. hi, everybody. coming to you live on times square on a very tough day for most investors. the traders are getting ready. while they're doing that, here's what's coming up. >> that's what stocks did today, but fear not. we'll tell you how you can still by protection on your portfolio. plus, that's what crude is doing and it's about to take down the most important sectors in the market. we'll tell you what it is and how you can profit. and there's something different about the public's interest in tesla. here's a hint.

and it could spell trouble for the stock. the action begins right now. >> all right. let us get right to it on a friday night and here is the question. if things continue to get worse and it is a big if, but if they do, where do you put your money? let's get in the money and find out right now. and dan, we'll begin with you. >> i think you want to go with some safety here. we know a lot of you guys that have been talking about, things that have worked all yearlong tonight to work. some of those high growth, high valuation tech names did get hit today. i think they'll hold in between now and the end of the year. if we get a rate increase i think you want to go defensive. i think you have to go back to that play book where rates are going to be low and you're looking for field and that's one of the reasons we'll be talking about utilities. i think utilities is the space to go to because you're going to get the increase possibly. >> isn't that the contrary side?

people say well, dump the yield stocks. it's going to eat into that yield and make it less attractive. >> utilities have been viewed as a place of safety and one of the things to remember is yes, there is a place for yield but the other thing is that the di tend yield that utility stocks provide actually goes up. it's index to inflation if you will, so you don't need to actually sell utilities simply because you think there's going to be a rate hike. >> the rates aren't going to move that much. and big utilities, telephone, verizon, this kind of stuff is going to hold up well in the echtd of something more sinister. >> or names like johnson and johnson as well. these are the types of names that are going to move 60 to 70% of the broad moves. >> we have a lot of sectors that do very poorly.

we've seen some the things firm up a little bit. then we had this move in the dollar that really surprised a lot of people in the last week and a half. no one thought that it could go down. it's gone down into the rate hike next week, we probably have the dollar move back up and then you want to think about the real kicker. it's going to be a very dovish comment out of the fed after they do that rate increase so look at the yield and the 10-year treasury. it went down this week. >> the reason it's not going up is this is going to be the shallowest raise hikes that we've seen and it's not going to get back to historic level. >> total aside here and i'm going to channel larry kudlow for a second. we're used to this 25 basis point thing. is it a possibility they could go 12 basis points? >> and maybe there's just one and maybe they come back. maybe this is a reverse and as of now it doesn't look like they

know what they're doing. >> the utf on the sector here, we've got a couple charts. here's the long-term, the 7-year chart from the 2009 low. it's right up the uptrend. it's at a very important level here. this is one of the reasons if you want to make a directional bet, it really has to hold here around 42 bucks. then there's the two-year chart. i think you have risk on the downside to 40. if things get ugly you have potential for a move and back up to the mid-40s. i think you have a risk reward relationship of lose one, possibly make two. so the trade today when the etf was trading, by the february date you have profits above 43. the stock was at 46 just a couple months ago. i think you'll want to be defensive. i think you want to be u.s. domestic and i think investors are going to come back to the you tulties sector over the next few months so define your risk.

make what i think is a high probability bet. >> i agree with it. you're risking very little. you get to carry that all the way into february. the other thing is that a lot of the damage in excel and utility space has already been done. it's been a weak speck toone al. >> if this were something else and you didn't know what it was and dan said yeah, you'd probably draw a head and shoulders chop on this thing. it's because it's the utilities because it has the break potential of some many things right now. >> good trade there. boring space, but hey, you save money, make money, boring can be very sexy. all right. lost in all the oil and energy headlines are the financial stocks. they're getting almost no attention, but guess what? that group, the second worst we are former this week, more on

the financials. >> that's right. a very tough week for financials. this week some of the big losers include well, the big banks. jp morgan, morgan stanley losing 3 to 5%. this despite rising expectations of a rate hike being announced next week. only three companies in the financial sector was posted gains for the week. >> all right. thank you have much. let us dive in a little more into the financials. why are you taking a closer look at goldman sachs? >> in a way i've picked this one and it could be a lot of names. the point being that the banks have not acted well of late and goldmann is underperforming the banks so with that i wanted to start with maybe the problem or what we all know is going on. this of course is the etf that

most closely tracks what's going on in the high yield bond market and i would say the word ugly comes to mind or maybe something along the lines of train wreck, disaster, crisis. here is the picture of again, hyg relative to the s&p. and we know the correlation broke down when qe basically started the equities, been able to continue and yet, hyg has not bought into the extra help from the fed, if you will. so i want to look at goldman here welltive to the s&p. the s&p is outperforming hyg by a great margin. so what my eyes sees is this and you can draw your lines like that with a break in trend by all accounts, no way to characterize it and a throwback right to the trend line and starting to struggle.

you can also draw it with your head and shoulders top. to my eye we have a risk of breaking here, we close at 176 and go to about 160. that would imply about a 7 to 9% move depending on where you get your tradeoff. >> all right. worth a look. mike, what is your take? what is your trade. >> so looking at it fundamentally if all you did is look at their earnings it doesn't look that bad. 17.50 a share. it's one times book value which is not expensive for the financials but it is more expensive than the other stocks. so one of the things that everybody has said that's really bullish about financials is that the rate hike situation would be bullish for them. the problem is we're not expecting really strong rate hikes. if the market is starting to roll over here that's bad for trade and sales revenues and we have a lot of problems in the

trading market. when i take a look at this on top of the fact of their balance sheet, look at a point spread, i am looking at the january week ending point spreads here. i'm looking at is 175, 160. the reason we're looking at this, there are no february options in goldman sachs. you can pay $4 on that spread. this is a way you can make that bet to the 160 target. >> goldman's down now almost 20% from the highs just made here. i think it feels like a bit of a press. things got really ugh lig this week and a lot of different risk asset classes. we know we have this event on wednesday. if we continue to go down into it we are likely to have a sharp snapback. we had a massive 2% rally last friday. it kind of now bookended a little bit with what we had today but to me you have to be

careful pressing shorts. >> when you see elevated volatility, one of the things you're thinking is to sell, this is a situation where you have a three to one payoff. >> but any trade that we talk about tonight no matter what it is, but especially the financials, you've got to remember, folks. wednesday is fed day. we could get the first rate hike in 9 and a half years. isn't that sort of the overhanging -- any trade we don't know what they're going to say or do. >> all bets could be off. you could have a 4% reallily. >> they could raise rates by 50 base points. >> and it's very likely going into the fed we will literally be frozen on monday and tuesday as people wait. >> just remember that comes down and there's a fine program at that hour. >> remember, once you are safely in front of a computer check out

our website for everything options action. that is options actions point cnbc.com. in the meantime, here's what's coming up next. >> that's what's happening to your portfolio. but fear not. we'll show you how you can still buy protection. >> plus. >> honestly, we're out of gas. >> that's what summer is saying about the shares of tesla. and we'll explain when options action returns. i'm here at the td ameritrade trader offices. ahh... steve, other than making me move stuff, 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.

here at td ameritrade, they work 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. that was supposed the chief economist warning that the market volatility might continue all through next year. it wouldn't be a surprise. hitting 25 for the first time in two months. this as the s&p 500 closed its worst week since august. so if you are looking for monetary protection for your portfol portfolio, what should you do? mike is going to break it down at the smart board. >> we take a look at what was going on back here at the credit crisis, it may not look like it's all that high. this is well above the historical average. it has obviously been recently much lower. so one thing we want to look at is the spread so that's the way to mitigate the higher cost of options. when you're thinking about your

portfolio insurance, you have to think about number one, how long do i want that insurance to last, and number two, how much protection do i need? do i think the market could ogo down 20%, 50% like it did in the credit crisis? and also we have to keep an eye on what we're going to spend. one way we can do it is put it in a spread. i'm looking out a little over 90 days here. it gives us about a quarter to digest everything from the rate news to the holiday sales. we can look at buying at the money put right here for $8.15. we're spending about $5 to do this which is also as we always like, about 25% of the distance between the strikes. an important point i would make as well, if we take a look at how the market has behaved, this is a chart going back to the 60 aes. what we're going to find is that really big declines are relatively well. we had one in the credit crisis.

we had one in the crash in 1987 and we had one in the market in the 1970s. other than that, most declines are actually contained to less than 20% and average closer to about 10% which happens to correspond to that 1.80 strike put that we sold. >> i think when it comes to hedging you want to be tactical. i think mark is looking out to march expiration. i like the width of the spread. i'll just make one other point. he's talking about the s&p 500. it should really move on its earnings. when you think about what earnings expectations are they're expected to climb 4% year over year. that would be the fourth consecutive year over year quarterly decline. that chart is interesting. on august 19th the s&p 500 on the same day closed below its 200 day moving average. i don't know what that means but i know back in august we dropped

10% in a straight line and it happened again this week. >> and this is possibly the best large aggregate. if you look at others, the value line, it is the s&p 500 plus 1,200 of the next largest companies but they're equal rate. that index as of now is the same price it was two years ago. it's something else. the question is how bad is it going to get on the downside? what limit -- zero. >> the interesting is if you feel it spike like this and you feel like the markets come off sharply, the important thing to remember is we're not that far off of the highs so it isn't like you're coming in and hedging after the bomb has gone off. if there is something going on here, we were only seeing the start. >> can i say something controversial and possibly offensive? does the vicks matter anymore? we've all been doing this a long time. guys i talk to say listen, the way the options market is priced, the options volatility

and the index is something to note, but it's not what it was. >> well, first of all i would have to take issue with that in part. one of the things that it does, it's not just looking at the money involved because it looks at out of the money put prices. what that tells you is what market participants think the credit risk is. one of the things you need to do is think about the capital structure of business. what that's telling you is options market participants are looking at credit. if you want to see who looks down and understands the risk that the market faces better than anybody else, don't look at the guys that are out running and getting bullish buying google. look at the guys that are worried about the downside. >> and we learn from the market crisis is that there were a lot of people who weren't looking at the vix and there's a lot of other vehicles to look under the hood and see where the risk is

in the market or what it's pricing. >> the vix was at 42 back in 2011 and we are well up in the stock market since then. >> on deck, tesla stock fell more than 4% today and there is an unusual trend that might spell even more trouble. we will explain when options action returns. i'm here at the td ameritrade trader offices. ahh... steve, other than making me move stuff, 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.

here at td ameritrade, they work 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.

time now for total recall. dan made a bet on tesla and here's how he did it. >> on options action it's how we make speedy profits, risk less so you can make more. and that's exactly what dan tried to do with his bet on tesla. dan thought tesla's shares were about to stall out, but just shorting the stock? well, you get the idea. so instead, dan bought the march 2, '00 strike put for 13.50. to make money he need it is shares to fall below the price below the cost of the trade.

but shelling out 13.50 just to bet against tesla -- >> that's a big one. >> sure is. so he sold the weekly strike put for 4.50 and created his put calendar. but he did something even better. he made making money easier and here's how. between the 13.50 he spent on that longer dated put and the 4.50 he collected by selling that shorter dated put, dan cut the cost of his trade down to just nine bucks and now dan needs the stock to drop nine bucks below that stock price or below $191 by march expiration. >> thanks for the advice. >> but it gets even better. because the put that dan sold will decrease in value faster than the put that he bought and that means he can do something.

turn time into money. >> that can't possibly be true. >> it is, but there is a tradeoff. because dan sold that near dated put, dan needs tesla share to stay above 200 bucks through december 31st, but below that level by the second expiration and since the time of the trade tesla shares have sped up meaning dan's trade still looks promising. >> now options actions fans all over the world just want to know one thing. what will dan do now? >> and i should probably correct myself because if he does pull off this hyper loop thing he may actually turn time into money. tesla shares fell more than 4% today. dan, first leg of your trade expires in two weeks. >> i think i prefaced this trade saying no one's going to get rich betting against this. that's going to expire at some point. listen, i suspect the stock continues to trade around here and it's going to be worthless.

you're going to have to make a decision whether it's lower and you leg the thing into a vertical put spread because you see further downside. i think you see 200 in the offing. i've been tracking google trends a little bit. they released model x here. i think we have a chart of that. we saw a huge spike of interest earlier in the fall when this thing came out. look at the red one though. that's the model s. so when we start to get some q 4 deliveries people may be a little disappointed with the model x deliveries. >> thoughts on the trade, thoughts on the car? thoughts on tesla? >> the trade is working out. exactly what you wanted to happen is exactly what's happening. if the stock drifts to 200 by if expiration, that's exactly what you wanted to happen. you could also roll that december out to january and create another calendar.

>> around 200. you've got your eyes on those minor lows and that's a reasonable sort of downside objective but it doesn't look like it's got much more than that. >> the model x, they know that there was going to be limited deliveries, that sort of thing. it could blow up. it could be a massive thing in the new year and this is one of the reasons why this is a tactical trade. >> not a trading conversation for tesla. but if somebody has looked at them, there's now a used market. you don't necessarily have to buy a new one, which before you did. okay. up next, the final call from the options pits or at least times square. i'm here at the td ameritrade trader offices. ahh... steve, other than making me move stuff, 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.

here at td ameritrade, they work 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.

what are we going to do with the eight seconds left in the show? we will see you next week at 5:30 eastern time. have a spectacular weekend, everybody. >> announcer: the following is a paid presentation for cize, brought to you by beachbody. >> get ready to cize it up. [ beat drops ] [ people cheering ] are you ready to dance? 5, 6, 7, 8! >> ♪ on my way in i'ma take it ♪ ♪ walk straight i'ma put it on a playlist ♪ >> my name is shaun t. welcome to cize, the program that's gonna teach you how to dance. >> ♪ girl, jump with the rhythm ♪ >> in 30 days, i'm going from a non-dancer to being able to do six routines. and i would say i'm a dancer now. >> i was not a dancer when i