>> a cold breeze blowing through >> a cold breeze blowing through wall street. some traders calling for a correction. our guys here suiting up behind me with their best trade. but first, here's what's coming up. >> we're not going to make it. >> that's how traders felt today, and it could get worse when the fed meets next week. we'll tell you why and how to protect yourself. plus -- >> to infinity and beyond. >> and the dollar is about to go even higher. we'll tell you which sector in particular to avoid. and why are traders suddenly betting on herbalife again? >> one big question tonight for investors. is big oil going to cut their big dividends? let's go to mike keir?

>> what's it like in your view of this? >> well, it's interesting. if you look at what the options markets are implying right now, they are absolutely not forecasting the steady dividend growth that the oil companies are well known for. as you look out to next year, some of the big names are definitely looking like the options market think there could be a cut. that makes sense. let's look at exxon as an example. here's a company doing over $24 billion of free cash flow last year. probably about $2 billion this year. you see similar declines in bp. chevron a name that did almost $15 billion in free cash flow five years ago, this year we're going to look at $9 billion in negative free cash flow. it's pretty hard to continue to the support dividends when you have cash flow that was once extremely positive turning very negative. specifically, let's look at bp. think i we're looking at 38% year on year implied cut in the dividend.

chevron 25%. exxon about 30%. >> the troubling thing is, a lot of companies that have not cut the dividends yet, they've suspended the buybacks. you have the floor underneath the stock gone. the dividends could go higher on a yield basis, which puts more pressure from them. >> at some point the game is over. you have massive assets and sales have to start to cope with it, or you have to cut. and then that becomes really bad. yeah, not good. >> dan. >> and i think it's the speed this is all happening. we know exxon had a meeting a couple of weeks ago. they cut their cap back. chevron did. they're talking about the buyback. all of this is happening very quickly. that's the thing that has the potential to catch investors offside. people are still seeing those yields and saying there is an underlying business here. so the dividend yield looks great. when they start buying back stocks and oil kind of stabilizes here, this should be the place to go. >> if it does stabilize. that's really the issue. if you see crude stabilize 60, 70 bucks, there isn't necessarily some reason for them to cut.

if it continues to be weak and gets even weaker, these are not businesses kicking off significant amounts of free cash flow at 40 bucks a barrel. so i think that's something people need to be aware of. you simply can't sustain it indefinitely. >> we're going to you. you see troubling charts here. >> the price action is terrible. we're going to look at bp specifically. the issue with all of the big energy gains is there looks to be quite a bit more downside. and of course, it has a lot to do with the current setup in terms of dividends. i've got you three columns and three or four big stocks. earnings, factual. 2014. take bp. they earned $4.05. this is a consensus from many firms that they're going to have basically $2 earnings. look at the dividend. now that dividend is not going to be covered. same thing with conoco. they're going to 40 cents if wall street is right. and the dividend is not covered.

and chevron not covered. and hess, actually going to lose money, and the dividend is $1. not a good construct. and the price action, as we know, has been poor. here's crude oil versus bp. there was a bump up in crude. you get a little bit of a bump up in bp. crude is back down. crude almost touched the low today. the bet is bp will take out its prior low. so here's a chart, and then i'll show you one more and tell you where i think we're headed. if this high was about 53 and this low was 35, you have a 35% decline from peak to trough. and then we rallied almost 20%. and then again we're revisiting this low. this is not a good setup when you do that and this. the presumption is we're going to take out that low. take a look at the long-term pattern. you can name patterns anything you want. people like things like this. it looks like a body. or a cup and handle. it looks like it's out of the kitchen cabinet. if you want to call this head

and shoulders, call it what you want. it's a major reversal formation. neckline. and then a massive break. that's the potential here. we would do something, get out. if you're a short seller, pretty good bet. >> so the charts look terrible. mike, on a fundamental basis, would you also pick on bp? >> i think there's plenty of reasons to pick on bp. i don't like anything in the space, to be honest. bp is the one that has all kinds of other potential headwinds on top of just the weakness in the oil business. one of the things that's interesting is that the oil sector in general, the integrated oils were not premium stocks. and right now they're higher. because of the constant decline. normally when you see them higher we're going to tell you to trade spreads. in this case, i'm not going to do that.

sometimes higher options prices are justified. i think they are justified here. all i'm looking at doing is going out to july. 36 strike put that costs about $1.80. which is 5% of the current stock price. what you should be looking to do here, if the stock goes go lower, two things will happen. options premiums will rise. that's a good opportunity for you to spread or roll. >> i believe as the charts are showing him, you're going to gets a cre sen doe action here. this is coming to a theater to you. well, this looks like when they break the lows, things could two haywire here. you may have a down 10% day. that's what mike is really talking about, is using this, implied volatility, the price of options that feels very high right now. it's going to go much higher. i'll tell you, though, at that point, if that happens, rather than possibly spreading, you may want to take the profit there. you could see some sort of reversal. this could be the thing people are waiting for. so the timing may be difficult from the standpoint, it may feel like a press right now. if you get that move and it

happens, you may want to take the trade-off. >> quite quick and violent. the key is bp taking out that low that exxon already has. the most important one is already making lows. the world waits on one woman. we're talking about janet yellen and the fed that kicks off a two-day meeting on tuesday. dan is taking a look at the banks. so we thought we could give up on the banks because the results are out. >> it was interesting. yesterday's price action, including bank of america was fantastic. you had jp morgan getting close the unchanged on the year after being down 15% at one point on the early, in early february. the results were pretty decent. jpmorgan will be able to buy $6.5 billion worth of stock. everything sounds fantastic, right? don't forget these guys had poor results in q4. they gave murky guidance. it's a company not growing sales or earnings in 2015. expecting sales to be flat.

valuation is cheap. here's the thing, okay. everyone is focused on higher rates here. we don't know what is going to happen. is the fed going to remove them or not? i think that's already in the markets. the rates have moved up here. the wall stre"wall street journ already told us it will be done. i think it's in the market. so you have this enthusiasm. i look at jpmorgan, i know it's a consideration the one you have to go after. and that is what some technicians, maybe not carter, call the death cross here. two weeks ago on the program, remember we highlighted microsoft doing the same thing. it went from 44 to 41 in a straight line. to me, i think there's a lot of enthusiasm build up in the space. we have a meeting well telegraphed. time to short the banks. >> what do you do? >> i look out at april. april expectations going to catch their earnings report on april 14th. i have two events between now and mid-april.

and i bought a put spread. and the stock was 60.55. i bought the april spread. i paid $1.20 for that. that is the max risk. it breaks even on the downside. i have the potential to make $3.80 if the stock is between $58.80 and 55. i think the stock is extended here. if you get to the earnings, i think we will see in mid 50s. >> when you say technical formation, i go to carter. do we agree with this analysis? what is this? >> my body of work. my sense. and hearst whoo i mean by that. we know the demise of the banks wz called for energy. and the big banks, these are thing and the banks have not collapsed. they are big sellers and you look at the big xx

near and the kre. at or near a high. we think they act well in the face of what should be a pressure. take the other side. >> i'm going with dan here. here's the reason. when people talk about -- big surprise -- financials, one thing they frequently talk about are things like net interest margins and the idea rising rates are ultimately beneficial for the the banks. part of that is a little bit short sided is in the short term you have to expect origination to drop. you know, the whole reason that we have these low rates helped basically refuel the housing boom. you're not going to see a lot of mortgage origination if you see rates go up 150 basis points. this is not going to happen. the market is anticipating an increase. any of the good news is baked n in. and then you get the wait and see. a lot of loan origination you're going to know mid next week. how the banks react to whatever the fed comes out. i think if they remain that's actually really bad for the banks because it means the

fed is too worried about rates going higher. that's where you have a conflict of events. if your oil call is correct, okay, and the fed remains worried about the recovery here and they're not ready to raise rates, i think our whole economy could be in for maybe a double dip. i'm not saying it will happen in one second but the stock market should participate at soanticip point. and the banks will be right there. >> got a question out there. send us a tweet. we may read it later in the show. check out wour website. it will change our world. >> currency a problem. frankly the best companies will figure out a way to manage it. >> maybe not for apple. but tech guru dan niles says it could be a problem for another large tech stock. tech traders on another bounce that could be bittersweet. we'll explain when ""options action" returns. "options

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your currency is clearly a your currency is clearly a problem. the best companies will figure out how to manage it. >> that was apple ceo tim cook on the tenth anniversary of

money. not sounding too worried about the big dollar rally. should you be? dan niles is senior portfolio manager. recently called mr. technology. i call him dan. good to have you with us. certainly we've had a drum beat of analysis with the negative currency impact. barkleys, hewlett-packard, deutche bank and tesla today. is this a concern of yours? >> yeah, it should be a big concern for everybody. i think the one thing the analysts aren't focused on the way they should. everybody is dealing with the fact that if you're selling something in europe and you have to translate it back to the u.s., you're losing 13% or so year to date. about 25% year over year. and that's simple math. the bigger problem, which people haven't really dealt with. if the dollar stays up here, a lot of companies have to reprice their products. so you're right now dealing with a currency translation effect.

anything you're bringing over from asia or europe you have to translate back to fewer u.s. dollars. the bigger issue is when you have to go through and reprice your products because customers overseas can't afford or don't want to afford it or becomes less competitive because effectively with the dollar up 26% year over year as of today, you've given all your products a 26% price increase, and that's a big issue, if you're an international competitor. so that's the big problem i see that people aren't focused on. only a few companies have pricing power like apple to get through that. >> would you agree with tim cook in that the best companies firing on all cylinders, that currency is not a big issue. if the companies like a hewlett packard or ibm that might really see the impact? sn>> yeah. i think we have to be careful with that. there are a couple of pieces to it. one, is do i have a unique

product that people desperately wasn't. to some extent apple is benefitting from the fact that they haven't had great products. that's why their revenue growth slowed so dramatically. and the new phones they introduced are great because everybody's been waiting for sakes inch, 6 1/2 inch phone. they can get away with it. the second piece is if you're a consumer facing company, the consumer has a lot more money in his wallet because of the same factors that oil has been crashing that you were talking about earlier. now, if you're not in that boat and selling more to corporations or government et cetera, like you mentioned hewlett-packard which has a big business like that. short ibm again, more corporate facing, or ge, which are also short, you've got those issues that affect those companies. it's a lot harder for them to get out of it. because they're sort of competing internationally. hewlett-packard brought it up where you have the japanese

competitors now able to take advantage of pricing. they had to reprice the printers. they talked about that. and on the press release, they mentioned currency. not sure what they'll end up saying. i will tell you, micro processor prices may need to be cut in the future to keep demand up. >> we were talking about apple here. you talked about this upgrade cycle and there's demand throughout the world for it. when we get to a point in the next couple of months and the demand for the upgrade in north america and europe wanes a little bit, much of apple's growth is going to come from overseas, china, and so to me i have a hard times squaring the circle here, that if much of the growth will come in the back half of the year right, from like emerging markets with china, how do they withstand the price increases? who knows where china's currency is going to grow? if the peg is broken again. given the next six months so i'm hard pressed. tim cook's answer was very nonchalant in my opinion. i know they have very sophisticated hedging programs.

let's remember, this is kind of a luxury product that we're dealing with in the iphone. >> well, i mean it is. here's the way you need to think about it, i think. is the amount of people that upgraded last quarter, i believe they said in the u.s., in terms of the installed base was low key. that's a very, very small number. so i completely agree with this you that international growth you have to be worried about. they talked about on the call how they repriced products in russia. but they still put up good numbers. the good news is there's so many more people left in the u.s. to upgrade. and obviously we're not dealing with currency issues here that that helps you get through the problems, and also you get a little bit of extra revenue kicker in here with things like the watch, that i'm not necessarily a big fan of. but all those things on the margin will help them get through better than others. but clearly through the back portion of the year as more of the u.s. has upgraded, you get towards the fourth quarter, that may be a bigger problem. i see the dollar going higher from here. this is becoming a bigger issue

as you get further out from the year, especially as the feds raise rates, which puts more pressure on the dollar. >> dan, thanks for phoning in. we appreciate it. dan niles from alpha one. ibm is down $40. >> about to take out the lows again. >> 20% revenue decline. the streets have been looking for increases, which is totally fiction. this is terrible. it's terrible. 50% of sales come from overseas. >> is it still a short, though? >> yes. it's terrible. >> all right. coming up next, bill ackman is back on the attack. why are options so big on herbal life? we'll tell you when "options action" returns. hey mom, you want to live by the lake, right?

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welcome back to "options welcome back to "options actions." we have breaking news. with regard to changes for the s&p 500 scheduled to take place next week. first of all, henry shine, currently the s&p 400 will go into the s&p 500. will replace care fusion corporation. that will happen after the close of business on tuesday. the 17th of march. three other changes will happen on friday.

the 20th, and that is equinex. will replace danbury resources in the s&p 500. sl green realty will replace neighbors industries, two oil repla replaces. and two happenes brands will replace avon products. four changes happening. melissa. back on over to you guys. >> bill ackman was on cnbc on reports that they are being investigated by the fbi. those reports sent shares highly sharper and sent off a flurry of options buying. what did you see, mike? >> yeah, we saw well above average options activity today. seven times the average daily call volume. a lot of it was the ones that expired today. we saw people going out and purchasing the 37 and a half calls that expire next friday. i think it's important to note in a situation like this, it's people reaching out

for a sharp market reaction. this is not a bet, folks, that herbalife's problems are over. it was an initial flurry. >> a spurt and burst higher. it faded all day long. just a few people trying to speculate and catch a pop. >> does this tempt you at all in the trade? >> my goodness. you know, ackman was cool as a cucumber. he started at cnbc, he made the rounds. doesn't appear to be worried here. he's saying manipulation is on the other side. to their lobbyists are working overtime. his people are working overtime. and then it closes the way you guys just mentioned and the conviction in the the options market, it was a lot of short data stuff. so to me it seems like a nonevent. i think we'll see this lower in the next couple of months. coming up next, the final call for the optio"options acti"

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♪ all right. ♪ all right. time for your tweets. "if you are short ibm would you buy puts on oracle going into earnings?" and oracle had a very nice day today. >> yeah, it did. they report next week. the options market is implying about a 5% move. that's that's how much it's moved on average. last quarter dez 17th, they reported revenue s revenues 5% . the euro as we were just talking about, is down 15%. expect worse guidance. here's the thing. it's kind of in the market. has it been down in sympathy with hewlett, with intel? i think you have to be careful. i wouldn't isolate the event. i would look out to may if you're looking at puts, maybe the may 41s for a buck 15. >> carter. >> when a dividend is too good to believe. it usually is. bp 6.8% yield. i would not trust that. >> mike kuo. >> when the options premiums are higher sometimes there's a really good reason for that. bp is that situation. you don't need to bother with

the spread just buy those july 36 puss puts. >> dan math jathn. >> dan math jathn. >> yeah, jpmorgan, april 60-55 put spread. >> looks like our time has expired. thanks so much for watching. i'm melissa lee. for more "options action" check out the website, optionsaction.cnbc.com. see you back here next friday at "mad money" 10th anniversary edition. ouncer: the following is a paid presentation for p90x3 brought to you by beachbody. [ bell tolls ] [ clock ticking ] [ dramatic music plays ] >> announcer: do you wonder what it would be like to be in amazing shape? [ pulsing ] do you look in the mirror and wish you had a six-pack? don't you want a body that can perform like this and look like this at least once in your life? [ air rushing ] well, now, you can get that body... faster than ever before. you don't need a gym membership or fancy equipment, and you don't need a lot of time. you start by doing wth