this stock has moved 10% over that period of time. so i say you just go ahead, buy these 195 calls, pay $1.30. doing this over the course of the entire existence, you would have made ten times what you invested. 1,000%. >> i say you don't buy these calls because i think that the likelihood that this stock is going to break out to multi-year highs in the month we are having right now over the next few weeks, i just don't think it's likely. i think technically the thing is broken. i think it double topped probably like a high 180s. i think you'll see a move in large cap names. >> the skepticism that dan has

is the skepticism the street has. this is actually the most bearish i've seen people on goldman sachs since it's been publicly traded. >> it's good. >> which is the only reason something like this could happen. is it a high probability bet? no. >> we have breaking news. want to go back to brian sullivan back at the news room. brian? >> thank you very much. seems to be unfortunately now, guys, your weekly retailer data breach story. sears holdings with the word they is had a breach at their kmart. it's not affecting kmart.com. however, sears holdings saying that kmart's i.t. team detected that the payment data systems had been breached. right now we don't have a total number of how many people may or may not have been affected. but sears holdings, a bad week getting worse. down 11% this week. there's reports out there about suppliers, vendors, whatever. this is no longer another bad

news for sears holdings. every week we're getting a data breach now. >> thanks for the details there. got a question out there? send us a tweet. and for everything "options action," check out the website optionsaction.cnbc.com. we have the hottest options news, videos throughout the week. it's changed my world view, could do the same for you. check it out. up next. the vix has done something it hasn't done in almost a year. >> just flip out! >> but that may actually be a good sign for stocks. and we'll tell you why. plus, but no one is getting rich off of it this week as oil keeps falling. we've got a way to make some of that money back. we'll tell you how when "options action" returns.

welcome back to "options action." well, the stocks tanked this week. volatility had its biggest weekly gain since 2010. now vix spikes this year have been buying opportunities. but will that be the case again this time? the question so pressing, in fact, we came over to the plasma with dan to figure this out. >> it's funny. you just said that. there've been massive buying opportunities. it's a by-product of what the fed has been doing with qe. they've really depressed volatility across all risk assets for a very long time. but specifically in the s&p 500 which really has been this kind of safe haven trade for a long

time. when you look at a two-year chart of the vix right here, the green line is really -- it's 20. and that's been the long-term average since the low 90s here. over the last two years, what the average has been, 1430. okay? so that just speaks to what's been going on as far as complacency relative to the potential for equities to go lower. and this yellow line right here, this is 18. this has also been a level where on numerous occasions, the vix has gotten to. but it's been another buying opportunity. i just want to make the point about the four times prior to today's close above 21 in the last two years when the vix has been above 20, we've had these massive -- look at this. okay? four instances where you have double digit returns from the low of the correction and the spike in the high and volatility. this one was 20%, this one was 10%. this one was 12%. earlier this year, 16%. okay? that's important because investors have been conditioned to buy those dips. i just want to make another point here.

this is a chart over the last two years of stocks that are actually at their 200-day moving average. what is a 200-day moving average momentum indicator. this is just telling you people momentum is waning when volatility is increasing. let's look at the chart. s&p over the last two years. one more time. this was the breakout level. this was the one people thought we were going. we started getting s&p targets at 3,000. here's the thing. we've got sideways here. we've come back to this 200-day moving average. this is what i would say is the moment of truth. the question you may have is is this buying opportunity? is this spike what it's always been? i don't have the answer here, people. i think we're going to get a resolution next week. that's why i don't think you get this immediately. >> what is the rez lugsz. the chart you showed me before seemed to indicate this is a dip that you buy. >> here's the thing, mel. and you know this. the fed is going to be ending this qe. we also know the ecb may not be doing as much as we think. where are the central banks right now?

we know that japanese equities don't trade well. and they are in there supporting their economy. to me maybe it's different this time. >> if it is different this time, mike, and we may have rocky times ahead and volatility is high at this point this time of year, what do you do? is it too late to buy protection? >> i wouldn't go out and buy protection. i'll tell you that right now. one of the things you want to look for when looking at the vix, it's obviously going to spike when the market declines. i know there's a functional relationship there, what you want to look out for is when it sparks sharply. that signals you might be getting into a short term oversold condition. say let's just wait for a day or two and see how it sorts itself out. you might see options prices come in just a little bit. i think right now people are awfully scared. we're seeing that reflect enough and more importantly we're seeing it about the way stocks traded. today they closed on the lows. that is not a positive. >> you know, i would make one other point. let's just say you're not

ready to maybe get in there. but you think this inverse relationship stands. i mean, one thing is if you're not willing to sell your stocks and reduce your risk, you could think about using that volatility to sell calls against maybe stocks you own and basically benefit from that. and the way you think about it this way, you may add yield to that position, but also add a bit of a buffer to the downside. so one thing i would say is if you're not inclined to run for the hills and nobody's saying to do that right now because to your point, mel, they've all been buying opportunities. maybe it's different this time. >> i think that's a great recommendation for a couple of reasons. one is we haven't had a lot of great situations where we could sell calls because premiums have been so low. here's another reason. if the market recovers and these stocks get back to the levels where they were, you're probably going to run into the resistance. resistance. when that happens, people will start bailing out of stocks because they're afraid this might happen again. that's a nice place to be short upside calls. you'll take that premium in but you want to sell it where you might run into resistance anyways. >> good advice. coming up next, as oil fell this week, stocks got crushed.

is it time to play for a rebound? we've got to strategy that could make you a lot of money. we'll discuss when "options action" returns.

welcome back to "options action." it is time for a segment we call the good, the bad, and the ugly. where we check back on old trades and see how to make them better. let's start off with the good. last month mike made a bearish bet on tech. take a listen. >> i think we can take advantage of options in the qs are inexpensi inexpensive. we can go right out to january, the january 99 puts. >> mike bought that put for 3 bucks. it's now worth double that. a lot of time left on the trade. mike, what are you doing? >> we're going to take these and roll down. you can roll out also. but they were trading 6.50 bucks. you can go down to the 94 or 93 strike. get a comparable price to the one we bought. you're now playing with house money. that's how you're ensuring your portfolio. we're going to keep that insurance on, but we're going to obviously in case there is a snap back have house protection.

>> on betting on technology, is it time to break out and say it's not going to be the qs in particular as opposed to one that's weighted. >> i think that's fair. but i actually think -- dan was talking about -- he listed a bunch of stocks that represented 10% of all traded equities. that's what a lot of people's portfolios look like. because of that, that's where you want your protection to be. you want your hedging to be similar to the portfolio you actually hold. >> apple betting against it right here is a tough thing. it's holding a hundred -- but it is 13% of the qqq. you have to think back to september 3rd. there was a day apple sold off 5% in a straight line. right now we're seeing people flee out of the other sectors and they're moving into apple. that could change quickly. to your point, mel, it's been a tough gain to try to bet on these big leaders. i'm going to make another point. sentiment shifts quickly. twitter was one of the best acting internet stocks up until yesterday. it's down 9% today like that on no news. so sentiment can turn.

listen, i'm long q puts. i'm short the q's. i'm all in. i agree with him. i would make one other point. i would rather almost rather than roll down to sell something against. i'd look to spread these and sell a lower strike put. if you do have the q's settle in here or it snaps back, you're going to take advantage of a little offset in the k with the vol coming in. >> by rolling you're doing something that's similar. only the thing is you're not capping how much that hedge can make to the downside. that's one of the reasons i would be more inclined. >> let's move on to the bad, shall we? last week dan made a bullish bet on energy stocks. take a listen. >> to me you have a sector here in the u.s., the xle, that's gone from one of the best performing at the beginning of the year to the worst performing. i don't think this is going to stay too long. bottom line, i think these stocks are cheap here. >> well, they're even cheaper this week. dan's trade cost $1.50. it's worth much less now. do you keep this on and also is the sector ripe for a comeback? >> i'm not sure.

this really shook my confidence. this not only was the bad, it was the ugly. this was a bad entry. but i'll tell you this. one of the reasons i constructed the trade that i did was because i really wanted to define my risk. i wanted to basically sell more options than i was long on the lower strike. and i did do that. i still think that this trade has a shot here. but i'm less convinced of the reasons why i initially put it on. so this one is on life support. i'm keeping a very, very close watch on it. you're really going to have to see the xle come back above 85, 86 and stabilize there with a few weeks to go or this trade isn't going to have a shot. but to me, you know, global growth concerns. it wasn't a supply thing, you know, with oil. it's turning out to be a demand thing. >> a very simple question you should ask yourself when you look at a trade like this is if you think stocks are going to rebound, you also think crude is going to rebound next week. i think most people have a view right now that crude is in real trouble. and is probably going lower. and if it does, that's not going to really help propel the energy sector.

so, you know, to me if i'm looking at places where i wouldn't even hope for a snapback, energy is the place. >> you said this in the earlier block, sentiment is so bad. i thought it was really bad last week. it's really worse now and really oversold. so you have the potential for a sharp snapback on the slightest bit of good news. >> tonight on "mad money," cramer is talking to isis form suit kals up more than 3% today. don't miss that at the top of the hour. coming up next, we have the final call from the options pits.

quick programming note here. bank of england governor mark carney will be on "squawk box" monday 6:00 a.m. eastern time. tune in. don't forget to set your alarm. let's take a tweet here. steven asks thoughts on intel november calls. what do you think, mike?

>> the first thing i would say is i certainly wouldn't want to reach out and buy the stock and catch the falling knife here. it doesn't look to me it's going to find support right here. if i was going to make a bullish bet on a snapback, that's how i'd be inclined to do it. but a truer test is probably going to happen a dollar lower. >> man, i wanted to short this thing. i was hoping it would rally back early in the morning. i think if the my kro chip ceo is correct, it will be grounds zero for a megacap correction. >> this is one of the stocks we talked about at the beginning that doesn't have revenue growth. this is the sector getting it. >> all right. we got the final call here. last word from the options pits. what do you say guys? dan? >> i would say this. on a day like today when we close this badly, you don't come in monday and start shorting things and buying puts. wait to see how things settle out. if you get a bounce, that's when you go and buy the november puts for microsoft. >> certainly if you have bought protection like the january 99 puts, what you want to do is go and start looking for money protection at this point.

take the profits you've made, roll down, you'll have the protection and started to play with house money. how you want to play the game. >> looks like time is expired. i'm melissa lee. thanks for watching. for more go to our website and check us out inside "fast money" every day. have a great weekend. see you back here next friday. >> announcer: the following is a paid presentation for the nutribullet brought to you by nutribullet llc. special tv offer. stay tuned to find out how you can get the nutribullet superfood nutrition extractor free! that's right. get the complete nutribullet system free! details just ahead. >> my muscle aches, my back aches really started to decrease significantly in one week. >> first night that i actually used the nutribullet, i actually slept really well. that was exciting. that was phenomenal. >> the bad cholesterol which was 290 went down to 190. >> before you turno