remember us. it has been a while. but we're back. and here is the silver lining. at least the stock market is closed at this point. these guys, they're going to make some sense of the markets. while they are getting ready, here is what is coming up. ♪ everybody was kung fu fighting ♪ ♪ those cats -- >> that sounds like stock this week and there is one down stock that is signaling even more pain to come. we'll tell you the name and teach you how to protect yourself. plus, down on apple. well, how would you like to make your money back for less than a buck? we'll show you how. >> check myself at all times. and we have a to do just that for your whole portfolio, the action begins right now. ♪ american woman

let's get right to it on a day that saw a strong jobs report and another low in gasoline. one group of stocks hitting a new low and that is retail. the xrt, that tracks retail, hit a 16-month low today. so is the consumer in bigger trouble than we think. let's get into the money and find out right now. dan, what do you think? >> i don't think they're in any more trouble than we've thought was going on. the u.s. consumer has not been particularly strong and i think what's going on, and i think this is a great example of fairy tales, bull market exposed for what they have been. this is a great point. the xrt was down 3% on a day we saw this great jobs report here and we saw oil down and it should be great for retailers and we're not seeing it. so me, i think a lot of it has to do with the unwind of goofy stories that have permeated the bull market thesis for a year. >> i think i good jobs report would incorporate wage growth and we didn't see that. and that is not surprising. because where we do have weakness in the job sector is

areas with the higher wages, like energy, where the job growth in north america has seen to be coming from, and and so you are trading off higher-paying jobs for lower-paying ones where there is not increased pressure and over all, that is not positive as far as consumers are concerned. >> carter? >> sort of speaks for itself, doesn't it? it's bad. it's getting worse. consumer as a sector is way ahead of the market since the data begins and has a few names holding it up. the costcos and home debows and amazons will succumb at some point under pressure but bombed out names that aren't coming back, like a fossil or a macy's and high flyers still high priced. >> do you believe there are individual stocks in the retail sector that are worth nibbling at at this point? >> you know, well, first of all, it's actually not really fair to characterize it as a peter lynch technique but one thing i will

say is when i go to costco i still see full parking lots and full carts. they're getting a more and better aggressive deal now i think than they had with american express on the credit card side. i don't see fundamentally a lot of trouble for costco but walmart seems like grim death. that will -- target is in that tough spot between the two. it's a company that typically i've liked but i don't think now is the time to be jumping and buy it. >> walmart s. that a recession -- is this bad news for the economy? >> i heard you talking earlier and tom lee made a good case, cheap stock with a good dividend yield down 30% almost last year. i think we've gotten to the 15% rally or so off of the late 2015 lows and walmart the stock trades below a market multiple so, again, with that yield and, you know, we know they have a massive buy-back but the thing is there's this massive secular shift in retail. we know they'll spend a whole heck of a lot to compete with the likes of amazon.

i got to say this, you know, they've said it after they cut 2016 guide dance late yas year they are going to be reinvested. that will be expensive. to me i suspect when they report on february 18 i suspect we see a full year cut again and i think the stock will give back most of these recent gains so i priced it up. the stock fell out of bed at the end of the day as the market did but when the stock was 64, 60, you look out to february expiration, that's the day that they report earnings in the morning and you could have bought the 65 put in february for about $2.20. your break even is at 62.80. just down a few percent here and when you think about the market we're in and think about the volatility we're seeing in sectors and the fact it's actually outperformed this year up 3 1/2% i think this is a really decent defined risk that on a stock that i think has an event coming up and then just the last point if you get the move, the technicals are horrible. get it back to the down trend that had been in place from above 90 early last year you use

that opportunity to spread it by selling a lower strike put and have a put spread. >> it does make a lot of sense fundamentally to just buy a put outright here. walmart has not been a high volatility stock but have a lot of net debt. making investments and trying to compete with what the new paradigm is. amazons which don't carry that, they don't have that position in the marketplace, this is a situation also where some of that buy-back could be pressured by that, right. so from my perspective if you make a bearish bet that's the way to do it. >> it's classic shorting technique in the sense of you find something in an established downtrend which you found 90 to 56 and wait for a countertrend rally which you have, 16% off the low and try to fade that strength. but it really the most important thing is not search for walmart and trade, likely will work out, what it says about the market. i mean for money to be moving into walmart, no one is doing that because they think it's a great bet. that's the ultimate defensive play. people saying this is a bad tape. i'm running a large piece of capital here and i need to

protect myself >> that's exactly right. you want to pile into a stock that has some real fundamental problems because the market is weak. that doesn't seem like a great strategy and if the market does basically reverse and actually show strength this isn't the place you want to be either. >> i would just say you people think this is just 100% domestic stock. it's not, 150 billion of their 485 billion last year came from overseas. it is a source of problem so they do have dollar exposure so it's not as defensive if you look to utilities or u.s. tell c tellcos. >> a look at what to expect, seema. >> after the most volatile week they're looking at date that could move markets more. inflation, producer prices dropping 6% marking the 45th consecutive decline in prices. deflationary fears rising as manufacturing activity continues

to decline. this weekend we'll also get a look at chinese loan growth. signs from long-term corporate loans that has been weak for the last few months would indicate renewed private sector confidence in the economy and trade data on tuesday, melissa, this will be crucial. investors are expecting a decline in exports but the question is by how much? if it's a big drop, that may encourage the central bank to continue devaluing the wuan even more. >> what are you watching? >> caterpillar tied to china, tied to oil and everything that's sort of bad if you will and looks like there's a final downleg to go. so crude oil, caterpillar. crude oil, caterpillar. so we have obviously this huge mean reversion back to the range that crude oil is basically lived in its entire career, 10

to 40 and does cat have to get back in this range down to 40? no. but it closed today at 63 and we're thinking at least closer to its long-term trend line. so take a look at the comparative chart, crude oil. crude oil, cat, cat, we're going to play for some more of this, we're going to play for cat coming back down in towards the range. so here's the daily setup. here's what we started with a head and shoulders top, a neckline, it broke hard. here's the trend line, we put our head and shoulders top back in. the neckline. and now we're hovering ominously having failed at this trend right at these prior lows. here's the absolute chart so right here we close within pennies of the prior low. we have a nice established setup we're going to play for one m e

momor more. >> you share this bearish full. >> the full year 2016 expectation for the street is $2 billion in net income. haven't seen that since 2004. when we did see it not in a declining tape for caterpillar the company was valued about 15% less than it is right now. so, you might say, gee, after it's fallen so much isn't it cheap? actually it's not cheap. it's not cheap yet so i think right now the way you want to play in and i'm targeting that sort of 15% decline from where the stock is right now, is to look at the march 60. 2.60 and sell the 55s for 1.25 spending 1.35 which is obviously small percentage of the current stock price to make a bearish bet by march expiration and happens to be right where this company was valued the last time they did $2 billion in annual net week. >> i would add you're using historical figures. you know, the company actually three years ago had $65 billion

in sales, next year they're expected to have 43 billionness sales, an astounding decline and the last time they had $43 billion in sales was 2010 and the stock touched 50 at that point. i think you could probably be a bit more aggressive on this put spread and look at the 60/50 where things are going if it's going to bomb out. only caveat, maybe you get an uptick next week, early next week then you -- >> that's a fair point but i think you'll have an opportunity to press this bet as time goes on. this is really bleeding out. people sit there and keep thinking the stock is cheap. when it isn't. we were in one of the most incredible booms in commodities and takes a long time for those things to unwind. we haven't talked about the backlog but that's what helped supported this. the heavy equipment they sell. you know, repowering the energy space. how many new generators are people buying for the drilling. how about zero. zero is what you're going to get in that business, so i think it can get a lot worse fundamentally before it gets better for them.

>> it's a lot of beta here. if things get really bad, the thing that people abandon and it can violent -- >> they have more data on the balance sheet an equity market cap and that's the issue know they've been -- >> they rely heavily on financing their equipment. that's not a gross base either. >> got a question. send us a tweet to @optionsaction. we have the newest videos and exclusive trades. here's what's coming up next. ♪ i did it my way >> apple shares are imploding but we have a way to get your money back at almost no cost. plus -- >> it's a good time for the great taste of mcdonald's. >> but it may not be a good time to buy mcdonald's stock and we'll tell you why when "options action" returns. i'm here at the td ameritrade trader offices. 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 and 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. td ameritrade.

herthey work hard.ade, wow, that was random. random? no.

it's all about understanding patterns. like the mail guy at 3:12pm every day or jerry getting dumped every third tuesday. jerry: 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. td ameritrade. welcome back. apple share fell more than 7% over concerns on the iphone 6 sales and exposure to china. the stock is now down 27% from its all-time high last april, shedding a whopping 110 billion in market cap. for context, that $110 billion is more than the total market cap of 93% of s&p 500 companies. wow! but for those of you who lost money in apple, and i would suspect that is many of you out there, mike kuo has a strategy to make it back. mike, what is it? >> hey, okay, so one of the

first things you'll try to do when you try to recover the money you lost, we'll look at doing this at little or no cost, we're not going to sit here and talk about doubling down by going out and committing more capital to the trade. the next thing is, this is a way to try to do this in the short term. i typically like to look out about four months or less, and the final thing is, and we'll illustrate this when we show the trade, on the spread, we're going to do, i'm looking to choose an upper strike below where the previous highs were. hoof we are, i'm taking a look out to march, i'm going to buy one of the 97.5 calls and sell two each of the 105 calls. so i'm going to collect $5 for the two that i sold and spend 5.50 for the one that i bought so my net debit is close to the zero cost. only 50 cents. and the idea is that i'm going to capture all of the gains from 97.5 up to $5. and also capture those gains on my stock. so essentially, in this range

i'm going to double the amount of money i otherwise would have made. now above this level, i'm going to get called out of my stock, because i'm short one call, and i'm only going to have capped my gains on the call spread because that is as much as a call spread can make. but the idea here is if the stock doesn't get to its prior highs, i manage to double the gains in the short distance. >> dan, what do you think of this trade? >> i love the trade. i think it makes a lot of sense, especially for some of you that could not consider the idea of taking some profits or reducing the size of your apple trade. but like i said, mel, stock is down 27% since last spring since all-time highs and you could add options to get creative and leverage to your position without adding risk or premium so this is a smart trade in my opinion. >> what do you think of the levels of mike's trade? >> they are good levels. and something else here, you're dunn to the prior peak of three years ago, and this is where cat has not quite bombed out yet. here's the difference. if a stock is going down structurally for three years, it could keep going down. but if a stock that was wrong

or was strong, i mean, quickly rolls over, like with apple, that is where you get throw-backs. so a lot of the selling i would think has come into the name. i would be inclined to be look on the long side here. >> really? >> yep. >> well, look, this is also a situation where they live product cycle to product cycle. okay, so but it is not the same situation as cat where their whole business is in secular decline. we haven't seen that in this space. so from my perspective, we're looking at a company that is in fact cheaply valued if they can just maintain the business they've been doing simply. from my perspective this is a much safer stock to stay long if you are already in it. >> so within this trade if the stock does hit 105 or comes close, what would you do? would you let it be called away? or how would you handle that at that point? >> well, the first thing is, i would say you can actually keep this structure on for some period of time. let march roll out. because when it runs up to the 105 strike, if you are long in the stock, the calls will be decaying away. you want that to happen. that is working in your benefit.

it is like being long a buy rate. but at that point, when it approaches, that is when i -- >> you have a good question. in some ways you are not paying for the structure, move it up earlier and have the potential for depreciation for the stock and have the added juice because time, to your point, is in your favor if you could actually get a sustainable move to the upside. >> yeah, i mean to that point one place where you might consider is taking off one portion of the trade and leaving the buy right on. so you are basically long the 97.5, 105 call spread. take some profits and adjust it. but i would leave the other 105 and take some profits or adjust it. >> i want to know what carter thinks. if it gets to 105, then what? >> then what, so that's the presumptive rally one would hope for from an oversold position. if you are so lucky to get it here at 97 and you do see 105, i would take that off. >> you would? >> yeah. you are going for a nice 10%, plus or minus, and you move from there. >> all right. up next, stocks got off to a worst start for the year ever.

but fear not. one trader has a way to protect yourself from further losses. we'll tell you how right after the break. i'm here at the td ameritrade trader offices. 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 and 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. td ameritrade.

herthey work hard.ade, wow, that was random. random? no.

it's all about understanding patterns. like the mail guy at 3:12pm every day or jerry getting dumped every third tuesday. jerry: 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. td ameritrade. welcome back to "options action." it is time for the upside call

where we look back on some of our winning trades. last month cohen carter thought mcdonald's looked a little overdone. take a listen. >> i think you'll break this trend and get back into the lows or even fill the gap. just too much of a good thing. take profits. >> i would sell the february 120, 125 call spread. you can collect about 1.50 for this. this stock is trading at 15-year highs and in the 90th percent i'll. >> so, carter, does the chart show more downside ashed. >> for sure in the sense that in principal something that is steep and extended at some point attract sellers for those who believe it's overdone. those who want to take sellers, believe it is overdone. and this stock has held up well. hasn't done us any favors. that gap is 105 and that is what we're playing for. >> if all you are thinking about

being long the stock, you wish you were long this one than any other one. but we do was to collect premium. if the stock stayed there, we would make money and we still well. this is working in our favor right now. you just stay with it. >> yeah, you know, i actually took a cue from these guys and my comment on the show, i would be directional long premium what i did but i'm playing for a move back to 110. that fills in that move from the gap after earnings so to me, you know, i like it down to 110. the unusual relative strength is troublingle. >> last month, dan made a bearish bet on the market. have a listen. >> so, when it was 201.50 i priced it up in february. you could buy the 201. 0 put spread for $4 and spend 550 for one of the february 200 puts and sell one of the february 180 puts at 1.50. that costs you 4. that is your max risk there. >> well, as you know, the dow s&p posted their worst start to a year in history this week. so, dan, do you tiyou stick wit

>> you do. we try to do them once in a quarter and when you think that the market is at an inflex point and near the midpoint of the spread, 1800 in the s&p seems pretty decent support to the downside and could be a target so if you have something like this on i think you stick with it for the next few weeks. >> you see 1800 support, as well. >> that's the minimum. and then from there. right? and that's a fair price if you could say that and that's a ream draw-down to peak to prove to 15%. there's nothing wrong with it. >> one question i'm curious about why you wouldn't think about rolling at least the long strike. you can take some profits off the table and still add protection down another ten points in the -- >> great point. implied volatility. the price of options has become bid up here you get the bailed out if you roll down and out so i may look to do that on the next countertrend move up maybe 1% or 2%. >> up up next your tweets in the final segment of "options action." i'm here at the td ameritrade trader offices.

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 and 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. td ameritrade.

welcome back to "options action." time now for some tweets. our first tweet comes from @gangadurgam. forme if i'm mispronouncing your name. comments on jnj, february 105 calls by mike. mike, what do you say? >> the first thing we should say is thank goodness we simply bought calls in a low volatility name that are cheap. this is looking grim. so i'm going to have to defer to my esteemed colleague over here. >> we are getting smoked. we are getting smoked here. this is coming down with the market and this is ultimately what will happen to all stocks and that is why the market in principal has great risk. but well off from where we are -- we got a problem. just walk away. >> okay. next from andrew burky, it looks like iwm, which is the etf that tracks small caps is near a dangerous break. are you looking for more down dan, i would venture a guess and say no. >> it doesn't look like it is. but it is. >> really?

>> it is broken that down trend that has been in place since 2009, no matter how you draw it there, carter. fact of the matter it is approaching the 2014 low and there is not a whole lot of support. below 100, so this is a critical spot here. even if it holes you short rally in the 2000 russell. >> carter, what do you say? >> it speaks to, does weakness happen out of nowhere? before the 1929 crash, we were already down 12%, 15%. '83, it wasn't like that. we were already down 10% or 12%. this weakness has been foreshadowed for months. years. two years and no progress in the iwf. >> and next tweet is from thomas martin. how cold is it there? mike kuo has three shirts and a jacket on. tell him to lose the fleece. maybe the pocket square. mike? >> it is a lot colder than it is in austin. >> all right. time for the final call. carter. >> i think the final call is if you are considering buying, this is a good time to postpone. >> mike? >> spreads in caterpillar. >> and dan. >> walmart.

i think can fade this countertrend rally. >> it looks like our time has expired. i'm melissa lee. thank you for watching. check out "options action" @ cnbc.com. we'll see you back here for "fast money" at 5:00. don't go away. "mad money" with jim cramer starts right now. >> announcer: the following is a paid presentation for the fat-burning fusion of pilates and yoga called piyo, brought to you by beachbody. >> hey, everybody, i'm maria menounos, and i'm about to reveal the latest breakthrough in fitness that won't kill your joints. it's an all-new way you can get that long, lean yoga and pilates body you've always wanted without having to stand still and meditate for hours or do microscopic mini moves. don't believe it? well, keep watching and you will. >> announcer: now there's a breakthrough new way you can completely transform your body without weights or high-impact moves, and the results are incredible. >> you see those results so quickly. you see the fat melting away.