now you stay safe. now you stay safe. bye-bye. $12. >> that's $2. >> and down for the count. we'll tell you why next week's

amazon earnings could break the stock for good. the action begins right now. live from the nasdaq market site. i'm melissa lee. we got carter back on the carts. stan you're at the desk t. markets are mixed, for the first time since 2011, they floored an official correction before mounting an impressive comeback. so our question tonight is, is this all the bears will get? so, dan, you think that was it? >> well, here's the thing. it could have been for the near term him when you think about the volatility the panic we did see this week. it wasn't panfested wholeheartedly. it was in the bond markets, commodities. the move in bonds this week was that morning on wednesday when the tlt, they couldn't buy it fast enough tom me, that obviously showed a little panic, so people are suggesting it could have meant capitulation. i know it sound worse tan it

was. we had a down morning. just because we haven't had that in so long him i think that's a big part of it. >> valuations and equities haven't changed that much. nova scotia e nobody has enough precision to say are we at 17-and-a-half forward earnings? he is right though, look at credit spreads, if you look at spreads on high yields, these things blow out to almost 500 basis points. what that tells me is either it's a great time to buy high yield or there is a lot of concern. what has held up stocks, essentially, is a little market rigging, forward coming out, saying maybe that put is not done yet. >> when you talk about handicaping multiples. people thought the bank earnings looked good. they sold you a. we had tech ernlgs, to me from a sediment standpoint, i don't think there is a demand to get if few laws him some of the

buying maybe since that capitulation lows and yields. it could have been short covering. >> that speaks to, when the market goes down as often things like energy and materials that lead the way and that is a space that has been absolutely crushed and it remains crushed right now, despite a decent bounce on thursday, this is a space that still remains remarkably hard hit. >> it looks like we may have been found some flooring, lumberge and baker hughes, things are looking more constructive tan a couple days ago. >> going back to the conversation about high yield, though, that is where a lot of the junk exists, in the xhernlg energy space, credit guys are often ahead of things on the way down, that's where they are expression e pressing their concern. i'm inclined to watch them. >> did today's rally signal the selling? carter, let's ask the expert, himself, it's great to have you back especially after a week we

had. what do you see in the carts? >> let's figure it out. what about go to precedent, facts, data as it relates to history. so we're in a correction now of some kind. what i have here is all corrections of 5% or greater going back to fine 27. it's important it's 5% or greater. you go down two or three. it's noise. once you go down five, you typically go down more, stock losses kicking in. the spouse calling, screaming, once you are down five, you typically go down more. here's how much more. there have been 210 five plus corrections since fine 97. few were to look at the median, it is down 8.42% him it lasts about 22 sessions. few were to look at the average or mean, which, okay, picks up outliers, which skew, it's down 12.19, lasting 40 sessions. this correction, we've met the

median and a little bit. we are down nine from the peak to the trough. it's been exactly 19 sessions in the making. so if it were to be just average, it's not over in terms of magnitude, it implies more or duration. let's look at the chart of the s&p and another way to these correction again that we have seen over the last two years, they've always stayed above trend. this time, we broke trend and that is an important circumstance and then finally, let's look at the day-to-day chart. sheer our peak. it was a friday as everyone knows, ali baba, kind of ironic, biggest ipo in the history of markets. here's our low of wednesday. this is 9.1% from peak to trough. this ricochet from 18 to 20 slow exactly a 33% retracement. it leaves you right back at the kill zone. we think you fade this right

here. it stops here. you are back to where all the dead bodies are. this is where there is overhead supply. we have come back to where interested sellers likely emerge. we think you sell the s&p right here. >> back into the kill zone. that's vivid. >> that doesn't sounds good. >> no. >> here's a situation that we have higher implied volatility, higher "options action" prices tan we've had for probably many weeks, even months him one of the things we kept highlighting is "options action" provisions were extremely low, go out, boy puts. what i will do here is take advantage of the fact that these premiums have been elevated a little bit. i will use a calendar put spread. i'm looking at the dequarterly, palm beach quarterly, 180 put spread. basically, what you are targeting is a decline of about 5% from here between now and december. this is one of those situation, in general, i like to be long outright puts. this is a situation i want a little decay. i am still hesitant because of

bullish comments. i want to sell some as well as buy some. >> as far as that kill zone the trade, i'm be carter on that 1,900 level and the s&p could be resistance. we will actually get a test early next week, to me, i don't really mind the trade. but this isn't the trade that will offer you the sort of proengs you pay want if we go back down towards 1,800. so to me what i would do is wait until we have a test of that line right there, the 1,900 level. if it fails and we start to see breath deteriorating the commodity, greater volatility. you go and buy near the.puts, okay. then you get the move. it's almost spreading the needle in a market that has gotten a whole heck of a lot volatile next month. >> carter, put an o on this back into the kill zone. what is the presumption if terms of where we were traced to. see that down. >> re-visit the low. that actually achieved a new intermediate low, which would put us more if lean with the

average correction, going back to fine 27. >> all right. >> so more time, lower prices. >> let's move on here, massive slate of earnings is on tap next week, third quarter results coming from mcdonald's, caterpillar the big guy the talking apple. analysts are looking for good fuse the consensus for quarterly earnings, a $41 per share him ahead of monday's report, often traders were getting in on apple, with two calls trading for every puchlt is it time to buy? >> in context of the conversation we have, apple's results will be important as it relates to sentiment. obviously, the sentiment is very positive. we know that the iphone 6 and 6 plus sales are going well. they took maybe 20 orders in cone testimony ipad stuff is a problem. listen, that was an uninspiring presentation yesterday on a product that is about to go

exgrowth when you think about it. so to me, i think a lot of news in apple, the stock is deemed to be defensive. they have about a third of their market cap in cash. we know that things are just fine they have a 2% dividend yield here. to me the core is going to be inline, the guns should be strong. if the guidance is not strong, it could get sold fear goggle. this is a defensive sort of story, so me, you have to watch to see how the market treats the results. because we expect the results to be good. >> i would say what our concerns are, are probably offset by payments. it is a defensive fame number one because of the cash. but when we think about ipad and what that means to tear bottom line relative to what payments could mean, i think it holds a lot of promise. if i was going to hide out some place, there is one of the places i would like. >> the stock got down to 95. it touched there, this is a key level. this is like carter's kill zone,

if you are long the stock, you think there is a bunch of news coming out, you think investors may overlook a worse tan expected margin, that will be a basically upright cycle for quarters to come, i would look to buy weekly puts. the october 24th, the next friday expiration, 96 puts cost about a dollar 40 t. break even is 946660 right before that important support level on the cart. are you risking about 1.5% of the yuvend lying stock price to hedge your portfolio in a potentially volatile event and also the jury is not out of the market yet. who foes what happens here. >> so actually, although i defend apple stock, i also defend this trade as a defensive placement the implied move for apple is relatively low going into earnings next week. this is one of the places "options action" do remain cheap on a cheap stock. so you go tote own essentially

xooep cheap calls. >> the thing about apple or googlele or netflix, it exhibits relative strength. those all the stocks were faltering for weeks. apple has been basically unchanged. that's impress ev. it's also occurring at the past top. a normal reaction. we like apple here on the long side. >> i would say on the cart, the momentum is waning a bit. it's made a series of lower lows and higher highs since september 3rd all time high here. you have to see blow out gross margin gains to get this stock going forward. >> don't you want to launch it monday? >> we talked about this on this show. payments will be a 1% thing. the watch to me. >> 1%. look at the size of visa. then you can see the market share. >> at some point don't the stocks at prices discountry little future things that we don't even know yet. >> got a qui out there. send us a tweet for "options action." check out our website, "options

action"action@cnbc.com. here's water coming up next. which tech stock could be if serious trouble when it reports earn goings next week. plus is the worst over for germany? >> now is the time it's been redone. >> we'll give you the surprising answer that could determine the market's next move when "options action" returns.

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. >> so you talked about apple. the last three earnings periods have been very rough. so grim, in fact, dan had to make his way over to the smart board. so, davoren, what are you watching? >> this one is also an important one from a sediment standpoint. we know that amazon just kills in these periods. they're expected to have 90 billion in sales for this calendar year. the one is really important. because the stock has been a massive under performer. it almost feels like in 2014, it's down 4% on the year. it almost feels like something has turned in this name as far as large investors are concerned. i want to make a point. when you think about some of the performance of large cap internet stocks, i think we have a display here. a lot perform poorly this year. we have google down on the year, ebay down on the year, priceline down on the year, we obviously have amazon, when you think of

the help of the rally, you need so see some of these market leaders perform well. next week amazon is expected to report the q 3 earnings. never do we expect earnings in amazon him the implied move is 8%. it's $25 in either direction. over the last four quarters, the stock had moved on average about 10% him when you look at the year-to-date chart, you can see these huge gaps on these earnings misses here him when you think about it, it is suggesting that investors are no longer happy with this company not demonstrating their ability to earn cash. i want to go here. look at this chart, this is a two-year chart of amazon. the stock had this massive run. it gave it all back. i would say, some of you guys know what this is. this is the triagele of death. it could be lights out. you could see 250. something leak we saw on netflix. amazon is a big component of the

nasdaq 100. this obviously had a very precipitous drop over the last few weeks here. it's sitting at a very important level. all in all, between apple and amazon, we really need to see things hold for the right reasons. if they get sold off on good fuse, that's very bad for the broad park. >> triangle of death. you guys are bearish on this name on amazon, so what do you do now? >> for one thing, we have that position on the january 315 puts. you probably want to take some of that money off the table and roll down. you can actually play with house money. i will maintain a bearish bet. this is one of those stocks, it is a hold it and hope story. it isn't great to own stocks. the fund managers won't be proud to have on tear sheets as the year comes to a close. from my perspective, you want to continue to maintain a bear. >> i love he thinks you can do what you can do, he draws on a

smartboard in a convincing death. >> the triangle of death is catchy. it's not a game. >> catchy. >> whole thing aside, that's vernacular. the charts are right. this is what we did three weeks ago. look at the gaps. look at the levels, the presumption is this can really fall apart like a net flex type drop is there i was going to mention that. net flick is the backdrop, sort of the poster child of investors questioning growth rates and at what valuation do i question for what growth, dan? >> i think it was the risk environment we have been in, you knew that you had this backstop and bad stories, bad earnings stories, they had good revenue stories really work out well. at some point, we saw that end with these cloud stories, these 3d stories, investors were not willing to pay outrageous multiples. to me, you seen a rotation. some people would say it's very healthy. this is one reason why apple is

a $600 mark cap company and trades well in one of the worst downdraft wes have seen in two years. coming up next, want to know where u.s. stocks are headed next? we are back right after this. a $600 mark cap company and

trades well in one of the worst welcome back. last month mike and carter made a bearish bet on germany. take a listen. >> oh, i'm inclined to take advantage of the fact that generally speaking when you look at an index like this, "options action" prices tend to be less. i'm looking specifically at the january 29 puts. you can pay about a dollar 10 for those. >> those are now worth $3. >> these approached $3.86. pay attention and look for opportunities to either roll or spread. we are through that strike. what i will do is roll. i will keep these on otherwise. >> carter, is there more room to downsize stocks? >> this is generally a big index. it will go the way of other

parts of europe, we think lower. >> what does that mean for the s&p then? >> s&p lower. >> i guess kill zone. that's what gave it away. >> just last week, dan made a bearish bet on mieshlg soft. take a listen. >> i bot the november 44 puts. the stock is up 17%. i think all of these names, despite the fundamental merits on different fames, i think they're all very crowded. the we see a continuation of this week's selling, this stock is going to be at 40. >> earnings, of course, are next week. so dan you stick with this trade? >> i think this is an important note. when you have a trade that wasn't put on like earnings. what i was looking to do, we had the selling mid-week, we had a nice gainer on my hands, if it had broken its average around 41, i was looking to take profits on the position or look to spread here. here's one point i want to make. in this gap me mark we have, squeezy, crashy, whatever you want to call it. you got to be careful.

you don't always want to spread things tom me, what i will look to do, if we have that break in front of thef of earnings him. i am looking at risks being taken off the table. if i have a slight loser, i'm not so sure i will take it on. >> carter, how are you feeling about large cap stocks these days. given we have seen a rebound in the russell. we have seen the large caps roll over. >> ultimately. that's what takes the s&p lower. you think about it. we had a deterioration for a long time. in europe, small cap, consumer. it starts to spread, big financials. what happens, ultimately, it gets over things like wal-mart. it dropped in gaps and it goes over to health care. so it's over when everyone that was resisting has succumbed. we haven't quite seen that yet. >> this is a situation where a couple of these big cams. it seems that everybody is the place to hide out. some places like apple indicated that might be true. in microsoft's case, here again,

we have a situation where despite the fact we have elevated volatility in the market, these "options action" aren't that expensive. i don't mind them owning into catalyst. they are priced with the market being maybe squishy is what i would call it. >> squeezy is what dan said. squeezy, fishy. be sure to tune into the interview with microsoft interview monday morning 6:00 a.m. on "squawk box." karl aconhad an especially tough time of it. we'll explain why. stay tuned.

. >> it's great to be a billionaire unless you were uncle karl icahn. dan, what do you think, do you think he will unwind some of this? listen, here is a guy who has been an amazing investor for so

long. some things you can't bully around. he got what he thought he wanted. so the stocks are going lower. to me, it's a function of the market we are working on. >> net flicks. my expectation is we will learn that icahn probably paired his positions there. as far as herbalife. the long-term play a lot of people have talked about is that he might be right. >> you think a part of the that downto netflix on the day after was karl icahn unwinding. >> i don't know he was unwinding that day. i would be surprised to learn he has maintained. he has expressed scent michigan about high flying, valuation stocks. >> time for the final call, carter worth. what do you say? >> take advantage of this rally to reduce exposure. we do not believe the correction

is over. >> that's your shot to get back in. >> mike. make sure you roll your long puts. put your protection on. >> thanks so much for watching. for more options action. check out the website. we'll see you back here next friday eastern time. have a great weekend. . >> announcer: the following is a paid presentation for body beast, the fast, proven way to build muscle, shed fat, and sculpt your best body faster than you've ever thought possible, brought to you by beachbody. >> this is real, as real as it gets. we're gonna learn, we're gonna sweat, we're gonna have fun, and we're gonna see results. >> before body beast, i was just soft and chunky and -- and pudgy, and this is the "after" result. >> it's gonna be amazing. come on. you can do this! >> body beast has completely transformed my body. swimsuit season is here, and