breaking news. you're 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 the index tanking as much as 1600 points at the lows on monday the dow traveling 22,000 point this is week with major inter-day swings all week. and closing out today, higher by more than 300 points the hordest hit, energy. crude breaking 60 for the first time this year that could be your big

opportunity. or, so says chart master carter worth. and let's get right to him carter, what are you looking at tonight? >> i thought we would look at exxon. this is the worst performing dow component on the week. massive peak to trough decline let's put it in perspective. here's the dow you have this topping out let's add -- next chart, add the energy here's your dow in blue. here's one of the parts of the market energy now more and if we add exxon, what we have here is the really -- the real wipeout in terms of supercap stocks, one of the worst performers of the last two weeks if you look at the next slide, what we have to put this in perspective. this is a weekly bar these two weekly bars. look at the next chart and what you'll see here on the next chart is that this decline 17.3%. from peak to trough.

in two weeks no other stock of this size has done anything like that. what appeals to me is, i think we have gotten down a reference point. let's put this in context. down 17.3% in two weeks. the next slide here, what i want to point out is that that's 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 instant rate of 0.05%. it's ek seedingly rare these are the dates. that's an epic date. 1987 '08. 2011 so this is in the pantheon of very bad periods and what happened to ekson after it tanks one month later, it was up every single time. three months later, every single time i want to make the bet let go back to the chart i want to make the bet that this is going to happen again

here is our average gainon a one-month period for exxon three-month period quite 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 these lows i want to make thebet that thi very large stock is quote oversold >> all right you have a trade on exxon mikey? >> yeah, normally, in cases where we have carter frame up a trade, we look 60 to 90 days out. this is a situation. we'll see if he agrees i'm looking at the market. if it's going to move, it is probably going to move fairly sharply one way or the other you're going to take a look at opgs that are near-dated more than we would normally expect. you could spend $1.20. slightly less than one fourth the distance between the stripes. if a stock is going to move sharply in one direction with a spread, the near dated it is, the more rapidly it's going

maximize value i'm choosing the structure usually, this is, i haven't been overly enthusiastic about independent grated oil stocks in general. more the oil service based i liked. this is a technical play an oversold condition. it's one of the wones that sets up the options >> we know it's spiked over the last couple of years no -- weeks this stock is so oversold. it got hit so hard so quickly. the notion of mike's break even. a few dollars out of the money the further out of the money, the more expensive opss are. let's be careful doing that right now. if these guys are right, they get that reversal, you'll be in the money quickly. you would sell an out of the money call to finance that sort of thing to me, if you're going play this is the way to do it. >> precorrection, sort of, oil, looked like it has it sea legs back, right? pushing over 60.

some people thinking over 70 who knows what will happen >> we shorted oil last week. soy guess we didn't quite agree with you on that one i guess some people did see it that way u.s. production is ramping very quickly. that will keep a lid on oil prices maybe they're a little bit oversold here. it went below 60 you look at the strike we're selling 82.5 the stock was almost 90 just a short time ago it feels like this is out of the money some what. it isn't >> two things. in terms of the hour to hour action in exxon is important it hit a low of 7390 and closed at 75.80 that's what reversals start to look like. and second, it's so bad relative to crude crowd is finally corrected we have the 8, 10, 12% selloff now you do the other way you make the bet that exxon has rebound potential given how big sit, how important it is for the

market, and how literally straight down, only five times in its history they have plunged 17% in two weeks >> mikey, you get the last word? >> it's unlikely to see these moves the. you see real money selling and no real money buyers stepping in to take a look ate i think a lot of real money accounts move more slowly. they're looking at the situation, deciding to move in >> now, to a group of stocks that surprisingly held up well amid the carnage that is retail the xrt retail ervegs tf falling nearly 2% this week. the s&p sank more than 5%. bright spots were nike, under armour tjx and best buy daniel, you're looking at a different name >> yeah, so walmart. this is interesting. we talked about a dow stocks a $300 billion market cap. now we're talking about walmart. one of the best performing snox the market last year up over 40% or so. when you think about what is

going on with walmart, yeah, it had a 12% drawdown peak to trough that was in line with the dow. we had a dramatic selloff from strength and just that posed to the exxon. already a weak chart it fell apart. this was one where i think you want to start focusing on the fundamentals a little bit. this company reported their q-3 in november, the stock had an 11% gap. they had the best same-store sales in nearly a decade good growth off a low base in the online sales grocery is making up a huge part of their sales that is doing very well. this company will report on february 20th. look at it after the stock has just kind of had about a 10, 11% selloff. it recovered a little bit. today, they just showed the chart. there is a gap at 9 a bucks. that's what you want to mine to the downside if you're looking

to lay this directionally. like most things, we have seen a massive spike. that's a two-year chart here to me, this is a hard one to do from a long premium standpoint you may get the direction right. you may have the wrong trade with options i want to look at manager i know mike does a lot. a short premium trade. set it up into the earnings event. i want to look out to march expiration today, stock trading at about 100 bucks. down ten bucks from january 29th i want to sell the march 97 half put. buying one of the march 92 half puts for $2.30 i'm receiving a $1.50 credit i have $3.50 risk to the downside i'm risking more to make less. that's not the tag line of the show this is a high probability trade. if the stock just sits where it is right now, you'll make money here to me, a big part of that is

because what we said, inflated options prices i'm making a mildly bullish bet here a high probability of making a little money it's got a low probability of losing a lot of money. >> a loft money. it's a there are 5 spread. losing $3.50 a share is not a whole lot of money you were talking about the elevated moneyof options in walmart. if you go back ten years, we haven't seen implied volatility like this. it's quite remarkable how expense active options are in walmart. that's one of the reasons you want to be a seller. >> the key, as a chartist. the reference point that dan cite sd the gap in earnings to the upside window. if the earnings are bad, it will retrace that that is the lines. if the earnings are decent, you the prospects of not doing that. he's doing it in a cautious way. the only way to do it. because if i trouble at all, gaps are like magnets. it would go right into that.

>> whey am i selling a put spread versus a put, i want to control. if you didn't do anything during the downdraft. maybe sell it out of the money call you're doing the same thing for all intents and purposes this environment for people not selling stocks that they own, the idea of selling out of the money calls against it with vol the way it is, it makes sense. >> check out our website options action.cnbc.com. sign up for our news letter. more than 1030,000 of you 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'll answer it later in the show. more 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 after more than a year in hiding, volatility came back to the markets and with a vengeance this week. bob pizdani at the new york stock exchange breaking it all down >> it all started last week when

a strong jobs report got everybody jittery about inflation. and the mall potential for lower corporate profits. the big slash friday went from 17 to 32 it 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 and it wouldn't have big spurts down. a lot of traders were long for the markets. the vix measures near term on friday, when we blew through all the near-term prices, the prices on the puts became a lot more expense pichd and the vix blew up. it was the highest level since august 2015. that sent the vix well over 50 and pushed the s&p 500 down nearly 10% this good news is that the cash

fix, 29 today is still elevated. but it's just slightly above the front month futures contracts for february, march, and april all this week, the vix has been way above the future contracts it's a sign that traders believe volatility of this magnitude will be short lived. won't last long. it's starting to come back down towards the future prices. that's a good sign where will the vix end up? nobody knows most traders are betting it will be above the old price of $10 but likely below $20 >> thank you, bob pisani if history is any indication the volatile till surmg could be a buy signal time for options 101 with our man mike at the plasma to break it down. >> this is interesting a 30-year almost 30-year history of the vix in blue here and, of the s&p. that's in orange as we look at this, one of the thing that a lot of people will

observe is that when you see spikes in the vix, those look like decent times to buy the market another spike. you would have bought it right there. here another spike, you would have bought it right there here, we had a spike not for an obvious reason you would have been long in the market why is this actually working the reason is, that the vix is not so much a predictor as it is responding to what the market's 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 of 0% of the time. over one month at about 6 on% of the time over three months the you buy the s&p when the vix is over 30, you get an improvement of about 10%. if you hold it for three months. you'll be up money about

three-quarters of the time how much money do we make on average. on average, the sx & p makes about 70 basis points. a little bit less. over three months, averages about 1.7% the you to buy it when the vix is over 30, the one-month average return is 1.7% and the three-month average return is 5.5% you have a higher probability that it will be up and the amount you make on average is also higher the one caveat i would throw out there, during the credit crisis, the vix went over 30 you saw the instances that were the worst one-month and three-month returns in the s pand p you have to ask yourself is this a pullback a reaction or a credit crisis i think we're likely to have one and three-month counts here. >> what do you think about the spike? out of nowhere >> i think mike mentioned the period in august 2015. it's important to remember we

did recover. we failed again. we made a double bottom. what happened again if q-1 of 2016 another vol spike. a double bottom again with two 10% sort of corrections. so, you know, once we enter a new volatility regime, it's likely to stay for a bit it doesn't matter to me in the vix is 25 or 17. it's on a relative basis i don't believe that the sort of awakening that we have had after a long period of no movement is manager that's going to go really quickly and we'll see the vix in the low teens again anytime soon >> the average vix, over its entire life cycle, is nearly 20, right? and if you start pulling out the really volatile times that we have seen, it will still be in the neighborhood of 15 or 16 so getting rid of the credit crisis, '98, the one-era that will lower the numbers. what we saw coming into this was exceptionally low. that's exceptionally low

before we saw that period, you could count on both hands the number of times that had happened since the inception of the vix. >> if that wasn't a signal of an impending hurricane sometimes. >> we have seen huge upticks i vowel yums both way. we have seen huge uptix in some of the speculative products on these things that people are saying bad things about. but, first of all, i don't thing that those products are dead we're going write the epitaph on those too soon we're seeing signals that this is overdone. >> all right still ahead, ford in reverse. the stock sinking to the lowest level more than five year this is week. one of our traders says now could be the time to buy it. he'll giveus that trade when w come back. plus, got a question send us a tweet to @options action if it's nice, one of the traders will read it later in the show much more 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. 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,

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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. is america's number-one you kmotorcycle insurer. yeah, she does purr! best bike i ever owned! no, you're never alone, because our claims reps are available 24/7. we even cover accessories and custom parts. we diget an early start! took the kids to soccer practice. you want me to jump that cactus? all right. aah! that lady's awesome. i don't see a possum! welcome back time to look back at some of our traders' moves over the last

week mike gave us a portfolio protection trade let's listen >> the s&p has rolled over here. if we look at where we were at the end of last year, not to late to hedge. what was i looking at? to march buy the 275, 260 put spread for $2.65. >> all right the s pa&p went right through t lower strike what are you going to do now >> this thing is up more than threefold by now it's closing on $10. time is on your side but if you think the market is going to bounce here, delta is the direction nal issue is not on your side i think 350% profit on the hedge is good enough for me. we're going the take the money and run. >> yeah. it's a great timing. great trade. no reason to terrific premium you have in it at this point >> all right three weeks ago, dan said ford would rev higher let's listen to that >> so, today, i think the way you play it is look at march

expiration the stock trading at 12. buy the march 12 calls for 33 cents. if it doesn't hold here, it's going back to 11 probably. 10.35 is the two-week low. a double bottom low from 2015. that's down another 15% in total. >> all right since then, shares of ford have sunk to below 11 >> wait, just like i said it was going to i don't mean to shed light on this this is really important this is in front of the earnings i was not particularly certain about what the fend munfundamens going bring. it was to risk a little bit to make a lot and there's nothing to do at this point you have a different view. >> at this point, i think this is quite identical to the exxon pattern. you have it moving from a 52-week high to a 52-week low. dropping 22. at this point, is it right to

dump your ford no are you holding it i would think so if you're not invested, taking a crack on the long term for a bounce >> ford is doing interesting things they're rolling out electric vehicles it's trading at a d ridiculousl cheap way. this company, think, is still quite cheap. there's not a lot of places. even net of a 10% pullback, where you could say that i like the stock here. though it's had quite a plummet. >> all right up next. we'll do tweets. and the final call from the options pits we're 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 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 the fist one from donna. aren't vix instruments like

puts mike >> they are related. the vix is about implied volatility that is the price of options if what you're interested in is protecting your port foal yoerks the best way to do it is with puts >> our second tweet. do you think twitter will retest and/or exceed the post earnings high from earlier this week? >> i think it eventually will. i think snap, too, is another one. cow could trade snap and twitter against those gaps all day long for the next few months. down crafts are good buys. >> technically, fantastic. to gap up like that. in a week like this. to hold those gains. the implications are immediately higher and decently higher >> one more. how -- no, it's time for the final call switched just like that. time flies what's the last word >> i like selling twitter and puts at the breakout level >> carter?

>> exxon for a bounce. big name overdone. >> mikey >> the big spike in the vix is an indication we might be oversold you can buy some here. >> our time's up we're off for a few weeks for the olympics head to twitter. mad money starts now ve> welcome to premier league