live from the nasdaq market site, you're watching "options action" on the wild day for stocks the dow closing 666 points of on a percentage basis it wasn't as bad. s&p and nasdaq also reeling. the s&p falling 2% for its worst day since september 2016 the vix surging to its highest level since the election we will have more on how to protect yourself later on in the show we start out with the biggest star in the market apple falling out of favor, sinking 4% officially speaking, a correction, more than 10% down

from its high two weeks ago. should you step in and buy or get away dan? >> it is tough the stock closed poorly, down on its lows, down 11% from the all-time highs it made just a couple of weeks ago. it was one of the best stories in the market. i think what's most important to reflect on today, you can try to guess why the s&p 500 sold off we know why apple sold off there's something fundamentally that's changed the big part is for the last year there has been a notion there was going to be an upgrade super cycle because of the iphone x last night's results told you there is not going to be an upgrade super cycle. what they did was played a good trick on their most fateful customers. they raised prices on iphones, therefore their asps, average selling prices, were much higher year over year that's fantastic for the company.

it meant good margins. the concern is they missed by 3 million units. the channel inventory is at its highest, at 4 million. people think they are going to miss the next couple of quarters here's the thing a lot of the damage has been done this is all known. the company did say her going to be buying a butt load of stock back in the next year. they are going to announce that in april i think this stock could have downside, more orderly than the last couple of weeks over the next few week. if you get back to 150, which looks like a good support level, a double bottom from september and august right there, then you want to get in so how do i play this right now? i think you have the implied volatility, price of options high we have that moving showing poor relative strength. i would look to start nibbling next week. i'm going to use this as an example. the stock was 160.50 on the close. you can look out to march expiration, six weeks away and sell the 150 put at $2 you are going to take in 1.25% if the stock is above 150. to me i like this as nibbling an apple. after the news is out and getting ready for what should be

a better new cycle in april. here's the thing worst-case scenario, below 150 on the contract short, you are long 100 shares of stock >> it's interesting in apple in particular because of course they have $165 billion in net cash on the balance sheet. what is interesting about that, as the stock begins to decline and the ever larger percentage of the market cap is a big pile of cash, that creates a pile of cash underneath it, which is why i like selling puts in apple when volatility goes up because actually in a name like that, cash doesn't have much volatility in an environment like this. the implied volatility should be coming down. i like this trade a lot. >> i think it bounces on monday. >> bounces on monday >> that's my hunch we have come down fairly quickly. it is at two or three times the rate of the market it is a lower beta stock than the market and you are into support support is not a plywood board you sink into it

you don't stop you're into support now. can it go day to day lower sure, but can it go all the way to dan's line? but i think you have got to start now in the i believe inning process >> let's say at 160 you were to sell that 150 put at 2:there let's say at march expiration it's at 150. implied volatility or the value of that option is going to increase traumatically you have a decision to make. if the stock tops tomorrow and goes up, that put is going the lose a lot of value here and you are going to be able to take in that premium to me, this is a high probable to make a little money the options market saying there is almost an 80% probability you make money. >> you sell that put, you are willing to buy the stock for $148 if you have the stock put to you at $148 and volatility remains high, you can sell calls in that until you get called out and go into this process and spend

time there haven't been a lot of places to collect premium or collect yield in the marketplace for the last couple of years now we are seeing some signs of. if there is something positive to take out of today that's it. >> let me add one point. if you were longing on this stock and you were thinking about adding to it, this is a great way to add yield to that position if you're long in the stock, i like the idea of selling downsized puts. >> one market was hit hard energy plunged nearly 4% for its worst day in two years the group falling 7% this week this as crude has held up well, hovering arnold its highest level in three years will oil follow stocks lower carter, show us at the plasma what you found. >> let's go. sure, crude's got downside risk versus upside potential or at least a ratio that's undesirable. we know cyclical things get pounded harder than anything when things go wrong you saw that in energy today you saw it in certain industrials this week. here's crude oil here's the chart here are the lines well defined

and i'm thinking that, just as every other time we've sort of failed at or near the high and also bounced off the low, that we're due for more to the downside still at our near highs. let's look at a few other charts this is the chart comparing the commodity and the xle. we know that the stocks have started to turn down and essentially crude has gone its own way. that's probably the tell that this is ultimately not going to keep going my thinking. all right. then there is this issue, the relationship between commodities in general and the currency u.s. dollar and also crude. you see this inverse relationship the presumption is we've reached about the limit, right, so that this is here this is here and then i want to play for some sort of convergence. okay so crude and the dollar.

here's the dollar long term going back to -- we've sold off quite a bit. i think we bounce here for the following reason here's the line. well defined tops at a common level. and the presumption is we bounce here my bet is dollar hire, which would then if the relationship works out, this converges, here's our uso, put in new lines this way sell off to the pivot point. put in the lines this way. sell off to the wedge. anyway you get it, i want to be short crude. >> how are you trading crude, mike >> i think very quickly -- i haven't been bullish on crude despite this rally one of the reasons, of course, i haven't been seeing u.s. production ramp.

the other thing that would potentially support it as the u.s. becomes the biggest producer of crude oil in the world is production cuts the product. they have essentially i think pulled back their production in a i with to stabilize crude oil price where is they could, saudi arabia and russia here there isn't a whole lot they can the to bolster crude prices in fracking and lower cost of production on top of that, we're seeing demand drop. that's not really a good recipe overall. uso, which he pointed to, is also interesting it's a fund. it has fees in it. if you take a look at the longer performance of uso versus oil, you see it actually underperform i was looking out to april the way to play this, the 12.5, 11.5 put spread. that's a $1 put spread costs 35 cents to buy that here we are paying a fifth of it normally you pay a quarter of it i think the way it plays out. >> it's dollar cheap you are risking 20 to make 40 if

the authentic is down at 11.5. the thing is you have until mid-april to play this out and you are looking at a retracement of just the movement over the last four or five weeks or so. to me this is a better way than shorting the uso etf. it doesn't look like you have a whole lot of a heck of risk. >> you are actually risking 20 to make 80, not 406789 that's a one dollar spread. that's a big payoff. four to one. >> dan's point is you just undo the recent week-over-week advance and put you back to the trend. >> what about the energy stocks, which were underperformers in today's session? >> they have both, idiosyncratic. exxon was news-related but they have the burden that if indeed the commodity has a giveback, they will also suffer. you have to assume it's not a good place to be relative to the other parts of the equity market >> you need production movement in reserves.

we could say that's the asset or what happens they are to the investing as much as they want to and if they are not, maybe we don't want to. >> you would be inclined to put a bearish bet on energy stocks. >> it's interesting. in the energy space, the service companies, those are the ones i like halliburton is my favorite in that space but that's a different story fundamentally other than the integrated oils. think about them as proxy for oil itself. >> for everything objections action, check out our website. while you are there, sign up for our newsletter more than 100,000 of you have. don't be the last one in in the meantime, here's what's coming up next ♪ mick, we'll do better than that we'll you how you ca protect your whole portfolio for close to nothing. plus calling all "options action"s fans. got a market question on this big selloff.

big selloff. tweet ust guy. what's the hesitation? if it's nice, we'll answer it on air when oop oop returns "options action" is sponsored by think or swim by td ameritrade bp until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade [ horn honking ] [ engine revving ] what's that, girl? [ engine revving ] flo needs help?! [ engine revving ] take me to her! ♪ coming, flo! why aren't we taking roads?! flo. [ horn honking ] -oh. you made it. do you have change for a dollar? -this was the emergency? [ engine revving ] yes, i was busy! -24-hour roadside assistance. from america's number-one motorcycle insurer. -you know, i think you're my best friend.

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(sighs) i hate missing out missing out after hours. not anymore, td ameritrade lets you trade select securities 24 hours a day, five days a week. that's amazing. it's a pretty big deal. so i can trade all night long? ♪ ♪ all night long... is that lionel richie? let's reopen the market. mr. richie, would you ring the 24/5 bell? sure can, jim. ♪ trade 24/5, only with td ameritrade. action." the markets getting crushed and that had the vix doing something it hasn't done in a while. bob pisani is at the stock exchange with more hi, bob. >> three issues had the markets rattled. rising rates, political risk, and today a little bit of

earnings disappointments the vix, the volatility index, moved to the highest level since before the election. it was 11 last week. the move up is a about it of a surprise for most of the year the demand to buy protection has been dropping investors had the opposite concerns, fear of missing out, fomo, not fear of losing out, folo, i just invented that investors are buying calls to capture up sides in the market not buying puts to guard against the downside what does this tell us are investors panicking? for the most part, i don't think so when the markets have a sudden notable move down as it had for three days this week, the vix will invariably go up because as the market drops the cost of buying protection goes up, vix goes up. vix futures contracts for the next few months are lower priced

than the front load contract this usually indicates a short-term panic that will subside. that happened in the past. also, if you look at the cost of buying protection way out of the money for the s&p 500. the price of buying puts, 5% below where the market is now, the price for buying that protection has increased, bu it's not at a level that would suggest true panic it's not the kind of aisle i don't care i'll buy any protection at any price down the road kind of panic by the way, the s&p saw its first pullback in 321 trading days today since september 9th of 2016. and earnings were up, but not up dramatically and i think that's kind of important. >> thank you, bob pisani bob pisani over at the nyse. if you are worried about more selling, what should you do mike is at the plasma.

briefly how do you determine the spike in the vix >> there are a couple things going on when you see a spike in theics have. it isn't really a huge spike when you look at how the market has behaved over 30 days with the vix at approximately this level, the absolute worst 30-day period you have seen since january 30, 1990, it's down 3% that's a sharp peak to trough. we have already seen a line of that decline already even in the worst case we are not seeing the absolute bottom falling out. the other point, the market is still higher when you are looking to hedge your portfolio there is in fact still time to do that. the first thing you need to do of course is find a portfolio proxy. look for an etf that looks like your portfolio then think about am i preparing for a dip or an outright crash and when the prices are high eer, think about using spread. let's look at what the vix has done you can see it has risen quite sharply. as i pointed out we aren't quite

at full-on panic mode prices yet. obviously the s&p has rolled over here. if we look at where we were at the end of the last year, we are still higher not too late to hedge. what was i looking at? out the march. you can buy the 27.60 put spread for $2.65, if we went back to that earlier chart it will give you a sense of how much protection that affords you. we are not likely to gap lower a trade like this gives you protection and gives you time to think about other things to do if it becomes necessary. >> what do you think of mike's trade and the levels he chooses? >> the levels are good we talk about it a lot i think the key issue is we know equities have come a long way. in fact, people have been gorging on equities. how ironic that the thought was, well, if you have the great end of the bond market, money would go into the equities that didn't happen at all. presumptively there is downside.

it will find support day to day. even if it's going meaningfully lower, you fete rebounds monday, if the you do get a rebound, it's after the initial day two, monday, tuesday, that you can really start to figure out what's coming. >> i would just say this you know, i haven't been a bull by any means over the last few months here, and when i look at this parabolic behavior, i can't see anything more healthy than a 5% or 6% krerkz after this parabolic move if you are a long-term buller, you think that 2018 is going ab great year and everything is going great you really need a pullback like this what were you going to do? were you going to buy amazon when it gapped up 5% this month? to me there isn't any reason to panic, here especially if you have been strong for the 400-day

period where we have had a peak to trough decline. >> if you are a prudent investor of some size you have been time trimming it's not as though you were buying at the highs if you were, without sounding like a real jerk, you deceive deserve what happened today. >> going back to the issue of panic, options prices and the premiums are higher, how much higher the put spread is 2.6 there. it goes out to april it costs less than 1% of the current level. spy and protects you down to the 2.60 level that's not off the charts expensive when you think about getting insurance, especially considering the market is still higher this year. >> you could keep spending money on insurance and that could detract from your returns. at what point do you decide i am not going to or it's too costly? >> that's a good point to make the other point to make is that if you own, for example, it does pay a dividend some of that is going to be financed by that it elevates the price of puts, all else equal but that's worth some consideration. >> mike said it. this 15 wide put spread that is near the money and goes out to

mid-april costs about 1% of the stock price. if today caught you off guard and we get a bounce tomorrow morning, and you say i don't want to live through a week of this, it is a great time to slap on protection. still ahead, alphabet tanking. the chart master says there could be relief in the charts. they give us all the details. plus, have a question about today's selloff? tweet us, and the traders will answer them later in the show. much more "options action" after this >> announcer: "options action" is sponsored by think or swim by td ameritrade. well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade

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(sighs) i hate missing out missing out after hours. not anymore, td ameritrade lets you trade select securities 24 hours a day, five days a week. that's amazing. it's a pretty big deal. so i can trade all night long? ♪ ♪ all night long...

is that lionel richie? let's reopen the market. mr. richie, would you ring the 24/5 bell? sure can, jim. ♪ trade 24/5, only with td ameritrade. welcome back to "options action." time to take a look back at some of our open trades last week khouw and carter said alphabet was gearing up for a big rally on earnings. >> google has been underperforming the tech sector, underperforming almost two years. it is just now starting to outperform and break above trend of, that's a key setup i think you want to play google long into its number. >> i think the way to play this is to buy a call spread. the february 11, 85, 12.70 call spread

>> it was a miss the tech giant sinking more than 5% today mike, how are you trading alphabet now >> better to buy the call spread than the stock but we got the direction wrong. i still like the stock i think it is still a decent valuation. i think the market overresponded to this, and i actually woul roll out and down in this case because the stock is lower >> i'm with you on this. we outsmoked it. it gapped down the idea was it would gap up on earnings but the gap leaving it at a level of support i think we kick the can down the road. moving on, also last week, dan said the ibb biotech had more room to run. >> they just made two 50-week all-time highs they're 10% away you could buy the march 120-130 call spread, paying 2.25 for that, buying more of the march 120 calls for 2.55, selling one of the 140s at 25 cents. >> that was a bust too, the biotech etf down 3%.

what do you think, dan >> i think we were overzealous last friday. it was a bad trade at this point i have until march expiration with a break even this spread that cost 2.25 is now worth about 80 cents or so i like to use a 50% premium stop on long premium trades it is a cut and money. it has a low probability of being in the money >> what are you thinking about looking at it longer term? >> i like it my trade doesn't work. i bought the high. and now i have a very low probability of success i would maybe take that premium and set up into something that has a higher probability. >> selling puts or put spreads like you did with am would foot the bill thank you, sir >> rebound potential. >> up next we've got your tweets and the final call from the and the final call from the options pit.ocomplicated, you k?

>> "options action" is sponsored by think or swim by td ameritrade this gentleman?break it down for hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade kayak compares hundreds of travel and airline sites so you can be confident you're getting the right flight at the best price. cheers! kayak. search one and done.

(sighs) i hate missing out missing out after hours. not anymore, td ameritrade lets you trade select securities 24 hours a day, five days a week. that's amazing. it's a pretty big deal. so i can trade all night long? ♪ ♪ all night long... is that lionel richie? let's reopen the market. mr. richie, would you ring the 24/5 bell? sure can, jim. ♪ trade 24/5, only with td ameritrade.

welcome back to "options action." time to take your tweets here. the first tweet is from christos who asks as someone who turns 18 tomorrow and wants to get into the markets soon, should by scared right now >> absolutely not. you have your investing lifetime ahead of you you have no idea how many cycles you will see between now and then. >> so buy bitcoin? start with that. >> he did not say that. >> you may learn some lessons very quickly if you do that. >> our next tweet is from binkus who says i sold a june stock. >> if you think the stock is going to stay above 72.50, it is

a good one >> you put it on let's stick with it. >> there you go. time for the final call from the options desk carter. >> short crude oil using the uso etf. >> not too late to hedge if you need to. >> if you are long apple, i like the idea of selling downside puts in march. >> our time is expired i'm melissa lee. check out the website. meantime a special edition of "mad money" is coming at you right now. hi, i'm dana loesch from the dana show and over the years, you've seen me interview some pretty cool people, right? today is no different. i'm speaking with dr. nathan bryan. he is one of the leading minds in nitric oxide research. one of the leading minds in the world. now, i recently went through, i guess, a health breakthrough is what you can call it, with my energy and stamina for myself and my family as well. and this guy is responsible for the science behind that breakthrough. i've been telling everybody who's gonna listen, i tell about super beet. it is the