. breaking news. you are watching "options action" on what has been a roller coaster week for stocks the dow bouncing in and out of correction territory and erasing all of its gains this year index tanking as much as 1600 points at the lows on monday it was the biggest point drop ever the dow traveling 22,000 points this week, with major intraday swings all week and closing out today higher by more than 300 points the hardest hit, energy, exxon plunging 10%, the worst

performer in the dow crude breaking $60 for the first time this year that could be your big opportunity, says carter worth what are we looking at >> i thought we would look at exxon. the worst performing dow kpenent on the week. it has a massive peak to trough decline and i like the way it ricochetted off the low today. let's put it in perspective. here's dow next chart let's add the energy complex so here's your dow in blue here's one of the parts of the market, energy now more if we add exxon, what we have here is the real wipeout in terms of really super cap stocks it's one of the worst performers of the last two weeks. in fact if you look at the next slide, what we have -- to put this into perspective, this is a weekly bar, look at the next chart. what you will see here on the next chart is that this decline,

17.3% from peak to trough in two weeks. no other stock this size has done anything like that. and so what appeals the me is i think we have gotten down to a reference point. let's put this in context. down 17.3% in two weeks. if you look at the next slide here, what i want to point out is that that has only happened five times five times, going back all data in exxon's trading history, where you have a drop of 17% or more in a ten-session period that's an incident rate of 0.05%. exceedingly rare these are the dates, epic date, 1987 that's an epic date, '08 201. this is in the pantheon of very bad periods. what happened to exxon after it tanked one month later it was up every single time. three months later, every single

time let's go back to the chart i want to bet that this is going to happen. again, here's our average gain on one-month.period, three-month period that's a good bump here. if you look at the final chart, what we have is again the prospects of some sort of nice rebound off of these lows. i want to make the bet that this very large stock is quote oversole. >> all right do you have a trade on exxon mikey? >> yes normally in cases where we have carter frame up a trade we look 60 to 90 days out. this is a situation, and we will see whether he agrees with me here where i'm looking at the market and i feel like if it's going to move i feel like it's going to move fairly sharply one way or the other i would look at march expiration, nearer date. you could buy the 77.5, 82.5 call spread. spend 1.20 gr that slightly less. the idea here being if the stock is going to move sharply in one

direction, with a spread the near dated it is the more it's going to maximize. i have not been into the oil stocks this is a technical play, an oversold condition and one of the ones that sets up nicely to use options. >> what do you think >> what is interesting, we know the implied volatility of options spiked normally i would say you don't want to go that far out of the money but it is so oversold and got hit so hard so quickly the notion of mike's break even which is a few dollars out of the money, the further out of the money, the more expensive options generally are. i would say be careful doing that right now except if these guys are right and they get that reversal you are going to be in the money quickly. i know you would sell an out of the money call to help finance that thing to me, if you are going play this is the way to do it. >> precorrection oil looked like it had its sea legs right,

pushing over 60. some people thinking it was going to 70. who knows what is going to happen in the next many weeks. >> we shorted oil last week. i guess we didn't agree with you on that one. i guess some people did see it that way obviously, u.s. production is ramping quickly. and that's going to keep a lid on oil prices. maybe they are a bit oversold. it is a sharp move it went below 60 i look at the strike, the call we are selling, 82.50. it was almost 90 a short time ago. it feels like this is out of the money somewhat but it really isn't when you consider the kind of moves we have seen. >> in terms of the hour the hour action, in exxon it's important. of the it hit a low. and closed higher. that's a reversal. it's bad related to crude. crude has sort of corrected. that was the point of last week's effort, the 8 to 10%

selloff. now the rebound potential is there, given how big it is, how important for the market and literally straight down. only five times in its history has it plunged 17% in two week. >> you get final word. >> rarely do you get these kinds of moves what you basically see is real money selling and no real money buyers stepping in to take a look at it i think a lot of real money accounts move slower if they are inclined to own it they are going visit it soon. now to a group of stocks that surprisingly held up well amid all of the carnage. retail xrt retail eft falling 2% this week the s&p sank more than 5%. right spots are nike, under armour, tjx and best buy you are looking at a different retail name. >> walmart this is interesting. we just talked about a dow stock, $300 billion market cap walmart a retail stock is one of the best performing stocks in

the market last year i think it was up over 40% or so when you think about walmart, it had a 12% draw down since january 29th that was in line with the s&p and the dow. we had a dramatic selloff from strength, and then juxtaposed to the exxon, which was already a weak chart for the most part and really fell apart. this is the one where i think you want to focus on fundamentals when they reported q 3 on november 16th the stock had a 11% gap. their best same store sales in nearly a decade. seeing good growth off a low base in on line sales, grocery is doing well. this company reports on february 25th i think it make sense to look at it after this stock had a 10, 11% selloff. it recovered a little bit today. what is interesting about this, they showed that chart there is gap down there at 9a. that's the earnings gap. that's what you want to mine to

the downside fur looking at this stock directionally. like most things in this market we have seen a massive spike that's a two year chart. to me this is hard to do from a long premium tanned point meaning owning options on a directal basis mike does this a lot a short premium trade setting up into the earnings event. i want to look at march expiration today it was trading $100. down $10 from the high on january 29th i want to sell the put spread at 1.50 i'm selling one at 3.90. i'm buying one of the march 92.50 puts for 2.30. i'm receiving 1.50 credit. i have 3.50 risk to the downside here's the thing about this. i am actually risk more to make less that's not tag line of the show. i think it's the opposite way. but this is a high probability trade. if the stock does nothing over

the next weeks and sits where it is right now, you are going to make money here. to me, a big part of that is because of what we said inflated options prices i'm making a mildly bullish bet. it has a high probability of making a little money and a low probability of losing a little money. >> a lot of money. it is a $5 spread. losing $3.50 a share isn't a whole lot of money you were showing a two year chart. if you go back ten years we haven't seen implied volatility like this. it didn't get up here in in 20116789 it's remarkable how expensive the options are in walmart. that's one of the reasons you want to be a seller of them. >> the key dan cited is the gap to the earnings in the upside in mid november if the earnings are bad it will retrace that gap if the earnings are decent you have the prospects of obviously not doing that he is doing it in a cautious way which is the only way to do this

any trouble at all, gaps are like magnets it would go right into that. >> why am i selling a put spread versus just selling a put? i want to control that risk. if the you are long walmart and didn't do anything in this downdraft and you still like it. maybe sell it out of the money you are doing the same thing, taking premium to me, if people are not selling stocks that they own, the idea of selling calls against it with all of this vol that makes sense. >> visit our website, and sign up for our newsletter. more than 100,000 of you already have what are you waiting for here's what's coming up next. >> the only thing we have to fear is fear itself. >> that's true because the so-called fear index might be flashing a buying sign amid the carnage we'll explain. plus, does the massive selloff have you asking

existential questions about your portfolio? well then tweet us @"options action." if it's nice we will awer nsit later in the show. more "options action" still ahead. see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, you know? 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

(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." after more than a year in hiding volatility came back to the markets, with a vengeance this week bob pisani breaks it down for us. >> it all started last week when a strong jobs report combined with much better than expected wage growth got everybody jittery about inflation and the small potential for lower corporate profits. the vix last friday went from 17 to 32 in one day, its biggest

one day move in years. that upset the apple cart. one of the most crowded trades on the street was to bet volatility would stay low and the market would not only keep going up but it wouldn't have any big sudden spurts down a lot of traders had sold puts, effectively being long the markets. futures and calls are near term, 30 days out. on friday when we blew through the near term the prices on the puts became more expensive and the vix blew up. it hit 50 at its peakan tuesday. that was the highest level since the chinese devalued dejuan in august 2015. that was a shock that sent the vix well over 50 and it pushed the s&p 500 down nearly 10% exactly happened this week the good news is that the cash fix, 29 today, today is still elevated all this week the vix has been way above those future

contracts. that's a very rare occurrence and it is a sign that traders believe volatility this magnitude will not last long it will be short lift. it's now starting to come back down towards the future prices and that's a good sign where will the vix end up? nobody knows but most are betting it will be above the old price of $10 but likely below $20 we will see. >> bob, thank you so much. if history is any indication, the volatility surge could actually be a buy signal for stocks it's time for a little options 101 with our man mike. he's at the plasma to breaket down for us. >> this is interesting we have got a 30 year history of the vix. that's in blue here. and of the s&p that's in orange as we look at this, one of the things that a lot of the people when look at these charts will observe is that when you see spikes in the vix those like like decent times to buy the market here we have another spike bought it there. here another spike, you would have bought it right there

even here we had a spike not for a really obvious reason but again you would have been long the market another spike, you would have gotten it here why is this actually working the reason is that the vix actually suspect so much a predictor as it is responding to what the market is actually doing. what would happen -- we had the vix closing close to 30. what would happen if you bought the s&p when the vix was 30 or above and held it for one month and three months normally, the returns for the s&p are going to win about 60% of the time over one month, and about 60% of the time over three months if you buy the s&p when the vix is over 30 you get an improvement of about so% you win about two third of the time if you hold it for three months you are going to be up money about three quarters of the time how much money do we make on average? on average over one month the s&p makes about 70 basis points. over three months it averages about 1.7% if you buy it when the vix is

over 0 the one month average return is 1.7% and the three month average return is 5.5% you have a higher probability that it's going to be up and the amount that you make on average is also higher the one caveat i would throw out there, though, of course, is that during the credit crisis the vix went over 30 so you also saw the instances that were the worst one month and three month returns in the s&p during that period you have to ask yourself, do you think this is just a pullback, a temporary correction, or is it something like the credit crisis. >> i don't think it's like the credit crisis. i think we are likely to have a one and three month bounce here. >> what do you think about this spike? it's been an incredible spike, out of nowhere, too. >> i think mike mentioned that period in 2015678 i think it's important to recover, we did recover, and then we failed again in september we had another in 2015. we had a double bottom in q 1 of 2016 we had another

vol spike, a double bottom again with two 10% sort of corrects. once we enter a new volatility regime it's likely to stay for a bit. it doesn't matter if the vix is 25 or 17 it's on a relative basis and i don't believe in a the sort of awakening that we've had all of a sudden after a very long period of no movement is something that's going to go quickly and we are going to see the vix in the low teens again soon. >> the average vix over its life cycle is nearly 20 if you start pulling out the really volatile times we have seen, it's still going to be in the neighborhood of 15 or 16 getting rid of the credit crisis in '98 the '01 era that's going to definitely lower those numbers but what we saw coming into this was exceptionally low. before we saw that period this time you could count on both hand the number of times that had happened since the inaccepting of the vix >> that wasn't a signal -- >> call ratios --

>> of an impending hurricane, i don't know what is. >> we've soon huge upticks in vol both ways. huge upticks each on the speculative products that everybody is basically saying bad things about first of all i don't think those products are dead, we are going to write the epitaph on those too soon but we are seeing signals that this is overdone. >> all right still ahead, ford in reverse the stock sinking to its lowest level in more than five years this week. one of our traders says now could be the time to buy it. he's going to give us that trade when we come back. plus, got a question for one of our traders tonight send us a tweet to if it's nice one of the traders will read it later in the show much more "options action" is right after this well, it's earnings season once again. >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him?

>>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade.

two,that was awful. why are you so good at this? had a coach in high school. really helped me up my game. i had a coach. math. ooh. so, why don't traders have coaches? who says they don't? coach mcadoo! you know, at td ameritrade, we offer free access to coaches and a full education curriculum -- just to help you improve your skills. boom! that's lesson one. education to take your trading to the next level. only with td ameritrade. action". welcome back to "options action." time to look back at some of our

traders' moves over the last week mike gave us a portfolio protect protection trade. >> the s&p has rolled over here. if we look at where we were at the end of last year we are still higher not too late to hedge. what was i looking at? specifically i was looking out to march, you could by the 2075260 put spread for $2.65. >> all right the s&p went right through that lower strike so why don't you tell us what you are going do now. >> this thing is up a little bit more than threefold by now it's closing on $10. time is on our side. but if you think the market is going to bounce here, belta is the directional issue, is not on your side. i think 350% profit on the hedge is good enough for me. i think we are going to take the money and run. >> do you have a comment. >> great timing, great trade there is no reason to risk the premium that you have in it. >> three weeks ago dan sad ford was going to rev higher.

let's listen to that. >> today i think you play it, look at march expiration march 12 calls at 3 cents. if it doesn't hold here it's probably going to 11 then you could look at 10.50 a double week low. and that's down 15% in total >> all right since then shares of ford sunk to below 11. >> just like i said it was going to i don't mean to shed any light on this. but this is important. this was in front of the earnings i was not particularly intern certain about what the fundamental were going to bring. the technical set up wasn't great, especially in the rally the idea was to risk a little to possibly make a lot. the opposite of the trade i made in the a block, and there is nothing left to do you have a different view. >> exxon is opposite a high dropping to a low

dropping 22. is it right if you are a long player to dump your ford no by inference are you holding it? i would think so and if you are not invested taking a crack on the hoang side for a bounce. >> ford doing interesting thing on the autonomousist space recognize out electric vehicles. even if future looks pityful compared to the last five years this company is i think still cheap. there is not a lot of hooes places even in net of a 10% pullback where you can say that. i like the stock even though it has had a plummet. >> up next we'll do tweets and the final call from the options pits we are back on "options action" right after this see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, you know? 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 and i recently had hi, ia heart attack. it changed my life. but i'm a survivor. after my heart attack, my doctor prescribed brilinta. it's for people who have been hospitalized for a heart attack. brilinta is taken with a low-dose aspirin. no more than 100 milligrams as it affects how well brilinta works. brilinta helps keep platelets from sticking together and forming a clot. in a clinical study, brilinta worked better than plavix. brilinta reduced the chance of having another heart attack... ...or dying from one. don't stop taking brilinta without talking to your doctor, since stopping it too soon increases your risk of clots in your stent, heart attack, stroke, and even death. brilinta may cause bruising or bleeding more easily, or serious, sometimes fatal bleeding. don't take brilinta if you have bleeding, like stomach ulcers, a history of bleeding in the brain, or severe liver problems.

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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." it's time to take your tweets. our first is from donna, who

asks aren't vix instruments like puts >> they are related for sure the vix is about implied volatility that is the price of options however if what you are interested in is protecting your portfolio, the easiest way to do it typically is with actual puts on things like kpy and iwi. >> our second tweet, do you think twitter will retest and or exceed the post earnings high from earlier this week >> i think it will i think snap too is another one. i think you could trade snap is twitter against those gaps all day long for the next months if you get them in a downdraft i think those are good buys. >> cbw >> technically fantastic up like that in a week like that and hold those gains, implications are immediately higher and decently higher >> one more? no, it's time for the final call it switched just like that time flies what's the last word >> i like selling twitter puts down at that breakout level, 27.

>> carter? >> exxon for a bounce. big name that's overdone to the downside. >> mikey >> the spike in the vix is an indication we might be oversold. i think you can buy some here. >> have a good weekend time is up i'm scot my mission is simple, to make you money i'm here to level the playing field for all investors. there's always a bull market somewhere, and i promise to help you find it. "mad money" starts now hey, i'm cramer. welcome to "mad money. welcome to cramerica other people want to make friends. i'm just trying to make you some money. my job is not just to entertain but to educate and teach so call me at 1-800-743-cnbc or tweet me @jimcramer. worst week since january 2016.