and welcome back to cnbc's continuing coverage of "markets in turmoil." i am brian sullivan. we have options action coming up in a few minutes and we do have a special guest, someone who last april said the s&p 500 could be setting up for a 40% decline and that is scott minerd, and scott, welcome again. you did not foresee this global pandemic coming and it's not just the global pandemic, is it right? the market structure and the debt loads and everything else that was already in place, the pandemic may have been that chip on the jenga stack, if you will.

>> brian, if you want to say it's a house of cards that was built by the policymakers in order to bail out the financial system during the crisis one day, you know, a breeze came along and knocked over one with the cards and it's bringing the whole house down well, the house, the equity market rose 13% this week. i understand we are still well down on the year it seems like the fed has shored up the credit market, but it sounds like you're not believing that the bottom is in yet. >> no, i don't think so. i mean, brian, when we look at some of the data that we're getting with unemployment insurance claims and so on and so forth, you know, it would suggest that, you know, we're going to get to a place worse than the financial crisis economically unemployment perhaps around 15%

and economic contraction for the year, say maybe in the neighborhood of 10%. these are pretty nasty numbers and when you look at valuations on stocks, the degree of overvaluation where we were at the peak just six weeks ago versus the peak in valuation that occurred '07 has been nowhere -- has been much more extreme and the decline we got from the downturn in '07 was the 55% drawdown in stocks we've been around 34% so far, and it just doesn't seem that given the economic backdrop that the -- the prices have adjusted to reflect economic reality. >> i'll push back, my friend, i

remember in september of '08 going to d.c. and having meetings of congressional leaders to explain to them what a credit default swap was and months went by before we got anything done. they were slow this time in the course of a week, we got the fed throwing probably 7 to $10 trillion at it with leverage and a $2 trillion relief bill and aren't you encouraged at all by the speed and i can't believe i'm saying this, the speed at which d.c. reacted? >> look, brian, it's a lot more encouraging than the financial crisis, and you know, one thing that we identified years ago was the reaction function by the policymakers this time around in the next recession would be much faster than the financial crisis that, you know, gave us a lot of confidence that the downturn would be much less severe than the downturn of the financial crisis, but nevertheless, even with a mild downturn, we would

expect to see about a trillion dollars worth of investment-grade debt go to below investment grade we would expect to see default rates on corporate bonds and i get into double digits and now there's a pretty good argument to be made that this is more severe than just a mild downturn, and the tools, the policymakers are using and i'll put them into the category of necessary, but not sufficient. david zervos who you just had on, a very, very smart guy, in my mind, made some observations about things like asset-backed securitization that those markets are completely dysfunctional right now. so there is no liquidity there and we rely upon the securitization market to provide capital for not only credit card -- >> scott, i'm sorry to jump in on you, buddy. it's harder to jump in when we're both remote, but i understand what you're saying and some of the stuff i heard anecdotally last week and the beginning of this week was

downright scary and i also heard that things are opening up a bit in terms of liquidity. are you not seeing that from your perch >> yeah. we're definitely seeing it, but it's a world of haves and have nots the have nots are in the high-yield bond market and the haves are in the investment-grade bond market okay, we've got that propped up, but the bond markets in the united states are a lot bigger and broader than corporate bonds and a large part of the market are still not propped up and it will take a massively, i think, a massively larger set of programs to address all of these pockets of illiquidity in order to get everything to stabilize >> you put out a paper, and i'm going to read it and i'll look at my screen and i'm flying blind here this is part of the paper that

is up on cnbc.com, as well the total debt of u.s. non-financial businesses has grown since 6 trillion and cash on hand has grown by 1.7 trillion and a big driver of the debt growth has been buying back stock. how angry or annoyed should the investing and american public be by that statistic? >> brian, you know, first off, let's turn to the policymakers. the policymakers in washington ran policy to encourage this behavior from corporate america as a way to successfully drive up the market prices the disturbing part is when you see whole industries like airlines who bought $45 trillion of stock back or -- sorry, $45 billion of stock back over the last decade and now they want a $50 billion bailout program.

i think there's going to be a popular backlash against this and as the programs potentially have to expand to bail out the hotels and the car rental companies and the energy companies and the whole bit, i think the main street and middle america will look at it and say once again, washington's saving the fat cats and not caring about us. >> because the bottom line is you can't blame anybody for what's happening with the pandemic, but we can go back and say we should never have built up trillions, tens of trillions in debt. is that shorter, minerd? >> yes, that's right by the way, brian, you know i've been lecturing on this umpteen years now that this would ultimately be the crisis we would face and we used to say back in the mountains where i grew up, the chickens are coming home to roost.

>> scott minerd, guggenheim, the piece is up on cnbc.com. you have a great weekend, my friend stay safe and healthy. we'll talk soon. >> thank you, brian. we will take a short break here after that, we have "options action" coming up with mike and tony and the gang. so sit tight "options action" up next ♪ ♪ ♪

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all right. welcome back to cnbc's continued coverage of "markets in turmoil," but we're still doing "options action. got to throw that in we know all you option s trader love the show. we know it is more important and timely than ever because options could be a great way to mitigate risk and buy upside if you think we're going to turn around and really pleased to welcome in a gang and we have mike khouw, tony zhang and ann carter on a

day when the dow fell, and it's still up 13% this week, but cold comfort as we know, well down on the year the ten-year note at 0.7% and oil continues its slide as the global price war rages on. guys, we appreciate you joining us here. carter worth, i want to begin with you technically, this market, i mean, i can't even comprehend the kinds of charts that you might be looking at right now given these massive swings, but is there anything out there that suggests to you that a bottom could be close have we hit it already and if not, where it might be >> absolutely. thanks, brian. for what it's worth, with mr. minerd said, i believe it is not over, and maybe discuss after that so what you have on your screen there is all instances and i've given top three where the market has rallied up as much as it

recently has and what you see there is what has happened one week later, one month later and three months later and not many instances in this, but if you look at the top 15 or 20 times when you get a two or three-day rally and in this case, 17%, 18% where a week later, a month later and three months later it's not particularly encouraging which is to say that the ricochet stalls and if you look at some of the great period which is the center, if you look at the 2000, and the 2003 bear market with the '07 and '09, there were multiple instances where you had plus or market rallies only to give it all back, but the issue is this, that we know bear markets are characterized by sharp countertrend rallies in one day, of course, one print will be the low print and that's very hard to obviously figure out. a lot of people are trying to

say that now in fact, there's a so-called new world according to market observers and not in that camp at all and i would point out that what we're seeing for the first time is the debate and the first time in six weeks, and there was no debate and everyone has an agreement and you have a big problem, and those on that side looking for two or three years and i can try to look through double-digit earnings decline, and i can think, hotels will still be in business and then there's the other group and they're matched off evenly, who is still selling or people who couldn't sell because it was down so quickly who are about to get their statements when they see what happened to them, and i should get out of this it's a pretty good moment of

almost perfect equilibrium, and the bottoms are really in principl something that is sequential and not something that's impulsive, impetuous and rash and as of now this ricochet is those things by my word, impetuous, rash >> good, practical advice, carter worth what did you make of the week? >> i don't think the performance that we saw either today or in the days leading up to it are all that surprising. one of the things that we got was relatively quick i would say a very quick response from washington, and the monetary policy the fed instituted earlier in both cases you are talking about really substantial action and the market viewed that positively of course, a lot of times when we see this kind of volatility and we see these types of moves they're responding to the news of the moment and that was the news that we had and the news was good of course, we still have the possibility that there's going to be some additional information coming down the pike

obviously, there is limited cash balances available for businesses in significant distress aid from washington is one thing, but really it's going to take investors time to digest just how large the implications are and for some industries it's substantial and not recovery in immediate view and examples of that include the energy sector and one final point i would put on it is we have some names that have not been hit that hard when you take basically the move of the market overall into consideration and i look at things like semiconductors which is basically where they were six months ago and we've seen bad news since that time and i don't think that all of it has been priced into some of those stocks yet. >> and tony, you know, people listen to this network especially in a time like this and they hear people say stocks are likely to be higher in three months and there are others like scott minerd who think stocks will continue to go down in the near-term and how do you use options as a hedging strategy in such a time of uncertainty

>> yeah. so that's a question that we've been asked the most this week is have we bottomed and what should we look at in terms of positioning going forward? i think the road to recovery is really the unknown at this point. we have a lot of unknowns they think will stem some of the sell-off that we're currently seeing, but the unknowns that we're going to see whether it's economic data and whether it's the earnings season and that stuff is going to trickle in i don't see any of that type of data causing the sell-off that we're still going to be seeing and liquidity is a major issue and from my perspective, as long as it is still above 235, i'm in more of a neutral view of the markets and i think there's still room to the upside about 273 on the s&p 500 to grind our way up to that price and the consensus right now is still looking at a recovery somewhere in q3 and q4 and that's really where i've seen some of the downside risks of that type of

consensus as we might stumble whether here in the u.s. or globally i'm inclined to use put options going out to the end of the q3 because that's when we're looking at the recovery and if we look at implied volatility, september quarterly options are reasonably priced at 35%, versus the april options on the front month weekly trading at double that 71%. so the trade i'm looking to do here is actually a calendar spread i'm buying the september quarterly options and 255 puts for $26.10, and selling the april 3rd weeklies to 255 puts and collecting $9.66, and net-ne paying $16.50 to buy myself protection to go all of the way out to q3 and i'm selling the april at the money puts because i'm expecting that this market will grind a little higher i'm looking for those puts to expire worthless and i'm collecting a third of the

premium of these september puts. so i am able to collect a decent amount of premium and what i'm looking to do is as the markets grind higher, i'm going to continue selling puts and hopefully buy myself some protection out to september without paying a whole lot of premium here >> mike, two things. i want you to comment on tony's trade. i'm going to date myself a little bit i was broadcasting doing this in 2001 i was doing it in 2007 and 2008. tell me if you agree with this, when so many people keep asking, was that or is this the bottom that generally means it wasn't would you agree with that and then comment on tony's trade >> it's a great comment, and that's exactly right, actually because think about what that question means every single time someone is asking you is this the bottom and is this the buying opportunity, that means people should still be looking for opportunities to buy stocks and when you have that situation you

haven't had what we frequently refer to as capitulation so i haven't seen capitulation that's usually marked on an intraday basis where you see the big flush and then all of a sudden the last of the sellers washed out and there's nothing left, and maybe a handful, but that can be enough and i agree for sure when people are asking should i buy now should i buy now usually the answer to that question is probably not with respect to the trade, i do like calendar spreads a lot and i do like the fact that it's selling near implied volatility which is very high the caution that i would put for people is that when you have these types of trades, it isn't a hedge, a meaningful hedge if we see a big downside flush at this point and it's a way to own longer term protection and try to sell the overprice near data protection against it. sometimes i like diagonals better because if you get a big move in your chosen direction

with the calendar spread sometimes if it goes too far, too fast you don't end up making any money or could even lose some and with diagonals you can ensure that we get the dynamic, but don't have a situation where if you move too far too fast and that's a tough place to be where you get the direction ride, but the trade is wrong. >> certainly is, i appreciate the compliment thank you very much. we are not with "options action." if you own apple like so many of you do, and you've been frustrated on the way down and caught up with the selling, can you use options pto protect you apple investment and still profit long-term we'll tell you how do just that coming up next right here on "options action. stick around ♪ ♪ ♪ ♪

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all right. welcome back to "options action." of course, apple, pretty much the world's widely owned stock has gotten caught up in the market selling it is down big in the year 2020. so for all of you out there that maybe own it or are thinking about owning it, let's think about it mike khouw, is there some kinds of options strategy for what people want to protect what has been a money-making investment. >> for most people it's going to be, obviously, apple has fallen pretty sharply since its peak and the market's all-time high and the thing was close to $330 or thereabouts and i think today they were around 250 or 60 and that is certainly a decline, but as the stock has declined options premiums have certainly increased. here are two things i would ask people to keep in mind so the first is because apple has an exceptionally strong balance sheet, when we think about businesses that are at risk, this is not one of them.

i also think, though, that it's reasonable to believe that their business will be impaired like this just like everybody's the purchase of iphone which is the biggest product that will be hurt by this, and at the very least are likely to be deferred. so what people can do is try to take advantage of the elevated premium by selling some calls for the stock position some people would know that i would short it and i'm not anymore and you can sell the may 2, 275 call when i was looking at it earlier today and that was 11 1/2 dollars and you're looking to collect the elevated options premium, holding on to the long stock position, and the idea is that the stock i unlikely to get to the 275 strike price and certainly not above 286.5 or so which is where you would be worse off than doing this than simply owning the stock and then keep doing that it's an investment strategy, not a trading strategy, people who are long-term holders of apple

did so as an investment and can maintain it as an investment >> good stuff. carter, very quickly how does apple look technically. one believes in growth at a reasonable price having dropped 35% exactly the same as the market and yet much better long-term prospect in the market and this is an opportunity i think apple is the kind of thing that is delivering as it sold off it's basically doing better than most stocks. you have things like j.p. morgan down 70 and boeing down 80 i'm a buyer, actually, and each one is well served to buy risk here >> carter worth, a buyer of apple. i kind of like it. carter, thank you. up next, your final calls. this piece is talking to me. yeah? so what do you see? i see an unbelievable opportunity. i see best-in-class platforms and education. i see award-winning service, and a trade desk full of experts,

available to answer your toughest questions. and i see it with zero commissions on online trades. i like what you're seeing. it's beautiful, isn't it? yeah. td ameritrade now offers zero commissions on online trades. ♪ (vo) they're adapting to supporto their communities.s. but many need our help. if you're a small business in need, or want to help a local business, go to quickbooks.com/smallbusinesshelp intuit quickbooks.

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 super fast final call time, carter >> all roads lead to gold. gold and silver. >> tony?

>> i think markets are going to keep grinding higher you want to buy longer term protection by q3 and put calendars on spy >> mike? apple's business is not permanently impaired sell some calls against your long positions there. >> all right, thanks for wat watching "mad money" starts now - [narrator] the following is a paid advertisement for the hoover smartwash. when your throw rugs need cleaning, you toss them in the washing machine, easy. if only you could do the same for your carpet. instead, here's what carpet cleaning looks like for many of us hauling around heavy, bulky rental machines. they're a hassle. and do you really want to bring someone else's dirt into your home? and then there's all the mixing, soaking, waiting forever for your carpet to dry. no wonder we sometimes give up and call in a pro, but that's a whole other level of pain. they're all over your house. you're left with a damp carpet and it costs a fortune.