yikes, another tough day for stocks as the dow and s&p closed at a low on a frantic expiration friday. the guys will make sense of it all. here is what's coming up. >> no! >> that's what traders said about stocks today but we will show you how you can still protect your portfolio. plus is mcdonald's run getting a little long in the tooth? ♪ >> well, maybe not like that, but we will show you what it is that has some traders having a mac attack. >> and how would you like to get

paid for shares of twitter for just 18 bucks. we'll show you how. the action begins right now. >> let's get right to it. with the chaos in the market today how can you protect your portfolio? dan, obviously a huge expiration day. how did that play into the selloff? >> there was a lot of open interest in the spx, that's the s&p 500 index as far as options are concerned. that expired today on the opening and then we had spy options that expired on the close. i think a lot of volatility had to do with the differential. we know a lot of people use futures to hedge on both sides of that. that helps exasperate it. i think that the rally that we had on wednesday felt like that's what you're supposed to do when you're given what you expect from a fed and we closed on the highs that day, you know, on thursday and friday, then it was lights out. i think the realization that the fed was pushed into doing what they had to do, they had to deliver for credibility sake and the fact that the global economy, the thing they were worried about in september that us cad them not to raise at the time still pretty bad and the

data here is bad. to me i think it sets up for a very poor entrance into 2016. >> so the options expiration, mike, exacerbated the selloff that we saw today. should we not be as concerned about it because options played such a role in this? >> no, i think, look, we're transferring our concern really. we had a technical reason why the market was under some pressure when we broke through 2025 today because that created a wave of selling by people who were short that strike. but what we have now of course is the same thing that's flattering the yield curve which is we've got the fed which is basically taking away some of the punch bowl at the near end but the long end of the curve is telling you that the economy ask not so great. if we don't have as much liquidity we should expect greater volatility. >> for as bad as the selloff has been we're basically flat on the week, carter. >> i think the key take away is nothing happened. there's nothing new here. meaning the health has been in

question for a long time. you have high blood pressure, you don't see t but it's hurting the body. the health, the person might look fine -- >> but then you have a heart attack and that's what's happening now. >> we have had cholesterol meaning financials have been struggling for a long time, industries, materials, high blood pressure, dow, diabetes and yet the guy looks fine -- >> are you my doctor? >> you're talking about dan here. >> people are looking at the s&p saying it looks fine. it's been deteriorating for 18 months. 45% of the stocks in the index right now are down more than 20%. russell 2,000 unchanged for two years. now the question is is this new. no. if you're doing good work as a doc you're saying that guy is sick even though he doesn't look that way. the market is i can is and everybody knows it. >> let's take this metaphor a little bit further here. mike, what do you think the patient does next here? what's your prognosis? >> one of the things about all the illnesses that rt car just described is that they can sort

of be the ticking time bomb and it takes a little while for it to play out. if you take a look over the next 60, 90 days, going back all the way to 1960 we have had a lot of pull backs that have taken place over that period of time but a lot of times they are not that severe. we did have a severe one in august, but it wouldn't surprise me if we saw a down move that was probably just testing that 10% bear market level as we just look out 60 days from where we are right now. >> thanks, mike, for the setup there. that's what i'm looking at in the spy, we have a two-year chart. when i priced this trade up the spi was at 20150, 200 is massive near term support. when you go back and look at that chart, 180, that's 1800 in the s&p 500 is the 4re68 that we stopped at in october of 2014, it's the crisis level that we had in august and i think if you're thinking about protecting your portfolio and you have a lot of large cap u.s. stocks here, the spy is a good way to

do that. i think you want to give yourself a couple months. mike was talking about early year selloffs, the last two years we have had two selloffs of 5% and usually they have come from fears of global growth. right now we just had poor data, we know that the stuff around the globe isn't fantastic. if we close down this year it's going to be -- real quickly -- i have to get this one in. >> go ahead. >> it's going to be the second down year in the s&p 500 since 2002. i think you could look to be tactical. if we get a bounce early next week you look to put a trade like this on. the spy was 201.50 i surprised it up in -- you could spend 550 for one of the february 200 puts. that costs you 4, that is your max risk there and that is why 2% of the s&p and you have protection down to 180, that's the level i think that we probably see some sort of spike down to. >> again, this is a pro ex-it

trade for your portfolio. mike, what do you make of this trade? >> i think this trade is exactly the one you want to be doing here if you're lookinger to hedge your portfolio for a couple reasons. the payoff on this hedge is pretty good considering that volatility is slightly elevated here, paying about four to one. the levels dan is looking at are precisely the ones historically you would look to if you think that you are going to be in a little bit of a pull back here. a lot of these stocks are trading at fairly rich valuations, this is happening at exactly an time where we might be seeing other assets yielding better. that would make them a better alternative to equities and i think this is an effective way to hedge your equity exposure. >> i want to know what carter thinks of dan's levels. >> they're good levels meaning we know that you're targeting the prior low as a perspective low and that should be the minimum. there is every possibility that we go through that and many indices are well below their august lows. god bless, put it on, make some money. >> mcdonald's stock is hitting

near all time highs. dom. >> ever since mcdonald's put out that concept of all day breakfast we're going to peg it to just around that early september mark mcdonald's stock has been on a tear. no surprise there. one of the best performers in the dow and also again if you take a look overall at the performance of it versus some of its peers that operate perhaps in some of the breakfast space here. dunkin' brands down that same time frame. denny's, cracker barrel, diane equity, the bob evans stores, all have been negative ever since mcdonald's came out with it. that's not to say that that all day breakfast is driving every single bit of that divergence, it's something people are pointing to as to why mcdonald's has speed a catalyst. the right hand third of your screen is when that divergence

between the s&p 500 and mcdonald's took shape here, it started to outperform and let's talk a little bit about mcdonald's because have a dividend perspective it's still a pretty good play. it's got a 3% dividend yield and that's even with the 20 plus percent run that it's had so far. when it comes to all day breakfast it could be eating the competition's lunch. for more on that story katie little, one of our great retail and restaurant reporters has that story, that full one, online, melissa, at cnbc.com right now. >> thanks so much. for investors the chart looks pretty good but you're seeing some unhealthy patterns. >> maybe too good. too much of a good thing. let's see if we can figure it out. a break out we know, in fact, number two performing dow stock of the 30 and it's all about the performance of course, the golden arches versus anything you want. i mean, this is all, you know, all bad and -- well, here it is.

these numbers speaks for themselves. it is what it is. so the question is can mcdonald's just keep that going? by my work i would say it's overdone. here is more. look at this. okay. on to the charts. now -- and this is the issue. as a dow stock its performance relative to the bench in which it's a major competitor is also part of an issue. long-term, this is nothing short of a blow out, here is our break out from that range it was stuck for four years, but the long-term performance sin credible, the year to date performance is incredible. so this is the october quarter where the stock had a very good result and broke out of a range, basically underperforming the market, 11, 12, 13, 14 and you just now breaking out. we are right now the trend line. so the break out has come and gone and now the questioned is

is that likely to continue or are we likely to fill in this gap? again, i think you're going to break this trend and ultimately get back into the lows and or even fill the gap. just too much of a good thing, take profits, if you own it it's a good one. >> mike, you have a trade on this. >> yeah, i would sell the february 120, 125 call spread, you can collect 1 be $50 for that. it's in the 90th percentile with respect to the price of option. this is a way to collect some premium without actually laying premium out to make that bearish bet. even if it rallies a little bit you still get to collect that. that 120 strike is above the 118 level which is the average analyst price target on the street for mcdonald's. >> does the backdrop of the selloff that we've seen for the past two days change your view? >> the stocks well in the midst of this. i think this one from a situation the chart that carter was showing that three-year

consolidation, sentiment was poor, people thought they were doing a lot of bad things, sales are down from $28 billion to next year, mike said it's trading at a 15 year high pe, discounting a lot. they are in the midst of a $20 billion share buy back, earnings are expected to grow 10% next year. 22 times expected earnings that are declining. i think mike is being generous with a call term spread. i might target 105 on the down side. >> if and as the general selling gets worse everyone gets clipped to mcdonald's is not likely to resist it forever. >> got a question out there send us a tweet to @"options action. optionsaction.cnbc.com. videos from throughout the week and exclusive trades. you can sign up for our newsletter there. in the meantime here is what else is coming up. pretty much sums up twitter

shares, but what if you could get paid to buy shares of the blogger. >> it's a miracle. >> it's just a miracle of options and we will show you how. plus there is one stock that's holding up well on a tough tape and here is a hint. >> here's johnny. >> we will tell you why some traders are betting on one of the oldest stocks in the dow 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.

welcome back. among the selling this week the utilities sector emerged as a bright spot in the market. >> the trade today when the etf was trading at -- you can look out to february expiration. by the february 43 call for $1 that's 2.5% of the underlying stock price your profits above 43, the stock was at 46 just a couple months ago. i think you're going to want to be defensive, i think you will want to be u.s. domestic, i think investors will come back to the utilities sector over the next few months. >> dan, do you stick with the trade, is this where you should go and hide? >> i think you do. important point is that the ten year treasury yield a three basis points above where it was when we started the year and had the fed increase. investors will continue to look for yield in u.s. domestic defensive. as far as trade management, this thing traded as high as 4380 yesterday, along the 42 call, i

sold the february 42 call against t reduced my premium, now i have a call spread and less at risk. that's how you have to trade these options. >> dan wasn't the only one seek safety. two weeks ago carter made a bullish call on johnson and johnson. take a listen. >> i'm going to play for a move here that would take us back to the all time high of about a year ago looking for about 8% in j & j. >> you could go out to february, for example, and look at the 105 calls, those are going to cost just $1.75 you will be risking less than 2%. >> the stock is flat since the time of the trade. we start with the chart master. do you still like this chart? >> after initial pop to 105, back to where we started which means stick with what you got. >> mike, you'd do the same? >> i would do the same. we're looking for low beta plays, inexpensive options. we should stay with this february 105 call. if the stock falls lower you

will lose less. >> coming up, twitter shares hitting a new all time closing low, but mike has a way to get paid to buy shares, it's a generous strategy and he will explain it right after the break. 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.

so this is our last "options action" show of 2015. and in honor of the christmas spirit we've put together a very special holiday edition of co-'s classic strategies. take a look. >> "options action" presents, a merry khouw christmas, a collection of mike's classic strategies with a holiday twist. they are all here, such yuletide favorites as the put spread. >> i'm looking out to march, gives us a quarter to digest everything from the rate news to the holiday sales. >> the call calendar. >> i just don't see a whole lot going on right now throughout the month of july. number one, because of the holiday, number two because people are going to be waiting on earnings. >> yes, once mike presents a

strategy it's eternally his. >> still going to see lots if the stock goes down further but that would happen anyway because you already own the stock. >> but wait, there's more. order now and we will give you a special holiday version of mike khouw's biggest hit, charts that make no sense at all. >> this is a chart going all the way back to the '60s. we will find big declines are relatively rare. >> so risk less and make more this holiday season. pick up the phone and order now. special delivery charges may apply. ♪ how much is it, though? that's what i want to know. >> the price is right. you get this information for free. just by watching "options action." >> exactly. >> save on shipping and handling. >> there is actually a classic options trade called a christmas tree. so, mike, why don't you explain that to us. >> it seems like the right time

to bring us the christmas tree trade. it is a tray that you want to do when volatility is relatively high, like it is today, actually, and this is also a trade that you would typically employ if you don't have tremendous conviction on a direction of the stock and it's also a tratd you do if you would be willing to buy the stock at a much lower level or sell it at a much higher one. the stock i'm looking at is one that hit its all time lows today, that's twitter. twitter volatility is exceptionally high and it's probably hard to catch the falling knife. you might actually be thinking about pressing a short. but we might be willing to buy the stock at substantially lower levels. so the trade i was looking at was the march 22-2018 christmas tree. this is a little bit like a ratio spread, we're going to buy one of the march 22 puts that was costing $2.25 when i was looking at this earlier today, we sell one of the march 20

puts, we can collect about $1.40 for those and then we will one of the march 18 puts for about 80 cents. this whold trade costs you absolutely nothing. now, if the stock continues lower and goes through 22 you can make up to $2. basically the value of that put spread that you're long. now, if it continues lower you could potentially be compelled to buy the stock at $18 but of course because we already made $2 on that first put spread our effective purchase price would be closer to 16 which represents a 30% discount to the current stock price. one other thing i'd quickly point out. that would work out to a valuation of $9 billion excluding the $1.9 billion that they have in cash. i've got to think at single digit billion dollar valuations twitter starts looking attractive, maybe to a buyer, maybe to an activist, i'm not sure, but this does remain a unique social media property. >> at that valuation it looks like a three-legged unicorn or something like that. >> without a horn.

>> the trade strategy makes a lot of sense, you're buying yourself a reasonable room of profitability on that first put spread and then to the down side. i would just say this, this is a stock that has been tough for me this year. i had my best trade of the year in the first half of the year from 35 to 50 in this long and i have had my worst trade from the low 40s down to the mid 20s in the second half of the year. sentiment is a proeshs and in a stock like this, in a market we could be going to it could overhoot on the down side. >> if one asking you how are you doing, down to the right. >> what? down and to the right. all this thing has done is down and to the right. in december 2014 it was $74, rear it is 22, it can go to 21 or maybe 16. buying the stock is just buying something on a down trend saying today is the day. >> are there key levels. >> no. >> what makes a levels is where stocks have traded before. >> mike, why would you say 16

would be attractive to some buyers out there? isn't there into err it hits those levels and it's a broken stock, nobody wants it at that point. >> that's why i'm talking about catching the falling life. we don't have a specific line in the sand we can draw. one thing we can look to is try to figure out is there a level at which companies that might be interested in acquiring it or hedge funds that say this is a company that doesn't cost a lot. at $9 billion just for the enterprise it's not expensive. so that's really the reason i'm focused on that lower price. >> and i would just mention 2016 presidential election year, that's where a lot of these conversations -- so sentiment is bad, at some point it's going to shift and i'm going to be back in there pause it is a unique social property. >> coming up next, your tweets and the final call from the options pit. 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. tweets for 2015. why is the dress code for

"options action" jackets required? dan nathan. >> that's a good question. really it's dressing down -- in "fast money" i dress down to my competition, i have guy adami sitting next to me and i have these smart guys here and i dress up for it. >> that's all. the fancier people. >> here is the next tweet, what are your thoughts on gdx on the first quarter of 2016? >> if you're picking among bad choices, this is what this is, this is the least bad of things. you want to do something like the xlu or j & j. it has held up well relative to other things. >> mic khouw. >> prescribing yems are elevated look to sell call spreads i'm looking at mcdonald's in february. sell that. >> carter. >> if you have had great run in mcdonald's, take some profits or try it short. >> nathan. >> like i said, twitter sentiment is bad, facebook is really good, i think at some point in early 2016 it trades

long short at which timer is a good trade. >> i'm melissa lee. for more "options action" check out "options actiooptionsaction. we'll see you back on "options action" in 2016. >> announcer: the following paid presentation for the power pressure cooker xl is brought to you by tristar products incorporated. introducing the power pressure cooker xl, the revolutionary kitchen miracle with one-touch technology that infuses flavor into your food while cooking up to 70% faster. the power pressure cooker xl is sweeping the nation with over 1 million sold. it's getting five-star reviews and has been featured in bon apetit and cooking light magazines. and now the big news -- the power pressure cooker xl is larger than ever, with a full 10-quart size. imagine being able to cook an entire whole turkey in under an hour, prepare a succulent, mouth-watering ham that will feed an entire family three times faster. the powe