cnbc's coverage of this historic selloff continues. this was a crazy day for the markets. the s&p 500 saw its worst open in 30 years. meanwhile, the dow opened lower by nearly 500 points, closed down 611 points. the eighth biggest point loss ever for the dow. the s&p is now negative on the year. the nasdaq back in correction territory. it was the banks that led us lower. check out shares of morgan stanley. off by almost 10%. goldman sachs, off by 7%. closing six-week lows. citigroup shares getting slammed. the stock off by more than 9%, hitting a three-month low. that was nothing compared to what happened in the european financials.

p kayla tausche is on the ground. we saw in the shares of european banks was really nothing short of devastation. >> reporter: no, it was a complete repricing, melissa, across the entire sector. it's safe to say the major banks on either side of the atlantic were able to stave off any major dislocation in the markets by handling torrential amounts of client volumes and putting restrictions in place to be able to do so. now there are a few key questions remaining for the banks as we think about going into the weekend, and the markets opening next week. first, how are the banks going to fund themselves? it's clear it's getting more expensive to do so. the spreads between libor rates and the overnight index swaps spiked this week. one month, three months in the future, it's seen as a gauge on how risky investors see bank borrowing. we should note it is still well below where they were in 2008 and prior crises. but, still, something to keep a close eye on, because that could

signal, that could be a leading indicator that there are more risks in the banks than we maybe thought. second, how are they going to handle volatility going forward? you can't staff your trading desks overnight every single day. so if there's a debt downgrade for the uk, that's not a date on the calendar you can prepare for. they'll have to figure out what exactly to do there. they'll have to start thinking about how to restructure their businesses and when in fact to do so. about 11% of the 360,000 employees here in london's financial sector are actually eu nationals, not from the uk. what happens to those employees? and are they redomiciled? kbw thinks the banks could relocate some of their businesses to germany because there's a larger share of earnings there. jpmorgan and morgan stanley today both denied that they would be doing so. interestingly, melissa, the financial sector was down today, the most in the u.s., since

august of 2011, which, of course, was when the u.s. lost its aaa credit rating. bankers leading into today, in the activity we saw, the only analogy they had for what type of volumes to expect was the period surrounding that market event. so certainly that all rang true. the question now is, what happens when futures open sunday night, when the market opens monday morning and their borrowing costs go forward from there. >> kayla, any indication as to what the banks are doing sunday night to prepare? we heard all the stories about them having hotel rooms, at canary wharf. what's anticipated for next week? >> i think they're regrouping now, that they sort of made it in the clear after the market closed today. when we were at canary wharf this morning, we were talking to some people going in to work. a lot of them actually had suitcases and they said they

didn't know when they would be able to leave, because they didn't know what the markets would bring. i'm sure they're regrouping, and developing game plans over the weekend, marching orders for the desk, who's going to be working when, who's pulling certain shifts and who's going to be covering certain clients and whether there will still be client restrictions in place on monday if they still expect the type of volume we got today. >> suitcases, what a great anecdote. kayla, thank you. on the ground for us in london. we're talking about nothing short of devastation. we're talking about losses of 27% for rbs, 20% for barclays. these are crazy swings in the market today. >> i think it's telling you something. there's no way to think about the rally that we had into the vote off of recent lows, nothing other than just a really massive short squeeze. the fact we've had some of the european banks with the new lows from those levels. kayla called it a repricing. they're going lower. if you want to extrapolate is here to the u.s., i think our banks are telling you that rates are going lower here. it will be an equally challenge sort of business model. to me, i think you want to avoid

these. i think there will be some european bank stocks that lose all their equity value in 2016. >> what do you mean? >> i think, like bear stearns call. >> wow, that's quite a call. >> banks have immense balance sheets. are we going to start seeing another lehman bankruptcy? i don't think we'll see that. but it definitely is hurting -- when you think about the tangible book value of a bank, the tangible book value is going to go down very shortly if they have anything that resembles a risk asset. closely resembles a risk asset on their balance sheets. loan origination is not going anywhere. that's a grim picture. >> it's a mess. let's put the numbers in context. we know that the bank index in europe just had its largest one-day drop ever. we also know that the broader aggregate, the stock 600, the index itself has only dropped more than 7% twice in history. the first time was october 19th, 1987.

the second was october 6th, 2008. this is the third biggest drop for that aggregate on record. our banks, if you look at the kre, vkx, only 15 times they dropped this much. they're in '08 and '09 and 2011, which is the u.s. debt camera. the banks are the heart of the problem. the notion that somehow we could stop here, i mean, who would make that bet? >> here's a question for you. in terms of the u.s. banks, we saw huge declines across the board. declines we haven't seen in months and months and months. at this point, are they all moving lower because there's a rerating that involves a lower global growth outlook, lower issuances, banking revenues? or are they all moving lower because there's a thought there could, in fact, be a systemic risk, maybe stemming from -- >> it's both. you can see the credit spreads increase. so that obviously is the basically the balance sheet risk issue.

the other is, take a look at long rates. those are telling you the other side of the story, showing that the growth simply isn't going to be there. business uncertainty, which this introduces. take a look at what caterpillar said today. we've got to get this done as fast as we can. they have significant amount of business that's tied to the uk. they are concerned about that business. do you think when you see industrials like caterpillar saying, we've got to get to the end of this as fast as we possibly can, that people are going to go out and start borrowing? >> back in february, remember the jamie dimon bottom, 53.5. the stock is going back to the low 50s. if he doesn't buy $25 million of stock at that point, i think there was a lot of gains off the february lows. none other than the fact we knew that the stress tests would be okay this week. we know u.s. banks are far less levered than their counterparts in asia and europe. we know that correlations actually go to one when there

starts to become financial contagion, crisis fears going on. that's really what could be happening right now. >> the big question is what does this mean for u.s. equities as a whole. carter, what do you think? >> i think the important thing is not about the down side. there's always down side. it's about what is the up side? what is the case made for being long equities here? when we've been going nowhere for 18 months? it's a time to be fearful, to be worried about down side, not to be thinking, my gosh, i've got to buy more. let's look at something i think is important. dan just talked about correlations going to one. the u.s. market blue line versus germany and japan. now, you could believe in decoupling or not believe in it. i don't believe in it. over time history showed while decoupling can occur, it doesn't last forever. the presumption is, the blue line is going to get in touch with the green and the orange lines. let's look at it longer term. this is going back to the prior

bull market peak. again, the presumption is the blue line is going to come visit the green and the orange lines. meaning, we're still -- you know, the crowded, the complacent and everything is okay notion in the u.s. this is the s&p 500 futures. not the cash count. what i wanted to point out is we had what would be called an outside reversal day, where the high and low were higher and lower than the preceding day. and then we closed poorly. that is often the beginning of something negative on a day-to-day week-to-week basis. that's something to be very aware of. finally, look, we had this perpetual motion. we had 11, 12, 13, 14. the s&p closed today, the same price it did in november of 2014.

18-plus months, 19 months without results. ebola, down 10%. the plunge in august, down 12%. that is not a desirable risk/reward setup. sort of buyer beware. >> mike, what do you think? >> one thing i'll never tell you to do is go out and start buying insurance when your house is already on fire. the amount you are going to spend for it is very likely going to price in some potential down side. we want to try to sell some insurance, but also buy some protection against the down side. what i'm looking at here is a one by two put spread on spy. the september 200 puts, which you could buy for about $5.40 when i was looking at these, and selling the 187s. against it for 2.70 a piece. sell two of those. net net, you're not going to spend any money to put this on. the down side break-even where you would actually get longer the market is down around 174 if you do this trade. actually, the market continued to trade off as the day went on. we'll see where we open on monday. it's possible you could spread the strikes out even more. maybe to the 200, 184.

but, look, this is going to give you some protection, down 9%, 10% from here. you are going to be taking some exposure to get longer if the market really -- >> here's what i don't love about the trade here. i love it for you, mike, because you're a sophisticated trader here. but when we see a move like this, where the euro stock was down 9%, that position is not going to do anything for you. it will confuse the heck out of you. so to me, i get your point. about not buying insurance when the house is on fire. i think there's probably other ways that you can do this. >> it's definitely a fair point to say that if you put this position on and the market goes down 5%, the very next day, you're not going to be seeing big profits on the hedge. you have to carry that all the way to expiration to see those maximum profits. >> but what i'm saying is -- >> elevated as it is, spreads are getting very, very wide. you could spend a lot of premium trying to ensure your portfolio

after it's already declined significantly. >> let's go back to carter's charts. really, the most important thing is if we break the 200-average, and break 2,000, we've been range-bound between 2,000 and 2100, we've gone down straight below -- >> what's your target for the s&p right now? >> i know, mike, but -- >> wait, wait. >> i just want to know. >> i think we're most definitely going back to 1810, those february lows. i've been very consistent about the fact that the february low was the first lower low in the s&p from the 2009 lows for the first time. >> look, that ultimately should be the beginning. if you have business cycles that have maturity dates, bull markets have maturity dates, we have not made progress in 18 months, after a great run. you know what the market is for the year? it's like nothing happened yet. there's plenty of down side. 1800, it can be much lower than that. >> very quick point about this, we're looking at how fast and how far it's going to go. i'm only looking at 90 days or less.

>> send us a tweet to @optionsaction. while you're there, sign up for our awesome newsletter. check it out. here's what's coming up. here's what the fear gauge is doing. it could be creating a number of buying opportunities amid the carnage. we'll explain. plus, worried about monday? we'll show you a simple way to protect profits in your portfolio, 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 to "options action" with continued coverage of the sell-off. all falling sharply. cnbc's jacque deangeles at the new york stock exchange with more. >> good evening to you, melissa. a little more than a 5% slide in crude oil today, after last night's brexit vote. you may wonder, what does brexit have to do with crude oil? a lot, actually. there are a couple of reasons why it matters. the first reason is the result of dollar fluctuations that impact the crude oil trade. you saw a stronger dollar today because the other currency it's measured against got hit. what matters about the dollar, well, crude is priced in dollars. so when the dollar is strong, it makes it more expensive for traders using other currencies to buy it. reason number two, crude has been a supply and demand story.

people are expected to see an uptick in the latter half of the year. when you bring brexit into the equation, that starts to be questioned and people start to worry about the crude trade. >> anecdotally, with the concern about how it will impact the market, traders told me, we don't want to be long crude oil going into the weekend. crude was down less than 1%. it supported a session low of $46.70. these levels we maintain today, they were actually higher than when brexit fears were very pronounced last week, melissa. >> jackie deangeles, thank you, joining us from the stock exchange. dan, do you believe oil will be pressured and oil equities could face pressures as well? >> i do. i think you have to think back when the dollar started rallying and the fedex itted qe and they really basically saw the dollar started to rip, late in 2014, we

saw global commodities just collapse for all intents and purposes. then the fear became the deflationary spiral that the global economy could go under. listen, we saw crude oil collapse. we saw the equities collapse. i don't think you want to go after the large cap u.s. names like exxon, chevron, that make up 30% of the xle. that is the etf that tracks the large integratives. look at the xop. the s&p oil and gas etf, where no one holding is more than 2.5%. there's a couple of reasons. if the dollar is going to continue to rise, that was the first knee jerk reaction. if oil goes lower, if we see brexit affect global demand for industrial commodities and oil and the like, i think they'll be affected. we get back to the place we were in january and february where people were concerned about credit issues with oil and gas companies here. some of the worst capitalized ones. that's what the xop is focused on. that's why i want to target this one. trading below 35 bucks, look out

to the september expiration and buy the september 3428 put spread paying $1.70 for that. buying one of the 34 puts for $2.30. 28 puts at 60 cents. $1.07 is your max risk. it breaks even down to $42.30. make up to $4.30. that's a really good range. look at the chart, where it just got rejected below 40. just below that uptrend -- >> very simple. brexit cannot increase oil demand. it's either going to stay put or go down. it is not going to weaken the dollar. which means oil prices, all else equal, will be lower than they otherwise would have been. to me, that makes a tremendous amount of sense. just based on those two basic factors. >> just classic behavior, once crude started pushing above 50, the count started coming back up and all the things that would lend to lower prices. the general setup is the same. and now it's not just the same, it's worse because of what's going on in europe. >> the other thing to point out for members of the xop, they're not the large dividend paying

stocks people might reach for in this dividend-paying environment. >> chevron and exxon we know have 3% to 4% dividend yields. i don't want to be there. i want to be at the xop. >> the so-called fear gauge surging 50% today. having its biggest one-day gain in five years. that may not be a bad thing for the market. a couple of key stocks in particular. the names when "options action" continues. 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. huge move in the volatility index, gaining almost 50%. the biggest one-day move since august of 2011. traders buy protection amid growing uncertainty around the brexit. closing above 25 historically when the vix climbs above 20, it indicates investors are on edge. we also saw heavy volume in the vix tracking exchange traded funds. velocity shares daily, and the s&p vix posting double-digit gains. the implications, traders say there's a good chance we could see volatility on the rise. melissa? >> thank you, seema. what's a way to take advantage

of the heightened volatility? mike is over at the smart board breaking it all down. mike? >> let's try to think about some ways we can sell it. sell puts. i'm not completely out of my mind. volatility is elevated, is one of the things we're looking for. there's smoke and there's fire right now. so we definitely have that. we want to own a stock at a discount. when don't you want to own a stock at a discount. obviously, we would rather own it at a price than where it's currently trading. finally we're looking to collect 10% to 12% a year in premium. there aren't a whole lot of opportunities to get yields like that. you'll have to take a little bit of risk to do that. what i'm looking at right here, selling the august 70 put in walmart where they'll be selling a lot of staples. maybe people are stocking up on bread and water. it's going to expire about 56 days from today. you're actually collecting more than 12% annualized. worst case, you'll own the stock down around the 68.60 level. about 5.5% discount from where it's currently trading.

we're looking for low beta stocks, high premiums. >> walmart has been acting like a champ. it was down .2% today. it's up 17% for the year. >> and it's one of the worst performers last year. one of the better ones this year. it has characteristics that are very good. very low beta. not a lot of exposure to brexit, if you will. also, in a good area in terms of being a staples stock. as you point out today, i mean, if you hold up like this, on a day like this, it means something. >> are you selling puts in this environment? >> listen, i think we had one day down. i think mike's strategy and the reasoning makes total sense. if you like to put a limit order below the market, this is a great way to do it. you have a 50/50 chance of not being put the stock and taking in the premium. >> if you get long stocks, just on the short-term trade, if you get long stocks when the vix is over 25, going back to 1990, even through the credit crisis, your returns over 30 days are

2.3 times greater than if you just buy it when the vix is below 20. generally speaking, when volatility is elevated, we might be positioned for a "v" bounce. even if the general trend is lower. from my perspective, one of the things you want to do when insurance is expensive is be an insurance seller. >> "final call" from the options pit. 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.

♪ "dinner!" "may i be excused?" get the new xfinity tv app and for the first time ever stream live tv, watch on demand, and download your dvr shows anywhere. 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. time for the final call. the last word from the options pit. >> the last call is above 97% of all money is long. be careful. take measures. >> be careful and take measures. >> mike? >> make sure that you sell some options along with the ones that you buy so you don't overpay for the insurance you needed. >> and you would do that in the s.o.p. put spread. buy one and sell the lower. i like xop put spreads.

>> looks like our time has expired. for more "options action," go to our website. and we'll see you back here next friday. two important shows tonight, "mad money" with jim cramer starts at the top of the hour, and the special coverage of the brexit fallout starts at 7:00 m. have a great weekend sclamt! >> announcer: the following is a paid advertisement for tai cheng, brought to you by beachbody. >> wow, joy, look at these people! they love you! [ cheers and applause ] thank you! it's regis, joy, and i've got big news for you. if aches, pains, and poor balance are slowing you down, keep watching this show because we're gonna tell you about an incredible new program that's gonna fix everything. [ cheers and applause ] yeah! >> announcer: the facts are frightening. 1 out of 3 people over 65 fall each year, resulting in expensive hospital stays, loss of independence, or worse. >> iro