we're live at the nasdaq market side on this expiration friday we're going to take a break from politics and talk about get this, the markets. the guys are getting ready behind me. while they're doing that, here's what's coming up on the show >> call it the perfect storm >> all right let's not get too dramatic, but if you're worried about stocks, we'll tell you where to hide out. plus, deere shares are getting crushed and that could spell trouble for another giant and some shares of home depot and lowe's this week and there's something in the charts that suggest more pain.

the action begins, now >> let's get to it because while the s&p is falling more than 1% in the last month, the so-called safety sectors are rallying. telecom and utilities up more than 4%. even consumer staples, managing to eke out gains. if volatility picks up, is this where you want to be dan? >> it's interesting because you know, we used to talk abou interest rates we thought we were in rate increase cycle here. fed fund futures are pricing less a 35% chance of a hike in december that's why you've seen these rate proxy names come back to life telecom is an interesting one. we know there's some pretty fat dividend yields there. we looked at utilities here, staples are acting well. so at the end of the day, if you're looking for safety trade, if volatility is going to pick back up, volatility may become a factor, it makes sense to look at some of these ones that are

with some decent yield >> michael, what did you do? >> one of the things that's interesting about these safety stock, you were talking about valuation, they're different i this space you can look at names like staples and utilities. uations are higher in the telecom for example and if you're looking for yield, the latter one is where you're likely to find it. >> there's no great valuation frankly anywhere in the market utilities are near histori highs, so, too, for staples and teleco isn't a sector. they love at&t >> only like three stocks or two. >> it's like coke and pepsi. it's tmvz. so the question is, can they continue to generate the cash flow and they buy things to do this they do whatever they have to because no chairman wants on their watch, i cut the dividend at&t so they're just going to keep desperately trying, but as operating businesses, i mean -- >> to the point, one of the things you should look out for

if you're looking at stocks is when you see high dividends. very high yields that often can be a warning sign, actually it's the market telling you it might be unsustainable >> you're trading at&t >> i'm looking at at&t, the it's a stock i bought close to 36 about a month ago prior to the earnings it's important to think about why we're buying stocks in a market that was all time highs this was year 52-week lows i was thinking about something fundamental. that yield also, so, you know, to me, i think this stock sets up pretty well if you believe the fundamental story, that gap you see there a few weeks ago, the stock was up 5% and then here's the other thing. "wall street journal" reporting yesterday they're time warner acquisition bid for $85 billion bid, i liked this. this is the reason why i was doing it if we get more clarity on it, i think the stock is going to rally. i'm long the stock i bought more today. i think there's an opportunity near term to sell against my stock and do a buy right and add

additional yield this is a stock that has an annual dividend yield of 5.2%, so today, when the stock was trading at 37.5, say you wer to buy 100 shares of stock, you look out to october expiration and sell one of the october 9 calls at 38 cents. you have a buy right on. your max gain is up to $39 in a stock of 150 if the stock is 39 or lower, you take in that 38 cents, in tw months, that's a 1% yield or just yield in general and if you annualize that, it would be nice yield on top of the 5.2 gives you a buffer to the downside and i think it's important to remember that this is long stock, short call. the stock is going to pay a 49 cent dividend in october, so i'm eyeing a move back towards the 40 range if i get to october and the stock moves up to 39, i'll roll that to a higher strike, so to me, long stock, short call, sets up well. it's a super yield trade in a

name that's beaten up. >> in yield trade, typically, in high dividend paying stock, you're not expecting the stock to rocket higher which is one of the reasons you might look to sell upside calls. oftentimes, you'll find that the premium u is low actually, interestingly, in at&t, the price is up a little bit resently, which makes this somewhat more attractive from a yield trade perspective, that makes sense >> dan respects price action and what i was thinking, this is a stock that had a 52-week low 25 week lows and 52 week highs in newspapers. capped up and now he's buying the check back good technique the question is, the upside is about a buck 50 and downside, so the question is is, do you get the next resurgence?

>> this is an options show >> collecting 80 on the dividend and the call >> sitting in the middle of those very well defined. >> this is a sleepily friday not much going on. this is a starter drug trade for equity traders here. so you own something, not going to sell it you look out, sell calls against it if you feel it's going to rocket, you cover the call so to me, this trade gives you optionalty on your long equity holdings >> let's move from the starter drug to the opioid now, to deere. this is rival caterpillar rallied 1% before today, they were trading in lock step carter, you say deere's pain could triple down to its dow counterpart. why? >> we know they're related it's not these two specific. let's look at a few charts inferences are based on evidence >> break it down for us. >> it's based on evidence but

also a presumption so want the to do this rapid fire i'm going to go through fairly big industrial conglomerate names. cummins, 25 billion. market cap, it's clear uptrend. there's your break in trend. to the next stock. ingersoll rand 21 billion mark up clear uptrend and now, here is a breaking trend i'll just give you some nice red arrows next one, here, we've got two works. 48 billion big uptrend. here's your trend line your breaking trend. there's a pattern. yeah, keep going now, a big deal. this is 80 billion biggest railroad in the world. uptrend. here's your trend line here's your breaking trend keep going flavor of the day. deere. uptrend. here's our line. ready. breaking trend all gapping. inference. here's caterpillar here's its trend it's the only guy holding up, so either their miracle or going the same way i bet you they're going the same way.

pretty simple. >> what do you think >> caterpillar is an interesting case because this thing is trading not far off its all time pique valuations it's rallied strongly. had a great year, but it's earning about 40% of the revenues now than it did in 2012 60% lower eps. if something's going to set up for some weakness, companies with leverage, company that is are cyclical, trading close to pique valuations when maybe fundamentals don't justify it. to me, those are the ones that set up for a potential pullback. ooichl inclined to go along with carter here. i'm going to buy a put spread to do that. october 115, about four and a quarter. sell the 100s for 60 cents spending $3.65 for that, which could be worth as much as $15 if it went to the maximum value of the spread only laying out a small amount of premium and giving myself

some time for this to play out i think there are plenty of things that could make it play out. >> the trade itself, i like the structure, the fact it's in the money here you're giving it, the stock has been range bound for a month or so, so it helps you u stay in the game a little bit. when you see a competitor have a gap, that was a nasty break down it could be you know, it could be telling a story about some of these multinational industrials that you know, maybe things are not as easy. >> cat is more multinational it's much more focused on construction and mining than deere is, which has considerably more ag and forestry type businesses, therefore, it's more volatile and vulnerable. >> how closely do you pay attention to what's going on with commodities, particularly with caterpillar >> it's all related. >> than deere. >> has nothing to do with the key commodities like copper. iron ore and aluminum. but it really, yes, deere was the one that broke, but every one of those other stocks on their earnings broke cat has come right back to its

all time high and it's somehow defying what is going on generally speaking in industrials. whether it's big industrials like ge or the transports can cat just go it alone probably not >> if you're long the stock, the amount you're risking is a fraction of the gains you've had this year. a very small fraction. why would you not think at this point. >> much more options actions coming up. here's what's coming up. >> they're selling mortimer. >> stocks just posted two back to back weeks of losses. >> sit back. sell, sell >> don't be so dramatic. because we have a way to protect your portfolio plus, calling all options action fans reach into your pocket, grab your phone and tweet us your question if it's nice, we'll answer it on air when options action returns. >> logically [pony neighing]

what? hey gary. oh. what's with the dog-sized horse? i'm crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. isn't that right warren? well, you could get support from thinkorswim's in-app chat. it lets you chat and share your screen directly with a live person right from the app, so you don't need a comfort pony. oh, so what about my motivational meerkat? in-app chat on thinkorswim. only at td ameritrade.

hthis bad boy is a mobile trading desk so that i can take my trading platform wherever i go. you know that thinkorswim seamlessly syncs across all your devices, right? oh, so my custom studies will go with me? anywhere you want to go! the market's hot! sync your platform on any device with thinkorswim. only at td ameritrade welcome back i'm dominic chu. we've been reporting on and talking about lack of volatility in the marketplace for months now. but over the last couple of weeks, things have started to get dicier while today it wasn't a loss of 1% or more for the dow, yesterday was and it was just the third all year we came close last week on the heels of all that north korea tension. to put it in perspective, last

year, there were 24 times th dow had a 1% or fwraeter drop. in 2015, there were 34 such instances. for the most part, this is still the buy the dips, shake it off kind of market there are though fears we could see a reversion towards more volatility take place. now, in fairness, stocks aren't even close to being in panic mode there was a time when some of the geo political shocks seemed in markets would lead to much more than a 2% pullback, but there are some traders who look at the recent price action and of course, bets being made by hedge fund managers like bill ackman on more stock market volatility michelle, they're perhaps getting more cautious than they have been lately it's something to keep an eye on >> certainly is, thank you so, if you are worried about more volatility, how can you protect yourself mike's at the plasma with the call to action mike >> thanks. so, although we had a slight bump up in volatility, really, we haven't seen that much yet. so if you are interested potentially and want protection,

that's when you might want to consider buying a put. also, if you're anticipating more volatility, are these moves we've been seeing recently a sign of things to come and finally, options prices are low. they're a little bit higher than they were, but they are still, in fact, quite low so we can see obviously the dow, we were talking about dow stocks earlier, had quite a rally this is a small little move to the downside that we've had here, so i still think that if you're interest in buying protection in your portfolio, you have the opportunity to do that i'm looking out to december at the 210 puts, you can spend $4 to buy those less than 2% of the price of the diamond etf right now, so an inexpensive way to give yourself a hedge to the end of the year gives you a little bit of leverage in the event we see sharper move for the downside. >> there's the trade what do you think of it? >> let him go to the charts first. >> nothing's happened.

think about it we had an all time high. a week or so ago tuesday, s&p was what, 24.90 spot 87. sticking that number in my head. here we are down 2.6%. i mean, it's like nothing's happened and the feeling is though the market died. this is just a salvation of what could happen and it's all depending upon a few vix stocks twef top five stocks in the s&p. the bottom is 250. and that's going to determine -- measure of what happens. >> not every constituent of the dow jones industrial average has rolled over yet. we were talking about one of the big ones caterpillar. there's only 30 stocks in this index and one of them is still trading right up there things that could make this trade work out obviously, a pullback in a name like caterpillar, that could help general volatility in the market and also, listen, when things start to turn over, you said correlation rise

that's when products like the diamonds, like the spy, the qs, are going to behave much more sharply than they have typically in upward moving markets >> what i like about this, why i wanted you to go with the charts, what i like is if you have some of these dow winners that have appreciated a big deal, 210, your strike price is really the level where it broke out and that's where you want protection for and here's the thing. we've been lulled to sleep how many times have we had a 1% drawdown this year twice or something it can happen at once and then you're going to be scurrying for protection i want to make one other point so i like the idea of this if your long is 210 and near 210 then you want to pred that by selling a lower strike put, take that off the table the likelihood of it going below 200 is not great anytime soon and that's one way you trade this >> consider that if implied volatility in if the vix was around 20, you would eck pecht the move on average each day to be about 1%. >> we've had two instances this year so we're talking about this is

happening every 2% how about it started every 20% >> what do you think about russell? that had a much bigger drawdown than the spy >> that's 2.6. the s&p equal weighted is down 3.3, so it speaks to a few big names. a week or so ago, the dow had eight, nine, ten days in a row where it was up. it's a lower index when the dow was start tog outperform, that's a defensive kind of thing. because people are wanting to be in those safer blue chip names, but a lot of them have had no ground. like boeing hasn't cracked yet mcdonald's hasn't. we talked about caterpillar. a lot are pricey >> all right coming up, home depot seeking 5% in the last week and there's something in charts that suggest more pain on the way we'll break it doun when options actions 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. see options data like never before. with thinkorswim only at td ameritrade.

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compares... ...prices from over 200 booking... ...sites ...to save you up to 30%... ...on the hotel you want. trust this bird's words. tripadvisor. the latest reviews. the lowest prices. what?pony neighing] hey gary. oh. what's with the dog-sized horse? i'm crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. isn't that right warren? well, you could get support from thinkorswim's in-app chat. it lets you chat and share your screen directly with a live person right from the app, so you don't need a comfort pony. oh, so what about my motivational meerkat? in-app chat on thinkorswim. only at td ameritrade. home depot shares fell this week that's great news. here's why

>> on options action, it's how we build sturdy profits. risk less so we can make more and that's exactly what ko and carter did with their bet on home depot carter say -- >> so i think the next move is down and i want to bet against home depot against home depot having rallied steeply going into its earnings >> but just shorting the stock that could lead to mass destruction. so, to make a bearish bet, mike sold the september 155 call for $3.40. to keep all that money, mike needs shares of home depot to stay below $155. above that, profits trade low. mike won't see losses until home depot rises above the call strike price by more than the

$3.40 he took in b september expiration however, mike will be vulnerable to infie anytime losses. he brought the september 160 call for $1.40 and created his bear call spread >> see what i'm getting at >> not even close tim. >> now, between the $3.40 he collected by selling that lowe strike call, and dollar he spent buying the higher strike call, mike still pockets $2. that $2 is the most he can make on the trade but to keep all of it, mike needs home depot shares to stay below $157 by september expiration above $157, losses do kick in, but they are limited to the difference between the strike of the call that he sold and the strike of the call he bought minus that credit. >> little clearer now? >> less than ever, tim >> we'll make it real simple for you. mike can now do something even the handiest of men can't do

not exactly. but he can make money whether home depot goes down, stays flat or even goes slightly higher and since the time of the trade, shares have fallen nearly 5% and now, options action fans are all over the world want to know just one thing. what will ko and carter do now >> what do you do with that trade now, mike? >> you know, we've made essentially all the money you can make on this trade do you think we have more downside is this. >> i think so. there's the tactic, happen to be short, but there's a structural hit a high of 160. given back little. it's still an operating business it's a hardware store. and after all, if things are getting in trouble, home depot is not immune from it. >> this thing, you could buy it back for 23 cents a day, take

your profits and roll out to the october 145 put spread and you're playing with -- >> so, mike, you went into the event and knew prices were elevated you sold premium into it you got it right, so now, you want to roll it out. >> i want to roll it out because i think premiums are relatively under prize priced. they tend to go up before catalysts like earnings, often, they go up by more than they should. if you can identify a direction and now, we've got a trend you're trying to make a bet, but once it stars to roll over, that's where you can press your bets again, with house money. >> got it. up next, your tweets and the final call hey gary, what'd you got here? this bad boy is a mobile trading desk so that i can take my trading platform wherever i go. you know that thinkorswim seamlessly syncs across all your devices, right? oh, so my custom studies will go with me? anywhere you want to go!

the market's hot! sync your platform on any device with thinkorswim. only at td ameritrade

steve, other than making me move stuff, i'm here at the td ameritrade trader offices. 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. see options data like never before. with thinkorswim only at td ameritrade. time to take some tweets first question is from james who asks is it dr. spock logical, redundant, isn't it, to see baba hit 200 by september expiration

love the show. dan, what do you think >> i think it's entirely -- what it will be if you look out to september and look at the 200 call, the options market about a 2% chance of that. you said september 18th, i'd say that's much higher >> second question from mike, who says i own a small amount of tesla shares what's the best way to protect them from downside risk. mike, i have to think, protecting tesla shares must be very expensive >> it is the cars are expensive, so are the options but if you buy one of the cars today, you get a federal tax credit to off set that, you need to sell options against it. put spread callers are probably the least expensive way to make that bet >> time for the final call carter >> caterpillar has been perfect. perfection does exist, but doesn't last >> sell your caterpillar >> sell your caterpillar, okay >> with the october 115 100 put spread, you can make that bet at a low risk >> so, at&t. this was kind of a stock call.

i like the stock call. i think it's going to be higher, but i think the idea of selling calls makes a lot of sense >> that does it. don't go anywhere because mad money is up next right here on cnbc so don't move >> announcer: next, a paid presentation from perricone md featuring a lively discussion on aging with some of television's favorite faces -- peri gilpin... tracey bregman... gloria reuben... and your host, courtney thorne-smith -- brought to you by trusted guthy renker. ♪ [ indistinct chatter ] >> [ laughs ] >> they're ready for us. come on! >> everybody ready?