we're live at the nasdaq market site. the band is back together for the first time in a long time. here's what's coming up. >> look, up in the sky! it's a bird, it's a plane! >> nope, it's just the potential new iphone. we'll tell you what it could mean for shares of apple. it's back to school. >> hey, boys. here's a couple of pens in case you learn how to write. >> that could mean a time to buy one dow component in particular. we'll explain. i'm afraid, all right? you want to hear me say it? >> for good reason, the bix doing something it's never done before and could be signalling a

major sell sign. the action begins right now. let get to it. this is the fed-free zone. next week only one stop will matter that would be apple. the tech giant is expected to unveil the new iphone 7 and possibly another apple watch. so how should you play it going into the event? dan? >> listen, this is the most leaked product event that apple's had in a very long time. i think we actually know what the phone looks like, we know what jacks aren't going to be there, we know what the gbs are going to be like, the camera. the watch could be kind of exciting if they were to do something new skin know elevative. they were initially releasing this in april 2015. the only thing they really updated is the software in the bands. so there's really not a lot of excitement, enthusiasm. the options market is pricing a 2% move between now and next friday's close. that's not particularly saying that, wow. you know, there's something here that could surprise. so i actually think you probably sell next week's move if you're inclined to do that. if you long the stock sell calls

to start the week off. >> you think it's going to be a move next week? >> no, i think it's going to be very well contained. >> i can't imagine it's going to be that big. do you have an apple watch? >> no. >> you did buy one i think briefly. >> what did you do with it? >> what could they do to the apple watch to get you to buy one? probably nothing? >> drop the price by $300? >> aside from the money, you have a battery that basically has to be charged all the time, that's not something people like to do with their watch. it's not fully waterproof -- >> i know like a -- if you had a much more price point, really focused on health, that could be something new and exciting. i think in front of the holiday season they could sell tens of millions of those. >> my point is the revenues that you're seeing from phones are now essentially like a utility. people are going to periodically change their phones. i don't think the watch is going to do anything particularly innovative. i agree with you, i don't think this is going to be a huge event. >> sometimes a stock doesn't have to be a buy or sell.

sometimes a stock is fairly priced. that might be the case here with apple where there's not a lot of upside, not a lot of downside. why can't it be something you leave it alone? >> i heard something in my ear, way to sell it. i think it's exciting as a trading opportunity. because we know so much. this is a company that usually guards all their secrets. so you're not going to be surprised. it sets up pretty will. it's a put calendar. my view is we're not going to get excitement so sell the move next week but you want to use the sale of options to finance the purchase and look to november. what i want to do here, you can think of it as a protection trade if you're long, financing puts in november expiration that's going to catch their fiscal q4 earnings. the trade when the stock was trading 107.50, you could sell one of the september 105 points at about 75 cents and use the proceeds to help finance the purchase of one of the november 105 puts for $3.50. that spread cost you $2.75.

that is your max risk. what you'd like to do is have the stock continue to consolidate. probably move a bit more towards 105 where converging moving averages, it's just above that. i think you probably have the stock work that way. then you have financed this move put, catch that earnings. there's a lot of things between now and the september expiration, they'll announce how many phones they sold, they're going to give us color on -- we're going to get the earnings guidance, that's most important. if you're looking for protection, you want to make a bearish bet irk think 100 has a target on it. if those -- if the guidance is disappointing i think it could set up well for a move back there. >> falling back to hit the gap. >> this is a limited risk way essentially to set rumor or at least to sell the fact that it might move on this. i think that makes a lot of sense. i think earlier this week you were talking about other ways to do similar trades. one, if you owned stock, you could sell strad angles or strangles. this is a lower risk way to make the play, i think it makes a lot of sense. >> what do the charts look like?

>> it's the definition of dormant. there are inflection points that are identifiable. the idea is to find something that has the prospects of a move then call the direction. at least first find something that has the ability to move. this is just nowheresville. i think you probably are setting up the trade accordingly. you're not expecting a huge move. >> think about it. say the stock moved a dollar next week. the september puts you're short are going to erode. the novembers are going to decay a bit but not as much as septembers. do a calendar again, turn into a vertical spread by selling a lower strike put in november. that's how you should be trading options around events, not just being net long premium. you are but not naked. using opportunities like events like next week to sell short dated premiums. >> every apple event that goes by is less and less of a catalyst, in your view? >> tim cook has done a lot of amazing things, i don't think he's done a great job convincing the consuming public that they need to have their next product. i think the watch only selling 15 million since april 2015 tells you that.

>> the last several announcements has anything come out that blew everybody's doors off and everybody had to rush in and buy it? the lines get shorter. basically it's a product cycle refresh. everybody already carries an iphone, you're not going to suddenly have a bunch of people migrating to it that don't already have them. is it enough of a change that i'm going to go and get rid of my old phone or hand it off to my kids? >> sounds like the risk is to the upside because expectations pretty much across the board are so low. >> i suppose. i just think it's one of the those -- >> doesn't buy that. >> you're not going to get a lot. >> let's move on. crude oil having its worst week since july, falling nearly 7%. >> i want to look at the oil services. these are the big drillers. they're a great leading indicator often for what's going on in the energy space, crude in particular. we know crude has been a wild ride. we know it hit a low of 29 in january. back to 52 in june. plunged again to 39. and yet all the while the oil

service stocks haven't really bought into the fact that maybe crude is okay. so let's look from the top down to start with. this is the s&p 500 energy sector top panel. the actual sector. it's got all of them. exxon, halliburton, apache. then the performance relative to the s&p. so this is the classic case, one could say i bought this and i did well, even though it gave back i'm still up. it's a disaster of a pick, it's almost a job losing pick, meaning this is the relative performance. if one had chosen energy versus the market, you've underperformed the entire ball. this is since the lows in '08-'09. with that, i want to just put the numbers in perspective. if you were to get involved from 2009 to present, this is the definition of no alpha. compared to this. okay. so we know that we have this massive underperformance. even though it's up. and let me see if i can pull you

over to the here and now as it relates to the drillers. we've got a five-year chart. this is the market. you've got energy, the orange, underperforming. green, which is a subset of the orange line, this is drillers. so even as the energy sector drifted higher, drillers have actually been relatively poor to the sector, which is relatively poor to the market. that's a problem. so here's another way to look at it. this is the actual osx index. there's an etf, we'll talk about the oih. here too notice how it's bounced, yet all the while underperforming. so this is performance relative to its sector. all right. so just to be clear, the oih, which is what we're going to talk about here, is exactly the osx, right? it's an etf that matches this index. they are 100% correlated. the trade, here's what i see. you could draw your lines. some people think this is head and shoulders bottom. but if it were, it should have done that and not this. what i'm thinking is this. that you've worked yourself into

a point where we're going to break down. and this tells you a lot about i think what's not the upside for crude. >> all right. so does your final take match up with carter? >> energy space, it's good news and it's bad news. let's start with the good. so the good news is there seems to be a whole lot of interest right now in the permean basin, people buying land in west texas. a mild uptick in energy hiring in the latest jobs report. that's obviously a positive. here's the bad news. we still have a massive amount in storage, we still have the possibility of a strengthening dollar, we still have wti prices which is where all the domestic stuff is basically going to be priced. finally, all of these businesses are so heavily leveraged to this basically crux point which is the lifting cost of all that when you get down below $50, you have a real problem. these companies aren't making money at those prices my perspective, that bounce is something we probably want to fade. i think you can do that easily,

oih has bounced a little bit. you can look at the october 28 25 put spread, spend 95 cents to put that trade on. we've seen low volatility but not here really. think that's because the options markets recognize the risk. and they recognize that a lot of these stocks have a little bit of air under them. >> do you think they're overrecognizing? it's funny, carter likes to say draw the lines any way you like. life that line because it's really important. when i look at the short-term chart, the year to date chart of the oih, i see a nice consolidation between 26 and 28. >> that's what that head and shoulders might be but it's not working. >> so what that says to me, if you're going to make a 28, 25 bet between now and october expiration, have conviction. that's my point. i would look to buy the oih at 26. i might look to buy the xle at 64. it's a similar support level -- >> what would be interesting is if you overlay the price of oil-related companies, the drillers and oil service index, versus crude, you saw how much crude fell off and you say,

crude was $145, now it's $45, so these sector stocks should have come off two-thirds. it doesn't work that way. if they were making as an industry $200 billion, when oil was $140, and you multiply times 15, you've got $3 trillion worth of business. if they're making no money, no multiple makes it work. they should fall. they're heavily levered to the price of oil and they should fall further. integrated names, exact same problem. >> in terms of your assessment of the trade -- >> i like the trade. if you're going to target -- short term basis, i don't know what the conviction is, right now seems like crude oil is pretty well banging around between the low 40s and high 40s, know what i mean? i don't know what the catalyst is to break that out. if the dollar were to rally, all of a sudden the fed -- if the fed were to surprise the market and rally a raise in september, these raises definitely on the table, the dollar's going to shoot up, oil will go down, your trade makes sense. how's it fit into your holistic

view of the macro? >> right. obviously the dollar, a big move in the dollar will impact not only this commodity but all commodities. i guess the issue is, is there a structural change that would suggest that it is right to be aggressive with energy stocks in general, relative to other stocks? relative to any other asset, whether real estate or gold? i don't see that. >> right. got a question, send us a tweet @optionsaction. only one place to go optionsaction.cn optionsaction.cnbc.com. check out our newsletter, 100,000 of you tried it out, what a number. what are you waiting for? here's what's coming up next. >> be afraid. be very afraid. >> that's because the vix is doing something it's never done before. it might be atop the stocks. plus retailers might have just done that and we'll tell you why it could get worse. 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.

oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders? i know. your brain told my brain before you told my face. mmm, blueberry? tap into the knowledge of other traders on thinkorswim. only at td ameritrade. i'm dominic chu. if you're flabbergasted by how low stock market volatility is you're not alone. cboe volatile index took another leg lower after that jobs number that may put fed interest rate hikes on hold a little bit longer. the measures languished after the brexit shock in june. if you're wondering how common

an occurrence a vix rating below 14 is, it's not all that rare. since 2010, there have been 414 times when the vix has traded lower than the fraept mark. many of those days are bunched together in a series. when you separate out the ranges you get about 67 distinct bunches of time since 2010. it isn't the absolute reading on the vix that's intriguing, it's how it looks in the broader ecosystem. hook at the times when vix traded below 14 and the euro traded below $1.14 like now, an effective fed fund rate of 37 basis points or lower, 10-year treasury below 3%, crude oil below $50, all of these things together, unemployment below 5%, this has only happened three distinct time frames in history, all in the past year. it's fair to say we're in uncharted waters how markets

will react in the face of unprecedented market factors. melissa, traders still waiting to see how this range-bound market's going to resolve itself. if you take a look at the action it's hard to say there's any kind of history to peg any kind of future move on. back over to you. >> all right, thank you, dom chu, have a great weekend. >> you guys too. with the vix this low should you be playing offense or defense? mike silver at the smart board with more. >> actually, i think when options prices are very low you have an opportunity to do both. that's actually what we're going to do here. one of the reasons the vix has gotten this low is because the market just hasn't been moving around. for the month of august, we reached realized volatility levels that have only been seen three weeks since 1970. so very, very low volatility. and it seems unlikely that that can be maintained for a long time. so here we are at the markets right around all-time highs. you want to stay bullish but you're getting a little bit nervous. we'll take a look at buying a call option. call option is a bullish bet.

this is how we can do that. secondly, you're concerned about downside risk, who wouldn't somebody we've got a bunch of things going on. we're at all-time highs, at very high valuations, a presidential election coming up, worried about the fed is doing september 20th. you're concerned about downside risk. finally, option prices are low. so you can take a look right here. you can see this is just going back five years. but as i just pointed out, the s&p really hasn't been as complacent as we've seen over the cost of the last month in closer to 35 years or 40 years. so this is really quite unusual. right now you could go out to january and you can buy the january 220 call, spend $5.25 to buy that option. that might seem expensive but consider this. that's just a little over 2% of the current level of the s&p. so basically, if the s&p is up 3%, 4% in in that neighborhood, this trade gassing to be profrtable. you're going to lose the $5.25

in premium if the s&p pulls back, but it wouldn't have to pull back much more before you're going to be better off doing this than buying the market. >> it's not just making an outright bullish bet. with stocks maybe some stocks you want to lock in some gains and you want to do stock replacement. >> nobody knows where the market is going. i was skeptical, i did not think all year that the market would be trading where it is in the range that it is, looking poised to break out again. if you're one of these missing out sort of people, the strategy that mike just described makes sense. it gives you a placeholder, you've defined your risk, you have room to the upside. let's be frank, we are in a bit of a goldilocks scenario for the next weeks. let's say ms. clinton starts to pull away from trump, the fed doesn't raise interest rates in september, stocks are likely to break out. mike's trade probably works and gives you the opportunity to maybe sell a higher strike call, turn it into a call spread, reduce some of the risk --

>> regardless of what the fed does the long end the curve isn't moving much are if you use something like a fed model to price equities what are you going to do? stick it under the mattress? nobody wants to do that. >> there are alternatives within equities. you can decide maybe some of this giveback in utilities is buyable, you're getting more desirable yields. or sometimes you don't have to be involved. the market is frozen, no one knows which way it's going to get resolved. what we know is it's seasonally a bad period. the elections are a wild card. and it is quite possible that the fed stays pat. because of all of the -- >> you hit on a great point. because september and october are historically some of the more volatile ones. here we just came off a really low volatility period. we're going into what is historically a higher volatility period. >> this quarter to date the s&p up 4%, the nasdaq up 8%, what if fund managers decide to mark

this up and you get that breakout? that's something i could see to the end of september. >> 4%, add it up 16 months, it's up 2. we're going nowhere. >> question. what do rodney dangerfield and mike have in common? they both had big hits s os on to school plays. mike's got a little more respect. we'll tell you about that 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.

oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders?

i know. your brain told my brain before you told my face. mmm, blueberry? tap into the knowledge of other traders on thinkorswim. only at td ameritrade. time for an upside call, take a look back on a winning trade. beginning of august starven made a bullish bet on nike. >> here's the trade when the stock was 55, 65. you could have sold 52.5, september put, about 40 cents, use the proceeds to buy the september 27.5 call for 55 cents. your net debit is 15 cents. between 52.5 and 57.5 on september expiration, all you lose that is 15 cents. >> still bullish? >> here's the thing that stock moved above 60 for a short period of time. at that point you probably wanted to be quick and take some of that risk off. the risk of that trade is really

that short put. and then possibly sell a higher strike call to turn it into a vertical call spread. that's how i like to trade risk reversals. you don't want to leave that short put out there too long. >> last week bearish calls on retail, take a listen. >> i think you're going to basically fail, you're stuck in all this. then it's going to basically break this trend. and head lower. whether you look at it short-term or long-term, not good action, not good relative action. >> december 45 puts. spend a little less than $2, $1.91. >> nice trade. so now what? >> well -- i would think it trends lower. this is just -- it doesn't act well. that's an unscientific phrase but a technical one. it's heavy, it's not performing, the presumption is lower. >> i'm going to go along with that. we're seeing profits but you can certainly stick with this, look to spread it. by the way, i don't think shipping rates are actually going to go down from here. net of this week's news. so that obviously was a nice low

shipping rate, good for retail, rising shipping rates not as good. >> next "final call" from the options pit, stay tuned. 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.

oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders?

i know. your brain told my brain before you told my face. mmm, blueberry? tap into the knowledge of other traders on thinkorswim. only at td ameritrade. welcome back. time for your tweets. longer lines at chipotle, how about selling a put, happy lean day, oa for life. >> here's my take on that. i do think the worst is over for these guys. they still have a long way to go, though, before they dig their way out. earnings coming up october 18th. if you're a little bit more concerned because the valuation, you could look at selling and put spread. if you have a bigger risk appetite, maybe just selling the put is all right. >> final call? >> oih, sell short. >> mike?

>> put spread, no oih. >> xit, i like the direction, i think it goes lower. >> looks like our time has expired. i'm melissa lee. thanks so much for watching. check us out next week for more "options action." don't go anywhere, "mad money with jim cramer" starts right now. >> announcer: the following is a paid advertisement for the back2life 12-minute back pain solution, brought to you by back in five, llc. pain pills, hot and cold packs, endless doctor visits, injections, even surgery. if you or anyone you know have tried these or any other ways to relieve yourself of back discomfort, only to find you still suffer from debilitating back pain, then stay tuned, because your life is about to change forever. introducing back2life, the 12-minute solution to a lifetime of back pain. back2life has caused a sensation