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, could the fear mark a buying opportunity? a surprising case for a stock turn around. how would you like to make 1,000% of goldman sachs earnings from last week? today we'll show you how to do just that. >> mad about losing money in energy stocks. >> i'm in touch with that emotion. >> we have a way to get your money back.

the nasdaq site, a brutal week for stocks. google, shedding billions and billions in market cap today alone. is this the start of a bigger decline or a golden opportunity to buy? dan, we have to start with the tech sector down today. are mega caps now in trouble? >> i think so. it was a blood bath in certain sub sectors in tech today and decent fundamental reasons why, but you have to think what we've seen in the past few months, we've seen the deterioration in small caps and nasdaq close below since late 2012 or january of 2013. now we have the mega caps here stuck on top of the s&p 500, which is still up on the year. dow erased the gains. when you think about the damage done in semiconductors and found it way into 3d, higher valuation

stuff, i don't think it's over here yet. we've been talking about technical levels but you have to remember, we didn't get that close below the average -- >> come close. >> it's likely to come. that's the moment of truth and what you have to watch for early next week. >> you look at these mega cap tech stocks and one thing stands out and i'll take google out of the list. you look at intel and cisco, there isn't any top line growth. the only thing to propel them to the upside, people got bullish because any looked cheap compared to the rest of the market. that actually isn't true. the names really rallied if you're looking at the name that has flat revenues or maybe seeing declines in revenues, 2, 3, 4% a year, if people are getting concerned, they should let it go. >> what happened today? microchip sounds the alarm here.

here's the thing we know, all of those names you just mentioned. i'll name six names, apple, alibaba, facebook, $2 trillion in market cap, fine, they well set, buy back a lot of stock, but there's not a heck of a lot of revenue growth. they are buying back stock. >> engineered. >> a little bit. >> here's the thing, if microchip, this warning is correct and we see revenues start to decline in cycle cal tech, then we got problems. >> it does seem sentiment changed. interesting note on ibm questioning -- there's no eps or revenue growth or little of it and they are engaged in the financial engineering in terms of buying back stock in order to make the numbers look better. everybody is questioning where we are right now in mega cap land. >> i don't question what they are doing as far as engineering is concerned, if you have a lot of positive cash flow and take a look what the cost of capital

is, what people should be doing is trying to boost eps. but tultimately we buy stocks because we thenk we're going to get revenue growth. you're buying a bond and that would be a scary thing too do here. >> let's talk microsoft. >> they had the transition from management and the street cheered them, up 17% on the year, outpacing the nasdaq. third of the market cap in cash. this is a company probably doing a lot of things correct but it's basically a little bit too far appreciated given what i believe has been a honeymoon period for the ceo. this little mistake, this snafu with the talk about pay, this really has to speak a little bit how this person is going to run his company going forward. we don't know a whole heck of a lot of this guy running a 400 billion market cap company. i think it is a very interesting

thing. the sentiment kind of changed. karen, who has been a real bull on microsoft had some kind of words for him on the internet today. when you think about that, i think there's a potential for sentimentship. it was up in the morning when the semis were getting slayed. they sit in the same supply chain. so to me when the stock was 44.60, i paid 1.30 for those, it's really not a tremendous amount of premium where implied volatility is in the name and the stock is up 17% with the carnage we've seen in large cap tech. i think all of these names, despite the merits, i think they are all very crowded. if we see a continuation of this week selling, this stock will be at 40 in the next few weeks, what i want to do here, didn't make it really sophisticated spreads and this and that and whatever. if we get a sharp move lower, i

will look to spread these and kind of lower my break even. >> if the tape is okay, what happens to the trade? >> if we see early next week where the market seems to sta e stabili stabilize, these will decay but not go straight to zero. when you look at options, we tend to look, driving as if we're looking over the hood, a lot can happen between now and then. not is it going to move that much this week but between now and november expiration, it is easy to see happening. >> that is a great question like i named a target where i would like to see it go down 10%, you have to think where your exit is. i'm freaking out right here. >> you are apt to do. >> every once in a while. >> you have to think about where would you sell these and cut your losses. to me this option will catch their earnings event and should keep them well bid from a

volatility standpoint. >> after the worst week since may 2012, could third quarter earnings save the rally? it kicks off next week as we hear results from big companies including banks, expected growth of 11% and ahead of the results options traders have been placing big bets on goldman sachz. what do you think was behind the activity? >> this was pretty interesting. in market environment like this, what we would normally expect to see and did see ahead of earnings is a lot of bearish activity. but what we did see is three times the average daily call volume and gold man sachs talked about this, 1.35. they traded over 5,000 of these, over ten times the open interest in those options going in. now, there's a couple little interesting statistics about

goldman sachs. >> name only moves 3%, about a 3.7% move. options are pricing in a little more volatility for goldman sachs next week. here's the interesting thing when you look at if, if you're buying a november 1.95 option, you're going out much farther in time. this stock has moved 10% over that period of time. i say you just go ahead, buy these 1.95 calls and pay $1.30, doing this over the course of the entire existent would have made money but ten times what you invested. 1,000 percent. >> i say you don't buy the calls because i think the likelihood this stock will break out to multiyear highs in the month we are having right now over the next few weeks, i don't think it's very likely. i think technically the thing is broken and double top, probably high 1.88 or so. i think you'll see a month back

to 1.70. >> the skepticism dan has is the skepticism the street has, most bullish since it's publicly traded. >> which is good. >> the only reason something like this could get. we have breaking news back at the newsroom. >> seems to be unfortunately now your weekly retailer data breach story, sears holdings out moments ago saying that they had a data breach at their k mart subsidiary, not impacting kmart.com and no evidence social security or addresses or other personal information was released but sears holdings say k mart's team detected the payment systems had been breached. we don't have a total number of people affected. but sears holdings a bad week getting worse, down 11% this week, reports out there about suppliers and vendors, whatever, this is no longer another piece of bad news for sears holdings,

it seems every week we get a data breach now. >> thanks for details there. we have a question, send us a tweet at options action. we've got the hottest options news, videos from throughout the week. changed my world view, could do the same for you. here's what's coming up next. >> the vix has done something it hasn't done in almost a year. >> flip out. >> that may actually be a good sign for stocks and we'll tell you why. >> plus -- ♪ >> no one is getting rich of it this week as oil keeps falling, we have a way to make some of that money back. we'll tell you how when "options action" returns.

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stocks tanked this week and 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, massive buying opportunities and been that way for years now much it's a biproduct of what the fed has been doing with qe, really depressed volatility across all risk assets for a very long time. specific clipalally in the s&p .

when you look at the two-year chart of the vix. green line is 20 and that's been the long-term average since the low 90s, the last two years the average has been 14.30. that kind of speaks to what's going on as far as kplasantly as well as the potential for equities to go lower. this lower line is a level where on numerous occasions it has gotten to but been another buying opportunity. i wanted 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, four instances where you have double digit returns from the low of the correction and the spike and high and volatility, right, this one was 20%, this one was 10% and 12%. that's important because investors have been conditioned to buy those dips. i wanted to make another point.

this is a chart of the nyse of stocks that are at their 200 day moving average. what is a 200-day moving average? a momentum indicator, momentum is waining. one more time, this was the breakout level. this is one that people thought we started to get s&p targets at 3,000 and that sort of stuff. we've gone side ways and come back to the 200 day moving average and this is what i would say is the moment of truth. the question that you may have, is this buying opportunity? is this spike and ball what it's always been? i don't have the answer here. i think we'll get a resolution next week. >> what is the resolution? the chart you showed me before seemed to indicate it is a dip? >> here's the thing, mel, the fed will be ending the qe and ecb may not do as much as we think. where are the central banks?

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 times and we may have rocky times ahead and volatility is this high at this point close to the february highs this time of year. is it too late to buy protection? >> i wouldn't buy protection, i'll tell you that right now, one of the things with the vix, it will spike when the market declines. there's a functional relationship there. what you want to watch out for are situations when it spikes sharply, signaling you might get into a short-term oversold condition. let's just wait for a day or two and see how this thing sorts itself out. you might see options prices come in a little bit. i think right now people are awfully scared and we're seeing that reflected in options prices and about the way stocks traded. today they closed on the low. that is not a positive. >> i would make one other point, let's just say you're not ready to maybe get in there and you think that this inversion

relationship stands, if you're not willing to sell your stocks and maybe reduce risk, you could think about selling calls against stocks that you own and basically benefit for that. you may add yield to that position but you could add a little buffer to the downside to the call premium you sold against the long stock. if you're not inclined to run for the hills and they've all been buying opportunities -- >> i really 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. if the market recovers and these stocks get back to the levels they were, guess what you'll probably run into resistance, people will start bailing out because they are afraid it might happen again. that's a nice place to be short upside calls, you want to take the premium in but might run into resistance anyway. >> good advice, guys. >> coming up next, energy stocks

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

welcome back to "options action", it's time for the good and bad and ugly. let's start off with the good. last month make made a bearish bet on tech. >> i think we can take advantage of the fact that options are relatively inexpensive and go right out to january and january 99 puts. >> he bought that put for 3 bucks, worth double that. a lot of time left on the trade. what are you doing? >> first thing we want to do is take these and roll down. you can roll out also if you want to but i think we're trading about 6.5, you can do 95, 93 strike and get one to the one we bought and playing with house money. at this point we've made -- we're going to take that money in and keep that insurance on but we're going to obviously in case there is a snap back, have house protection from here on

in. >> at this point, is it time to break out and say it's not going to be the qs, might be the semiconductor index as opposed to apple let's say. >> that's fair, but i think dan was talking about, listed a bunch of stocks that represent 10% of all publicly traded equities and that's probably what a lot of people's portfolios look like and that's where you want protection to be. your hedging instrument to be similar to the portfolio you held. >> it's a really tough thing, holding 100 -- it is 13% of the qqq. to me, you think back to september 3rd, there was a day where apple sold off 5% in a straight line. right now we're seeing people flee out of her sectors and moving into apple. but to your point, it's been a tough game to try to bet on big leaders but i'll make another point. twitter was one of the best acting internet stocks up until yesterday. down 9% like that on no news,

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

>> i'm not sure. this really shook my confidence. not only the bad but also the ugly, very bad entry. one of the reasons that i constructed the trade that i did was because i really wanted to define my risk and basically sell more options than i was long on the lower strike. i did do that. i still think this trade has a shot here but i'm less convinced of the reasons why initially put it on. 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 and 86 and stabilize with at least a few weeks to go or this trade isn't going to have a shot. to me, global growth concerns, wasn't a supply thing with oil, it really is turning out to be a demand thing. >> a very simple question you should ask yourself in a trade like this, if you think stocks will rebound, you think crude will somehow rebound next week. i think most people have a view that crude is in real trouble and probably going lower. if it does, that's not going to

help propel the energy sector. to me if i'm looking at places where i would even hope for a snapback or rebound, energy is probably not the place i would look for. >> mel, you said this in the earlier block, sentiment is so bad. i thought it was bad last week, it's worse now and oversold. you do have the potential for a sharp snapback on the slightest amount of good news. >> cramer is searching for pockets of strength and talking to isis pharmaceuticals up more than 3% today. coming up next, we have the final call from the options pits.

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quick programming note, mark carney will be on "squawk box", monday morning. don't forget to set your alarm. let's take a tweet. steven asks, thoughts on intel november calls. what do you think? >> the first thing i would say,

i wouldn't want to reach out and buy the stock and try to catch the falling knife. it doesn't look to me any reason why it's going to find support right here. if i was going to make a bullish bet, that's probably the way i would be inclined to do it but a truer test will happen about a dollar lower. >> i wanted to short this thing, i was hoping it would actually rally back early in the morning. if the microchip ceo is correct, i think intel will be ground zero for a mega cap correction. >> it's one of the is it stocks we talked about at the beginning. if there's any pressure, this is the sector getting it. >> we have the final call here. last word from the options pits, what do you say? >> i would say this, on a day like today when we close this badly, don't come in monday morning and start shorting things or buying puts. if you get a balance and have conviction, you buy those microsoft november puts. >> if you have bought protection like the january 99 puts, start looking for out of the money protection, take the profits that you've made, roll down,

you'll still have that protection and you've now started to play with house money, exactly the way we want to play the game. >> our time is expired. for more "options action" go to our website, optionsaction.cnbc.com. >> have a great weekend. >> announcer: the following is a paid presentation for the power pressure cooker xl, brought to you by tristar. do you love sitting down to a big sunday dinner with the entire family? do you wish you could enjoy the taste of those all-day, slow-cooked, labor-intensive recipes without the time, the work, or the wait? well, now there's a new way to take grandma's favorite recipes and turn them into everyday family meals with just a push of a button and do it in a fraction of the time. how would you like to make a hearty pot roast with all the fixings done in 25 minutes... fall off the bone short ribs ready in 40 minutes... or how about chicken wings, going from rock-hard frozen to steaming hot ist