live from the nasdaq market site, i'm melissa lee. we're continuing the coverage of this week's selloff. the dow having its worst week since 2011. the culprit, oil, which has just closed at yet another five and a half year low. how bad will the selloff get and what parts of the market are the most you will haver inable? we're joined here but our traders dan and mike. mike, kick it off. what did you make of the action? >> one of the things i think is most interesting is what you just highlights, the move in the

vics. we've seen a move that was only higher than this one other time and that time the s&p was off over 7.5%. here we're off 3% from the high and yet the options market seems to be telling us that more is yet to come. you would think down 3.5% that this is a mild move but people aren't acting like it is a at july? we're seeing the volatility weather it be bonds or high yield or currencies finally seep into the equities market which is what we're seeing with the vix move. >> we've long said that the s&p 500 has been a safe haven asset so now we have this dollar rising, i think people are going into that because it's a safe haven asset. we've seen this move into bonds, look at where the yield in the ten-year is, almost back at 2%. people looking for security but at some point all of this

volatility in thesor asset classes has to come home to roost. when you think about vix rallying 70% in one week and the s&p down 3.7%, it's telling you people are not ready to sell their stocks but they are ready for protection and we know we have this fed meeting next week, we know there's potential volatility around that. but after that we could get some calm into the holiday season. >> so there could be an oasis in terms of volatile any a break from it going is the end of the year? >> i'm not convinced that's true. i think people are feeling pretty edgy. i think one thing will happen, though. this is an interesting situation because when you start seeing energy stocks get sold off this much, there is the benefit of lower gas prices. there could be segments that are going to see benefits. what's the by-product of that for people trading stocks in it could become more of a stock-picker's market because there will be companies at least in the united states that are going to see incremental benefits. but in general the market is going to have to trade lower

because earnings on the whole for the s&p are going to go low officer will we saw big moves in today's session in particular in the materials sector which is down more than 2%. we're finally getting these miners and steel names being affected by these moves and within energy, i'm just wondering because i'm sure people are at home thinking could this buy b a buyi ing opportunity? we've heard the equities move faster than the commodities. you're laughing but i talk a look at these names and they've been battered? >> maybe what we're seeing in commodities and particularly in oil, we're seeing the unwind of a fed bubble here. we know quantitative easing is over. we know they're considering lang badge that would move towards rate hikes sooner than expect. what i'm focused son where this goes from here. we've seen in the the high yield markets. about 20% of the issuance is in energy. where does it go next? are will we see sovereign defaults for count these are levered to commodity prices? and what happens to the credit

market? we're seeing people reach for high yield which leads me to financials in a way. when you think about every mess the world has been in from a economic standpoint, banks have been in the center of. >> it what's your parade in. >> to me i think you look at the xlf, obviously a lot of banks are not that levered as some in emerging markets, brazil for instance. so if economic activity slows and we'll have a credit event it will be bad for them. today in the xlf i looked out to february when the etf was out the 40 and i bought the february 2421. paid 55 cents for that. that's my max risk. i sold one of the 21 puts for 10 cents. i can make up to $2.45 between 2345, and 251. that's a wide range. i'm trying to target that october low we made in the xlf.

i think if you get some worry about contagion, i don't think that will happen. the worry can take something down like the xlf. >> with options premiums bumping up the way they are it is a better time to look at trading spreads. the other thing, of course, being that when you're dealing with an index type of a product like xlf, there is probably a little floor in there and that makes selling that down side put to help finance it more sensible. i don't think that there's any reason for people to reach out and think that energy prices have somehow bottomed out here and they should be trying to take this as a big buying opportunity. hedging makes sense >> i would at one more point. the euro stocks bank index, the xx 7 got clobbered and it's down on the year. it's approaching 52-week lows, look at the xlf, it's outperformed the broad market. i think's people hiding in there, these options have increased in price dramatically. they've almost double of late

this is one reason why you want to do a spread and do it appropriately. if things heat up in the new year, this will be good to own. >> let's turn to the charts and check in with the chart master himself, carter braxton worth of stern a.g. you think it's about to get worse. what are you looking senate. >> the big subject what's going on in asia. europe is slowing, arab is slowing so the issue of decoupling 1 coming up. can we detuck l from the rest of the world? the last time it was brought up was when emerging markets were still going higher and the u.s. was turning down and the thought was we're decoupling. now it's the reverse. don't worry about the emerging markets, lust safety t day, we never decouple. so three things, this is year to date. u.s. equities quite clearly are fairly deyent years. the real reality 1 equities as an asset class, this is 9,800

companies in 48 countries, basically no progress. with today's close this is unchang unchanged. here's all equities except the u.s. this is real story. this middle line here is only unchanged because the u.s. is influencing it. take the u.s. out and that's the fact. global equities are not performing. here's the visual. s&p, all world eck wes thes, except the u.s. the only reason this line is here and not here is because the u.s. is influencing and bringing this up. basically no progress. since the last bull market in october, 2007, we know we all declined 50% and we came soaring back over the last six years. and u.s. equities are up 30% from their prior peak. u.s. equities are down 24%, 30% for just inflation. this is a disaster, nothing

short of it. so there's the visual and let's go to the trade. the u.s. is on borrowed time. again, what a well-defined channel i'd like to say this phrase. i do not draw the lines, i didn't make this fit, the lines draw themselves. it bounces perfectly, perfectly, perfectly and guess where we're fading just now? right off the top. as a minimum i think we go to the bottom channel that implies 6% here. >> short 6% lower. >> the s&p is trading about 17.7 times earnings. that's about a turn and a half richer, about 16.2 times. the only reason you assign higher multiples to stocks is because you think there will be growth. why would youedly will be growth in s&p earnings when companies are being annihilated? you don't think that. at the least you would expect the multiple would revert back to main. that's about an 8.5% decline from where the s&p traded today. only off 3.5% from the highs.

it's not a big stretch to think we could see it fall 8.5% here. >> what's your trade? >> i'm looking out to the next quarter. the march quarterly. you can pay $740 for the 200 puts and sell 2185s against it. that's a net ben did of $3.80. that's one quarter of the distance between the strikes, that gets you down to the decline about 8%. that happens to be the long term mean in terms of multiples. >> i'm curious. you said we could rally into year end. how does that fit in? it could still fit within it because his is a march expiration. >> as a strategy pressing a down four or 5% move in the s&p over the last few years has not been a good trade people. pressing lows on the short side. so you want to catch it on a bounce but i'll tell you, what carter said was brilliant analysis that when you think about where yields are right now, something's brewing here,

people so $200, that may be conservative. if you're trying to hold on equities you may want to look out longer and you widen it out a bit because let's remember in the last 15 years we've had two peak to trough declines of 50% in eck wes the. >> if you own stocks and you're averaging a dividend yield in your portfolio that's approximately the same as s&p between now and march expiration you'll collect about two bucks. you're using the dividends you're collecting to help finance a hedge, you're not making a big risk to give yourself inzblurns carter, back to you in terms of the bottom of the channel down 6%. does that bottom of the channel look like a decent support? >> that's just it. that's the best case scenario. you vacillate within ascending or descending channel. if you look at the channel for europe we long ago are now breaking blow. there's every chance that we go below the bottom of the channel.

>> got a question, send us a tweet at options action and for everything options action, check out the web site optionsaction.cnbc.com. here's what's coming up next. what's more painful than this? >> stop! stop! >> possibly owning apple shares into christmas. but we've got a way to profit. plus -- >> you want to see something really scary? >> just look at the vix, you won't believe how high traders see it going by next month. we'll tell you how to protect yourself when options actions return.

stocks are dropping, fehr is surging. the volatility index rocketing this week and some traders think

the vix is going to go much higher from here. mike, what did you see this week? >> it was interesting. we saw about three times the average daily call volume in the vix but before we get to the trade we saw, i think we should take a look at the last year in the s&p for historical perspective. so if we go back and look, dan was right about this, first decline about 5.5%. we saw this in january. then around april we saw a 4% decline. a great time to buy then in july another 4% decline. more recently we had the 7.5% decline. now we go forward and looks at what the vix was doing. so we saw a spike on that first big decline that we had, about 5.5%. the 4% moves were pretty muted the last time we saw vix getting above 20 was right here. we're getting close to that level right now what we see is the anti-correlation. that is to say the vix spikes when the market goes down, but what's particularly interesting

to me is that usually the market declines first and the vix catches up. that's not what we're seeing here. the vix is leading the way this time and this time what we actually saw was a purchase of about 100,000 january 2030 call spreads. that's suggesting the vix could get as high as 30. what does that suggest about the s&p? bam. could be 10% or more by january expiration. when we look at what's going on, this time they're not wait to see the next thing happen. >> what do you make of this? because the volatile can go higher that means on a daily base thys markets -- >> here's an important distinction. we talk about a spread and we're talking about vix call spreads here. when you think about it, i think about the vix as a tail hedge than anything else. you could use a tail hedge as portfolio hedge, but this is really under the worst-case scenarios where you get paid. and the spy hedge, you're doing it against a portfolio that is probably likely fairly correlated and therefore you're getting near the money

protection on those stocks. so i love vix options but they're difficult because the asymmetric nature of them. we know vix can go to 10 on the down side now the up side who knows. it's hard to choose your strikes in that regard. >> in client meetings, the complacency is still very high. it was guaranteed the ear end would be good. >> caught off guard? >> i think so. >> let's look at the asemi-tri dan was talking about. they paid $1.60 for this spread and it can be worth a total of ten bucks so you're getting more leverage than the put spread that we're talking about. bear in mind this they're expecting something to happen harder and faster than the insurance we're suggesting that you put on your own zbloef so now what? we're talking about vix overall, i'm wonder if there there are certain sectors where we're not seeing as much voluntarity. >> what he was saying about come men are seinesy. when you look at the vix, it's

still only about 20. so here we are in the spot above that. it speaks to a level of complacency further out, too. again, i think it exists in the financials given the outperformance there. i think it exists in retail, consumer discretionary, staples will become very expensive, too. i think whole market is laden with complacency. >> are there sectors within this market, do you think, don't look as bad as the overall market? >> what makes a market is my own piece this week made the case for being overweight financials. we like financials on the long side. we don't think they are that exposed to the energy problem. but the place that's most complacent is the traditional safety trade. staples are very steep. health scare off the charts in terms of above friend so we like utilities some extent. >> but here's two utilities for you. look at, a tee and tee and verizon. >> they're not -- >> they yield 5%. >> their businesses are under extreme pressure. >> but think about it. it seemed like an easy trade. if you don't want the dollar

exposure -- >> domestic companies. coming up next, will bit a blue christmas for apple share hold snaers scary chart is predicting more pain for america's favorite tech stock. we'll tell you what it is when we come back.

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apple was down almost 5% so a good thing dan nathan bought protection on this stock. an options action is how we trade like computer geniuses. risk less so we can make more. that's what dan tried to do with his bearish bet on apple. dan thought apple shares looked vulnerable. >> it makes sense to add protection. >> >>. >> but selling the stock and giving up on the potential upside? >> get out. >> so to protect his apple stock dan instead bought the january 1/10 strike put for $2.20.

now dan is protected if apple shares fall below that $110 strike price by more than the amount he's spending, or below $107.80. below that level, it doesn't matter how far apple shares fall between now and january expiration. because that put will rise in value as the stock falls offsetting potential losses on his apple stocks. >> everybody getting this so far? >> but keep in mind that there is a tradeoff. and by buying that put, dan 1 giving up on $2.20 of profits if apple shares rise further. that means with apple at $114, he needs it to rise above $116.20 before he can see profits again on his apple stock. so far apple shares have been stuck between $120 and $110. but with the holidays around the corner, apple fanatics have the same question -- what will dan do with his trade now? now this put is worth nearly double what it cost last month?

dan, do you hold on to it? >> i think you. do remember why you do trades like this. it's protection. part of it is to help you hold on to something you're convicted in. at the time implied volatility, the price of options was low in apple. it's since picked up. that's giving you an opportunity to spread these puts. when you think about it, $110 is a big level. i'd be very surprised to see this thing below $100 just on fundamental news between now and january expiration remembering this expiration does not catch their q-1 earnings which will be probably on january 23. so i think you actually get paid $220, you sell the january 100 put for a dollar, now off $10 wide put spread, that will give you about 9% protection for a dollar. >> how does apple look? >> what's interesting is the 100 level is very important. it where's the stock gapped to the upside. so there's an unfilled gap. it also is where the average comes into play so a well-defined level of support. >> one quick point, too, for anybody who did put insurance on

it, it's easy to take profits on your hedges when they turn green and you might be tempted to start taking a little money off the table a little too soon. i think you can give yourself time for your ledges to play out here. let your winners run a little bit and this point hedges are winning. >> dan, you mentioned it doesn't capture earnings at that point do you change the parade in. >> a little bit. i'm a little worried about what the first half of the year is going to be for apple. we know there's good news here. >> theoretically it could be an air pocket on which stocks should rate higher. we have the blowout earnings for the holiday quarter. >> i guess the point is that that's backward looking and the stock gained about $100 billion in market cap from the time those phones were launched and i think you'll see the huge uptake in this past quarter and the quarter they guide to. so to me i don't think that on average this stock has gained 30% a year for the last five years. i don't think you'll get that

with the largest market kpap on the world. >> coming up on "mad money" cramer consult aztec in addition to get a better understanding whereof the market is headed. plus jim talking to the man behind what people are calling uber for handymen. won't want to miss that. up next, a final thought from the options biz.

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you've got time for a tweet tonight. thomas rice asks "airlines were down today with anything else, any special play on them if oil goes lower?" this is interesting, every time oil went lower, airlines went higher and the correlation seems to be breaking down. >> one quick point i would make is the airlines are at all time highs. one airline, southwest, hedges. they're going to have to tick off the fact that they have will bed in crude prices before they plummet bud the rest of the players, i don't see why you would sit here and reach out and grab these things when they're

basically trading at all time highs. >> it's the single-biggest consensus trade in the market. everyone is in agreement that airlines are good and getting better. nothing can stop this fuel and it's all about half their costs declining rapidly. sell. >> what's interesting, too, 1 some people are concerned if they're saving too much they'll start spending too much so you have the flip side of in the terms of the boom and bust cycle. >> this is an industry that's figured out how to screw up every good situation. they were all near bankrupt. i would not be chasing time. >> time now for the final call. the last worth from the options pits. >> short ispy, long the xlf. >> that's what makes a market. i'm long puts in xlf. i think fear of contagion is the sort of thing that can make what's expensive get that much more expensive. i look liking down. >> one of the things about the financials is they're not that expensive but the s&p is expensive at 17.5 times. i think you want to play the put

spreads to make a bearish bet back. >> looks like our time is expired. for more options actions check out the web site optionsactio optionsaction.cnbc.com. see you back here next friday at 5:30 p.m. eastern time. "mad my mission is simple, to make you money. i'm here to level the playing field for all investors. there is always homework in summer and i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." welcome to cramerica. some people want to make friends, i want fewer days like today and i want to keep you in the game after this horrible session. call me. tweet me at jim cramer. once again, the pain of the oil producers trumped the p