hey there, live at the nasdaq market site from a rainy times square in new york city where it's an expiration friday. the guys getting ready behind me while they do that here is what's coming up on the show >> the bears took down tech this week as the nasdaq plunges into bear territory. if you are worried it could get worse mike khouw has a why to buy plunge protection plus. >> i love gold. >> as stocks tank, options traders are running for cover in gold and the chart master says it could break out even higher.

he will lay out the levels and -- >> a handful of dow stocks are hanging tough amid all the volatility but dan nathan says, don't trust the rally. he will tell us which could be the next stock to drop it's time to risk less and make more the action begins now. and we start with a selloff taking wall street by storm. all of the major indices falling 7% or more for the worst week in a decade the nasdaq getting hit the hardest as tech continues to get mall the group into a bear market down more than 20% from the high and on track por the worst month, quarter and year since the financial crisis how much worse could it get? let's get to the kmart master at the plasma hey >> an expression never too late to sell some people don't think that's true but if something has been ascending for months and

years, the truth is just because it's down a bunch doesn't mean it can't go down more. two-year chart, 3-year chart let's draw the lines one way a lot the ways to draw the lines. and head and shoulders top fairly well defined. let's draw them another way. a break in trend literally we bounced off this line repeatedly or close to it over and over and over and then of course we broke this line and interestingly after breaking, right, we threw back one time, hit it, and then hit our head and right here. none of that is good now, put it all together, we're just at the neckline in a way. we just started the process. you know, a measured move so to speak is considered this kind of thing. so you kind of do that kind of thing. there is a potential for plenty more now, let's go since the entire

bull market began in 2009, put in some drawdowns to put it in perspective. what we have, the following peak to trough selloffs, down 18, down 16, down 13, down 26, down 18 and this is down 20. we're for much higher levels why can't this come down 25 or 30? it certainly can that's the selloff in '16-16 the presumption is this account go lower finally talk about the long-term trend lain, this is since the '09 low. and this is literally as you see here there is your financial crisis low there is your 2015-16 selloff right here we have just now breached -- take a look at the -- wrote below the lynn not good so something is wrong. everybody knows it

>> pretty dire prognostication mike khouw in san francisco. how can traders buy protection here. >> yeah, i mean, under normal circumstances maybe when we have seen these kind of pullbacks -- and carter pointed out we have seen several pullbacks of magnitude almost as great over the course of the bull market we have seen. one of the things that didn't accompany that in the prior declines we have seen in the last ten years was sort of, you know, all of the discussion that we have, you know, are we in a ber market are we in a bear market we were hearing the conversation you know formally the qs in a bear market if we use the 20% drawdown as the threshold. so we are looking at ways we can either press a bearish bet or hedge against further declines in the portfolios. we do have elevated options premiums we have been talking about that for weeks now. i think you still want to take a look at things like put spreads on the broad indices like this i was looking at the qqq february 147/131 put spread.

you could spend about $4.5 to buy that paying $7 for the higher selling the lower strike put for $2.5 this was a structure we were looking at earlier today this is an important point for those looking at monday which could also very -- not monday but a short trading day. but you could have a volatile day. if you are looking at a situation like this, pay attention to keeping that first strike close to at the money, close to the level of the qs and then look basically for a downside put approximately 10% of the out the money in february these are the prices you look to spend essentially wherever the strikes might be because are we opening at 147 on monday i have no idea >> yeah, so this is really interesting. i think the most important chart

that carter showed was the long-term one the 10-year. and we haven't had this volatility we have seen in many months in that index now aufld the charts line up and show a massive, massive technical break. you should continue to think about like on the way you bought every dip and it was a good buying opportunity if we are a in a bear market selling rally is the way to do it if you are a trader waiting for the bounce to use mike's trade structure in a tactical way makes a lot of sense too i like the width of the spread he has there i don't like walking in morning doing it i'm sure you would say i wouldn't be pressing a short after a week like this i'll make another point. it's unlikely, people we are crashing next week with christmas and that sort of thing. it's really likely at some point we will have to have a reflex bounce. >> and the real risk i think is everyone is wondering because know one we had an avalanche but the real risk is there are plenty of people holding into to the end of the year for tax reasons. plenty of bank debt being traded that people don't want to mark to market.

and january could be a virtual murder there is every possibility that that happens could you get the nice bounce the end of the week? but the real risk is when people reset the clock that when people who have not wanted to for year end purposes all take action en masse in the first going. >> mike, last word here. >> yeah, no, i agree wholeheartedly with that to see us press additional shorts into the coming week i wouldn't be surprised to see a bear market rally in this. you could put the trade on at that point it's probably slightly higher strikes and be that much better positioned in the event we see further weakness in january. >> well it has been a brutal few months for the markets but there are a few dow stocks hanging tough. proctor gamble, mcdonald's, verizon all clinging to gains this quarter are these safe betts in this market environment dan looks at p&g. >> investors like the 3% defend yield with the 10-year coming down they like the nature of the business being consumer staples.

but the valuations reflect that if i'm looking at rocketer and gamble here, this trades at 21 times low digit expected earnings growth. but the stock just made a new all-time high last friday. when i think about this, it's not too different. we described a trade in the you'll tell etf, the xlu a couple weeks ago had a bad week. even proctor had a bad week not as much as the market but a bad week 6/ i look at this on valuation basis. i look at that chart and say to myself would i play for a break out here knowing about the global economy and the strength of the dollar, knowing about investors focused on valuation i would say no if anything i look down and lock at the october gap in the low 80s and saying to myself, you know this is a place where i can spend some premium and make a

bearish bet on something if things go the way carter thinks they go in january and i agree with that after a bit. i think january could be nasty correlations go up and stock like this is going to low 80s. today when the stock traded about 91.80 i could look at january expiration which should catch the fiscal q2 earnings and by the january 929 and a half put spread buying the january 90 puts selling one of the 82.5 puts at 50 cents breaks even at 88.50 i can make up to $6 between 88.50 and 82.50 and the max risk is the $1.5. less than 2% of the stock price. i like the risk reward risk 1.5 if the stock goes down to 82.50 i can make four times the money. i like the risk reward and i don't like the set up in the name like proctor here. >> mike, what do you say >> it's interesting because in staple stocks historically when we have recommended directional trades in names like this, the options premiums are so low that an outright call or put makes sense.

but actually in proctor's case, those options premiums have shot up considerably even though the stock hasn't seen the kind of weakness that we have seen in other areas of the market. to put things in perspective, you know, these are options that put that he buys are trading around 25% implied volatility up from maybe 16% or 17%. so we're talking about options 50% more expensive than normally even though the stock isn't trading that far off the all-time highs that's why we look at a put spread the this is a relatively low beta stock if it does pull back, it's not cratering. but trading at high valuation. over the last two years it's trading at maybe a 10%, 15% premium to historical valuations so you're basically looking for a full back to the historical valuation and that's the put he is selling. >> how does the chart look? >> a lot of things of course what we know is it's who you are in the market. if you have choice free will cash is better than anything

if you are fully invested, proctor and gamble is winning in the event of market selloff. the gap. the gap you cited in october what's interesting about that day if you were to look at any given day, the spread between proctor and gamble, s&p both down both up one down one up the spread that day was the biggest one-day spread over the s&p since the crash of october 19th, 1987 that's how big that gap was. is that gap an ultimate magnet do we feel that there is every possibility. >> one other point look at the chart. the stock is up 30% from the lows off of fundamental reasons when the stock market traded well earlier in the year pop so i think it's the thing if the stock market stabilizes i don't think it outperforms if it goes down it plays catch up. >> for everything "options action" check out the website. options action.cnbc.com. the news letter is the perfect stocking stuff don't miss out

here is what's coming up next. ♪ it's gold it's gold ♪ ♪ it's gold baby >> options traders flocking to gold and mike khouw and carter wirth says you should be buying too. plus calling all "options action" fans, reach into your pocket, grab your phone and tweet us your question at "options action." if it's nice, we'll answer on air when "options action" returns. "options action" is sponsored by think or swim by td ameritrade looked at chart patterns. i've even built my own historic trading model. and you're still not sure if you want to make the trade? exactly. sounds like a case of analysis paralysis. is there a cure? td ameritrade's trade desk. they can help gut check your strategies and answer all your toughest questions. sounds perfect. see, your stress level was here and i got you down to here, i've done my job. call for a strategy gut check with td ameritrade. ♪

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only with td ameritrade. welcome back to "options action." the market meltdown sending options traders running for cover in gold this week. dom chu is back in the newsroom with more. >> gold is glitering again, melissa. maybe glittering is a little bit of an overstatement. while we have seen a pretty sharp pullback in major stock indices, gold prices posted modest gains as have gold mining stocks both the underlining commodity and the equity and reclaim the gold line. options are the instrument of choice for some in the gold trade. options trading spiked when it comes to key exchange traded funds.

same goes for the contracts tied to the gold trust, for instance gld, more than doubled in terms of last week trading volume. that ticker gdx. even cnbc's jim cramer getting in on the trade telling investors to seek safety in the precious metal on "mad money" last night. >> what happened to there is always a bull market right now it's in gold that's perfect i always bring on the gold pch the mine he were 3.2% yield. of buy the gld that mirrors the price of gold. >> while the trading action has been bullish for gold and miners they are off the highs from earlier gold prices 8% on highs and gold miners the etf around 17% below. so with questions about economic growth and inflation, next year if there is any at all, melissa. will gold still be a good trade in the new year? back to you. >> dom, have a agreed weekend. carter says now marks a golden opportunity to buy the yellow metal. he's back to break it down >> gold is defensive some people

think it's stupid has barberous relic it has a place in the investment landscape let's look at a couple of charts we know what's going on in various equity etf fixed income instruments. this is the shy, short-term one to three-year bonds has all the hallmarks to a bearish and bull reversal the 150-day moving average is starting to flatten. the longer term, the tlt is also -- that's shy -- the first is tlt also starting to bottom and turn let's look at gold what we know is the same thing this is all very developmental that would be the world rather the than impetuous an impetuous mood is quickly down trend which means you can fail but when you move deliberately and bottom like this then it starts to ultimately turn into something that's actually quite positive

and that's my bet on gold here now, a few things. here is gold back for the lows of 1990s the well defined tension right into the apex of the standoff. i suppose you could bet it breaks to the downside not my bet process. i would say this resolves up and out. and in terms of whether gold is a real thing or a barberous relic or a joke, let's lack at three time frames. this is from the absolute high that would be october from the prior bull market peak here is gold versus s&p. no joke here gold paced the market how about the 2000 high? now look at this gold blows away the market you could say what about dividends? fine, watch this here is with dividends reinvested gold is a very serious thing it is a winner cycles when it needs to be and i think gold is stepping up to do something interesting here. >> all right so mike, when is the trade >> yeah, so it's interesting you know with gold because of course

you know the other thing that we have to think about is just simply supply and demand and also what the broader sort of framework is for stronger gold prices. one of them is you are long gold you are short the u.s. dollar and then a long-term sense i think it's a an easy case to make that maybe one should be short the u.s. dollar. it's a short-term trade where we were actually hearing the opposite and now because the fed is basically being backed up against the wall you might actually argue that that case has also been hurt the other thing is cap x in the miners has been cropping and the quality of the metals coming out of the ground is dropping that means you supply constrain gold both of knows are strongly supportive highway look at was the february 119/129 call gld spend to 2.15 for the lower strike call and sell the higher for net-net you spend 1.35 for the call spread with normally with call spreads we don't get to buy at the money call spreads for this kind of

risk/reward relationship but because gld is underpinned by the commodity, commodities often see out of the money calls traded at premium where equities see out of the money puts trade premiums that's one of the reasons why you get this dynamic where you get better than a four to one payout at that strike. also, i would point out that we are not really spending a great deal of premium relative to the underlying price in gld right now. i like gold. this is a trade i'm putting on i also like this trade structure because i think you spent relatively little to basically make a bullish bet after the increases in the price we have seen recently. >> does dan like gold? >> i don't like gold but i will tell this i don't have a good reason not to like it this is essentially making a bearish bet on equity prices, that sort of thing

you think back to the time at the highs in the last ten years 11, 12 when european sovereign debt crisis was the thing and trading at 180 if if you low back at the market and mike said the proctor option puts are expensive these call are cheap and he gets less than 20% of the width of the spread to have this exposure to me if you are bearish on everything then this is a god call spread to buy. >> and let's just say this it's not whether you like gold or not. know anything about it this is a trading show it's "fast money," "options action." can you make money on a directional bet on this security. >> but your chart is the best -- is the best case the tension after a five-year consolidation. >> great low high a collapse in 15% retracement and working in tighter. something gives. some of you say carter it gives to the downside. i don't think so. >> still ahead, the selloff this week taking no prisoners a as even the so-called safety sectors tank and the charts point to even bigger breakdown ahead. plus a question about the markets or maybe just stuck in traffic, bored either way send us a tweet

to @options action and we try to answer it later. what do you look for when you trade? i want free access to research. yep, td ameritrade's got that. free access to every platform. yeah, that too. i don't want any trade minimums. yeah, i totally agree, they don't have any of those. i want to know what i'm paying upfront. yes, absolutely. do you just say yes to everything? hm. well i say no to kale. mm. yeah, they say if you blanch it it's better, but that seems like a lot of work. no hidden fees. no platform fees. no trade minimums. and yes, it's all at one low price. td ameritrade. ♪

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earlier this month dan said the utility sector was heading into the danger zone. th >> if you go back and look at a 20-year chart and look at the relative outperformance for a bit in utility stocks, the xlu, into the the past market corrections or market crashes, ultimately it follows suit not too long after either. when it was trading about 5 a.5 you could look out to march expiration by the march 5 a/49 put spread paying $1 for that. >> the xlu just had the worst week in a year dan what do you do with this. >> yeah. this is pretty consistent theme here looking for cheap volume and looking to see what happens when it goes down. the stock is down -- or excuse me, etf down close to $2 worth double what you would have paid at 5 a.5. you stick with it. you have until march you have a really wide range of

profitability to the downside. targeting basically a move back towards 50 but remember when you have a double in a position like this sometimes it makes sense in the volatile market to take out half and let the profits run a little bit on the other half. >> well, again, this is you got to know who you are in the market we just heard, the worst move in a week for xlu worst in ten years for the market right. so everything goes down if it's going down if you have to be invested, you want to be investments long. about you you want to do what you can do get out have cash be prudent. >> up next, your tweets and the final call i don't know what's going on. i've done all sorts of research, read earnings reports, looked at chart patterns. i've even built my own historic trading model. and you're still not sure if you want to make the trade?

exactly. sounds like a case of analysis paralysis. is there a cure? td ameritrade's trade desk. they can help gut check your strategies and answer all your toughest questions. sounds perfect. see, your stress level was here and i got you down to here, i've done my job. call for a strategy gut check with td ameritrade. ♪

i'm not really a, i thought wall street guy.ns. 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 time for the final call. mike khouw. >> i'm not a gold bug, but i do like gold here i think february call spreads are the way to play it merry christmas, everybody. >> carter. >> i think from time to time you can be a gold bug. long gld and short qqq. >> dan. >> yeah, i think the theme here is find some cheap volume and put it on.

january could be a little ugly don't press it on holiday week and happy holidays everybody. >> that does it for "options action." see you back here at 5:30 p.m. next friday. merry christmas, everybody - [announcer] the following is a paid presentation for the power airfryer oven, brought to you by tristar products. we introduced the power airfryer, and it finally became possible to enjoy the crispy crunchy fried food you love, guilt-free. millions were sold, and the five star reviews say it all. people love the power airfryer. now, air frying is taking a quantum leap forward. introducing the power airfryer oven, the full oven that can air fry 75% more than traditional air fryers. air fry chicken strips, wings, and tasty sea salt curly fries, and all made with that amazing fried food taste without the guilt, and up to 70% less calories