we are live at the nasdaq marketsite and look who's joining us this half hour. guy. welcome to the desk. >> this is my second go-round. >> we've also got dan and mike. could be a crazy show. while they're getting ready, here's what's coming up. >> i can't take it! >> you're not alone. but we've got a way to protect your portfolio for almost nothing, and we'll show you how. >> we're out of gas. >> and that could mean opportunity for one hot stock. we'll tell you what it is and how you can profit. and --

>> it is something that could move the stock and we'll tell you what it is. the "action" begins right now. here's the question on a lot of traders' minds. are we going to retest lows and what names could lead us there? let's get in the money and find out right now. dan, what do you think? >> i think you have to go back and look at august 24th and i think you have to look at that mini flash crash that morning when we opened in a panic and really look at what performed well and what just was a bloodletting. there was a couple of names that stuck out to me. when you think about a stock like home depot or think about starbucks, these were companies or these were stocks that had just recently made all-time highs. they opened down 20%. i don't know how much traded down there. they did spend some time at these levels. and that was a really scary thing. there were some other stocks like disney and apple that also traded down about 10%, 15% but they'd already been trending much lower. to me it's stocks like home depot and starbucks i want to

keep an eye on if the s&p's going to go back -- >> there wasn't enough volume. there was no way for people to liquidate their positions. there hasn't been a lot of liquidity in these violent moves. and it wasn't all-time highs in terms of prices. close to all-time highs in terms of valuations for a lot of these stocks as well. here's the question. if you have a really stable investment and it pays you 5% a year you're going to be comfortable with them if it doesn't move around but once it starts whipsawing you might think i want a higher rate of return than that. it takes multiples lower. >> i take umbrage with the flash crash. i don't think it was that at all. and i don't think it was that disorderly. i thought it made sense in the context of what was going on. i do agree a name like home depot could be one of those names that takes us to the next leg lower which i do think we'll see. i think we will test the 1820 level, which was i believe the october 14th level. we'll see what happens if and when we get there. i'll say this, though. home depot is only about 5% off its all-time high on what has been a pretty lousy tape. i think the world sets up really nicely for home depot despite

what i think about the broader market. >> home depot's sort of an interesting cross-section because as you mention td could take us a leg lower but a lot of people like the home builders and the housing sector. >> that is a great point. home depot is a stock most closely associated with stuff working the best in the u.s. economy. but here's the thing. apple just a few months ago, people were just saying there's nothing that can touch this stock and all of a sudden this is the biggest stock in the entire market. and it did get disconnected from the market making new highs and also just the positive sentiment in the stock. so to me i actually think that these stocks pose risks because they're crowded. that's what happened last monday. and i think if we go back and break the lows from last week i think these stocks are going to go back to the levels that they opened on that monday morning. that they opened on. that's a really important point. >> you know, the home builders are one of the spaces -- we talked about them performing as well as they have. but we have a lot of the hottest sectors in real estate right now that are getting to pretty heady levels at this point. you take a look at bay area real estate, my own town of austin. these are cities -- new york

city is obviously another one. these are the kinds of things that should get people a little bit concerned. you want to race out and buy another apartment right here right now at the current valuations, you probably don't. and if you don't feel that way about apartments you probably shouldn't feel that way about home depot either. >> let's get back to starbucks because that's your trade. >> it's only down about 9% from the all-time highs it had just made just a month ago here. and it is in a very, very steady downtrend. if you look at the chart here, we have that. that's the one year. and it's made a series of lower highs and lower lows right there. the circle right there is just above 2900-day moving average. 40 bucks. that's what i want to target over the next six weeks. when the stock was 54 1/2 i looked to the october expiration. you can buy the october 52 half, 47 half put spread for $1. 52 half puts for $1.50, selling one of the october 47 half puts at 50 cents. that costs you a dollar.

that is your max risk between 52.50 and 51.50. you make up to $4. down to 47 1/2. that's your max gain. that's the level i'm targeting. i think the s&p's going to make new lows in the next few weeks and i think stocks like this are going to go back to the levels they opened on on august 24th. >> guy. >> what's interesting is to me all consumer confidence is is where is the stock market. the stock market's doing well, consumer confidence will follow. consumers get scared when you see uncertainty in the stock market. i believe that with all my heart. that said when they get scared guess what they don't do. they don't spend. one of the first things they'll start cutting back on is very expensive drinks like starbucks. it's not cheap. i know what dan's saying about the market retesting those levels. that trade despite heightened volatility makes a lot of sense. >> i see the long lines at starbucks. i have a hard time believing that anybody's going to stop going. but what i do believe they might stop doing is buying the stock. and what is also interesting is at its current valuation it's a little bit ahead of itself even after having fallen as far as it has. you picked some interesting

strike prices here. because 47 1/2 actually gets you back to a valuation that it's traded at historically. and to me that makes a more interesting entry point for the stock. >> says the man who spent $2,000 on a camera recently. >> just one last point about guy's point about heightened volatility, that's what we're doing about a put spread here. option prices are elevated. you want to look to offset some of that decay for the long premium side of it. >> moving on, consumers should feel some relief at the pump this holiday weekend. jackie deangelis at the new york stock exchange for what you can expect. hey, jackie. >> good evening to you, melissa. that's right. consumers are going to get a break, and there are millions of them hitting the road this weekend. actually, the lowest gas prices for this holiday since 2004. the national average for a gallon of regular gas, $2.42. that's down a dollar from a year ago. 22 cents from just last month. the reason for these lower gas prices, refinery upsets, they're working themselves out. and also maintenance is slowing down. also this time the fall is when the blend of gas changes. we get a cheaper fall blend of

gas. and finally, crude prices down 20% in three months, dragging gas prices down. aaa thinks prices could go down to two bucks by the end of the year. but still there are those skeptics out there that are still cautious, given crude's recent volatility. they say if crude goes back over $50, pump prices will follow. melissa? >> jackie deangelis, our thanks to you. refiners have been working for quite some time but seasonally it's not a great time for that trade anymore. >> seasonally it's not a great time. we had an analyst on the other day talking about exactly that but i think it's more than just seasonality. you've got a pretty significant drop-off in a lot of these refiners. to me maybe now the bloom is in fact off the rose. i think for example tesoro, tso, needs to recapture $95. and valero similarly needs to recapture about 8% to 9% higher from where we currently are. the trades worked for a long time. they don't seem to be working now. and i still believe despite the fact the lvx went from 60 down to 50 over the last two days that crude oil is still headed

significantly lower. >> the street hates the refiners right now. you have to say that. as a group they're trading at less than 10 times earnings. which is about half the valuation of the broad market. and when you see things that are really cheap, just like when you see stocks that have ludicrously high dividends, what they're telling you is they don't think it's going to last, they think the spread's going to come in, the refiners aren't going to be making as much money as they are right now. >> moving away from the oil and gas trade if consumers have more money in their pkts it's retailers, consumer discretionary in general. >> it's been a dialogue going on for years since crude topped out. it hasn't held up. we haven't seen it. we were told a year ago you've got to wait 6 months, 12 months to see it -- so i don't see it. i just think that is a big myth right now. so lower for longer, i think this is the stuff guy's been hitting on. it means deflation. it's not -- i think the longer that crude stays in this level and if it goes back to 40 i think it's just a bad thing for the economy. kind of like the ten-year yield being at 2.1%. >> i think you play this from the perspective that the retailer's going to keep -- the retail guy's going to continue

to do what they have been doing. they're probably not going to change their behavior that much over the course of the next six months. i don't think this is a place where you run out and you buy stocks, start buying call options and betting for a big rebound with weak equities here. i think what you do is play for some of these to trade sideways and look for more attractive ways to enter them. i'm looking at darden. it's one of the cheaper on the casual dining said, trading about 20 times earnings right here. i'm not interested in buying this stock or frankly any other in the space right here but one of the things you could look to do is sell the october 62 1/2 put at about a buck. you're going to collect a 1.6% of the strike price by doing that. if the stock comes in you're going to be buying at a more attractive level than it is right here. and frankly i think we're probably not going to see stocks take a really hard rebound right now. >> using guy adami's line of thinking, the guy who won't buy expensive drinks probably won't want endless breadsticks either. >> darden has had a pretty significant run-up into the summer. they were going to spin off some ofs their real estate holdings. then the board said wait a second, that ain't going to

happen. and you've seen the pullback. maybe you're being paid enough to sell these puts. i hope you are. because i do think you're going to see the levels mike just talked about on the down side. >> but this is exactly how you guys should be trading options right now in a market like this, where voles are really high. here's a company that like mike said is not particularly expensive. on a technical basis it's held this trend line, it looks very, very healthy. it did not get crazy out of hand last week when things were really -- so mike's placing a limit order almost 10% below where the stock is over the next six weeks. if nothing happens he takes in that premium. i like this trade here. >> and how much are you getting paid to answer your question. just over 14% annualized. and if you're going to take a long risk on equities it's probably a level you want to do it. >> got a question out there, send us a tweet @optionsaction. if it's nice we might read it later in the show. for "options action" there's one place to go. optionsaction.cnbc.com. options news, videos throughout the week, and exclusive trades. so what more could you possibly want? check it out. here's what's coming up next.

♪ don't you worry >> that sums up the market. but we have a way to protect yourself and it won't cost you much. we'll explain how. when will this company pick a ceo? >> i can't wait for the world to see it. >> you're not alone, jack. and we'll tell you what it could mean for the stock when "options action" returns. here at td ameritrade, they work hard. wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this.

ahh... steve, other than making me move stuff, ces. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this. another wild week of swings for the market. the dow and s&p closing the week down more than 3%. that has the vix jacked up making it more expensive to buy protection. but our own dan nathan's got a way to do that for free. what are you looking at? >> listen, when we talk about

index etf protection oftentimes the premiums in like the spy that tracks the s&p 500, they're very cheap and they look very cheap. they don't have the idiosyncratic risk of a single stock here. oftentimes when you're looking at s&p -- spy premiums, they look cheap but in volatility terms they're actually very expensive. so after we've had a vol spike that we've had, we're going to look for trade structures that actually look to mitigate some of that decay if we have a market that settles down a bit. i just want to look at a chart of the spy. we all know what it looks like from 2012. it was just straight up. we had some very minimal pullbacks along the way. the largest one was actually last fall, we know what happened there. and here we just came down, almost on a match low. i suspect as we were just talking about that the s&p which is now only about 3% off of last monday august 24th low, it's going to go down and break and when it breaks it could get kind of ugly. and some of the stocks we were just talking about, the starbucks, the home depots that were down 20% that one day, i

actually think the s&p has potential to be down 20% from the highs we made a couple months ago. here's the chart of the s&p. i want to target that level. this is that move in options prices. implied volatility in the spy making it very difficult to just go out and buy put options. we want to look for things to sell against it to mitigate the high volatility. here's the trade i was looking at today when the spy was $193. you could look out to october expiration. and i want to target 180. that's 1800 in the s&p. that would be below last week's lows and below october's lows. and i wanted to find a range down to about 160 if the thing really comes apart. when the spy was 193 today you could have bought one of the 180 october puts for $3 and you could sell two of the 170s at 150 each, $3 combined. that spread, the 1 by 2 spread is even money. how do you make money on that trade between 180 and 160 to the down side you could actually

make up to $10. your max gain is $10 at 170. and then the worst case scenario is that you would put the stock at 170, you have $10 in gains but below 160 you have losses. that's down a whole heck of a lot, people. i'm targeting 170. that would be 20% from the recent highs. >> this is the kind of thing you want to do when volatility gets high, options premiums get high. you want to be a better seller of options taking advantage of some sort of strategic levels and i'll let guy speak to that. one of the things you can do here is put that put spread on one up and look for opportunities as the market declines to sell some more down side puts, to take in additional premium. another way to play if you're uneasy about that down side level. but bear in mind you're not really going to be effectively put the market until it gets down to 160, which is a significant discount from where it's trading. >> when i was in college in the early '80s i walked into a grad school class and now i remember what it felt like because this is way over my head. so i'll talk about the broader market.

what was different this week than about october, remember, you had mario draghi this week sort of jawboning about potential qe. six months ago the market, the s&p would have been up 100 points on something like that. to dan's point it does feel a little different. 1820, that october 14th low to me is in the crosshairs. it's imperative we hold that level or you might see the levels dan's talking about, which probably comes in around 1570-ish. >> dan? >> and just lastly, this is so far out of the money. these are not trades we generally like to do, is buy options way out of the money. but what i've done here by buying one of the 180s and selling two of the 170s, i've defined a range where a, i have not paid any premium. if nothing happens from here on out it doesn't cost me anything. if we do get a move back to 1800 this is going to be a very profitable trade. quickly, it's more a trade of the environment rather than a trade i like to do often. >> coming up next, who will be twitter's next ceo? we'll tell you which one of

those guys could be best for the stock when "options action" returns. here at td ameritrade, they work hard. wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this.

ahh... steve, other than making me move stuff, ces. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings.

impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this.

back six months ago and say $28 was dirt cheap. >> moving on two, weeks ago mike made a very gutsy call in apple. specifically he sold the november 95 strike put for three

bucks. after that flash crash the stock did rally. staying short with the put? >> i am still short that put. everybody followed along on the 24th or 5th. you got a lot better price when you sold that put than i did because those things went to six bucks the very next day. i actually think that's a pretty good spot. this is a situation where the level at which you'll be buying this stock if it's put to you is pretty compelling. and i like the thakt fa premiums were made elevated. this is a trade you can still do if you haven't yet. >> i would also say next week you have this event. i think it's going to be a real snoozer. and i think you can sell options premiums against your long stock here to add some yield. if i was long stock i'd be looking to sell up side calls against it because to me vol's going to come in. but i also -- the down side, i want to be very careful. this stock's got 100 written all over it at some point between now and the end of the year. >> of course i'm going to ten it at 92, though. that's where i would effectively buy it. if you're long the stock and you sell some up side calls, that position is very equivalent to the one i'm in. >> 92 i think was the low print that day.

103 1/2 is where it held. to me that's the line in the sand. dan's been spot on on this thing. if china was your bull thesis on the way up you can't discount it on the way down. >> even though tim cook wrote an e-mail saying everything's all good? >> you know what that e-mail felt like to me? >> what? >> subprime's contained. i'm just saying it smacked of bernanke in 2007 saying -- >> he didn't -- >> screaming all is well. >> i didn't like that e-mail at all. >> coming up next, your tweets and the final call from the options pits. here at td ameritrade, they work hard. wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that.

for all the confidence you need. td ameritrade. you got this.

ahh... steve, other than making me move stuff, ces. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this. time for a tweet. this one says "i'm thinking about the iwm september 108 puts. what's your opinion?" mike? >> i would have to say the same thing dan was saying when he was looking at spy. options premiums are really elevated in some of these places where people are looking for insurance. up 30% since the end of july are

in this case. you might want to consider a spread or if you don't just make sure you leg into a spread very quickly if we get a little move to the down side. >> hope you're thinking about buying them and not selling them because i think we're going to test that october low which was 103 1/2. dan's been talking about the broader market. the russell led the s&p. i think it's headed for 103 1/2. >> and i think you have to be careful with the small caps. i don't like the xbi. that's also the s&p biotech index. those two have vaded in lock-step over the last couple months. >> another tweet. "how about selling a low 60s put and going long a call on alibaba?" dan, what do you think? >> we know that in the next couple weeks there's a huge lockup, the stock is down 40% on the year. it's down 50% from the highs last year. it's in uncharted territory. we don't know what's going to happen with this stock. i suspect it's going to get a bit sloppier especially if china remains sloppy. i think it's important to remember that these guys are very tied to the chinese economy while everything was fantastic last year during the road show, it's really bad right now. so i like the idea of a risk reversal rather than buying stock here. you're defining a range where you get long on two sides.

>> i was going to say that's an extraordinarily interesting strategy. is there a name for it? and it's -- >> yeah. it's called risk reversal. >> risk reversal. >> in terms of alibaba, though, it is going to be held hostage by what goes on -- >> and we saw a few minutes ago on the "fast money" show -- >> the "fast money." >> the chief accounting officer of yahoo!. you wonder on a friday before labor day what does it all mean? i know mr. colin gillis addressed it, but it just smells funny to me. >> you're going to sit here and try to catching a falling knife. only 5% out of the money? that doesn't seem like there's that much room for error right there. i might look a little further out and down. >> it is time for the final call on this friday before labor day weekend. guy adami, what do you say? >> i love this. >> you do. >> monday obviously clearly a holiday. we could come back on tuesday, the s&p could be literally 100 points on either side. china could cut rrr once again. all kinds of things could happen. but volatility, folks, is here to stay. i continue to take my cues from the commodity market. >> get yourself some room if you're going to sell some down side puts.

dri i'm looking down at least down 10%. >> dan. >> starbucks sell rallies. >> our time has expired. i'm melissa lee. thanks so much for watching. for more "options action" check out the website. otherwise have a wonderful labor day weekend. do not go anywhere. "mad money" with jim cramer starts at the top of the hour. my mission is simple -- to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere and i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i'm just trying to save you money. my job isn't just to entertain but to teach you. call me at 1-800-743-cnbc. or tweet me @jimcramer. nobody -- i repeat noek nobody