you want to let me borrow every once in a while, we can figure something out. give a little c right here. (chuckling) -say when. -oh, i did it. -oh, was that it? -yeah. it is friday, and that means it is time for options action. the dow closing at a new low for 2022 and the s&p struggling to not do the same. all the major averages kept their fifth down week on rising recession fears. we'll help you find recommendation in options. plus, we'll look at one whole market insurance policy and examine why gold isn't behaving as it should yet joining me, carter worth mike khouw and special appearance by dennis before we get to tonight's trade, let's triage the markets. carter, what's your take on the action >> i think there's a lot of hope that somehow because we're back

to the june low that we'll hold, and yet we know that the s&p is one index, but major indices from the new york stock exchange composite to european borises have all undercut their june lows so as junk paper, i think we go lower. >> yeah. mike, what's your -- we've seen some pretty extraordinary moves across asset classes how do you piece this all together >> i think the real driver here of course is concerns about rates. and if you're thinking about what could happen to equities. you have to think about what's going to happen to rates first now, a lot of people are making a big fuss and say, just over 4%, say two-year rates are high and the fed is stepping on the brakes the fed is not stepping on the brakes let's be very clear about this from 1998 to 2008 the two-year rate average about 4%, and that

was when cpi averaged 2.6% right now cpi is 8.8%, which means nominal rates remain negative. nev 2% nominal rate if they're going to stop inflation we are not done yet. and if rates are not done going up, then the markets are not done going down. >> i wonder what your take is. >> the markets are moving much more together now than they were earlier in the year. so i mean it's hard to find even tech versus s&p, differentiation versus russell i even looked at what's going on overseas in the european index

the only thing that seems to go green is the dollar these days, and that's not good for stock, right. if the fed is going to continue to raise rates as mike said and continue to strengthen the dollar and continue to hurt stocks hope springs eternal, the vix is still under control. and there's reasons behind that. i don't think people own equities like they did before, and i think people are looking to use that cash deit deploy later for better buying opportunity in the equity market >> higher cash position is one take on why the vix has remained relatively muted i'm wondering what you see as the reasons why we haven't seen a spike yet to 34 or some astronomical level >> yeah, i mean, there's a lot of things going on here, and actually some of the things we're going to talk about in the options space i think are indicative of this, and actually some of my own positioning could

be indicative of this. we don't want to go completely to cash in our equity fort folios think about the dynamic that creates. if you're a long equity player and use options instead you might be inclined to say you know what, i want to dip my toe, in, look at the risk and buy some up side call action maybe i'm not buying puts as aggressively as i was before, and what does that do? all else equal it's going to increase the price of calls and not increase the value of puts as you might otherwise expect with the declines we're seeing, and i think that's showing up when we look at something like the vix index, for example, which you're going to see as puts get big you're going to see those kind of metrics rise >> as stocks continue to head south, the chart master has one

name that could be the ultimate defensive play carter, is that too strong, worded too strongly there? >> maybe but anyways let's talk about apple. and listen, everyone is basically not sanguine on apple, which is fine. know this before we look at the charts of the oex omtwo stocks are up this week, pepsi and lilly. there's only about 25 stocks on the oex up, and they are utilities, staples, health care, energy but there's one that isn't here, it's apple look at a charter, too, the first is apple itself, it's very

range bound. let's look at ratio charts, the next is just that. it's apple divided by the s&p, and what the line reveals is how apple is performing relative to the xpx. let's put a line on that, it's the perfect trend line literally to the penny it has bounced. let's put another line on that look at the top. it just broke out the definition it's not extended, final chart is a little bit longer term. i think apple is telling us that it's the place to be if one wants to be anywhere now, i respect the other side of the argument and we heard it earlier this is the last one to go apple is just not extended, and i'd rather be there than a lot of other things. >> mike, what's your take and what's the trade >> yeah, so the first thing i would say i mean you already heard me say i think there's potentially further down side, maybe even a lot more downside

for equities and it's hard for me to imagine how apple remains equity immune. they're not exposed to enterprise and we're entering a strong season for apple, and their latest product is one of the biggest drivers for them here's something to think about. yesterday the stock was trading i think it hit a high just over 154, and today it almost got down to 148. so we're talking an almost $6 move just between yesterday's high and today's low so if i still think there's potential downside for equities but want up side exposure, i think what you want to do in a market like this one is, number one, you want to keep it simple and you need to put on positions that allow you to be nimble and define your risk i was looking out to november the 160 calls, which were in the money only in the last two weeks, those cost about 470, i think when i was looking at those earlier today, that's a

little over 3% of the current stock price, and less than the shares moved peak to trough between yesterday's high and today's low. this is a way you can take up side exposure to apple if you think we do catch the bid, if you think the fed chickens out, which is another reason you could be bullish for equities. i think they're probably going to stay the course here. that is a way you can make a bullish bet and really define your risk like i said just over 2% of the current stock price. >> what do you think of mike's trade and the notion apple is a defensive play in this market 1234. >> i really like mike's trade for all the things he outlined you're moving back towards the 200 day moving average it is a defensive stock. it's a core holding for a lot of famous individuals and also a core holding for many of the index products, so any sort of rebound that comes back into the i really like. one of the things i really like

can get kind of wonky but it is an options show. the volatility of the stock moving around justifies the price of the call. so people may say options are too expensive right now but they are justified in their price you're paying 3%. you can participate in the market going back up, and you're buying that volatility at the same price that a lot of the major indexes are priced at. so anytime i can buy a single stock option a volatility that's the same and sometimes even lower than the actual index it's in, that's definitely a buy you should -- you should always buy that stock just as an options trader rule. >> all right, let's get more macro here as investors scramble for safe haven amid new market lows they might be remiss not to prepare at least for the potential as unlikely as it may be of an unexpected rally dennis, how should you do that

snch. >> one of the ways you do this is a risk reversal buying outright puts is just -- if you're buying them say buying house insurance when the house is on fire, it's going to be very expensive so you need to offset that cost of buying the insurance, and one of the things we can do is a risk reversal. so when you put a risk reversal trade on, you're buying a downside put, but you're financing it by selling an up side call so being able to participate in the rally or not just bleed out all of your profits in the underlying stock, it's important to put the trade on in a proper well thought out way one of the things you're seeing in the market right now is the cost of doing this trade is about as low as i've ever seen it right now this is like a tail risk trade so you're buying it down 10% put, buying it next year so january $330 put, and financing

that by selling a $400 call, and you're paying less than a $1 to do it. they're almost both 10% out of the money. in index trading and options trading on equities very rarely is you buy puts for roughly the same price as the call you're selling against it this is a trade where it'll keep you in the stock, it'll like make you sleep better at night you don't make the best decisions when markets are trading on all-time lows so putting a trade on, it prevents you from panic selling. it's a great hedge against your already long stocks in your portfolio. post people if you're watching the show you're also watching your portfolio this is an economical way by putting that trade on and financing it by making an up side call. >> mike, what's your take? >> yeah, i mean, dennis really sort of made the most important point, which is this is not a

setup you typically get. you don't usually get to say, okay, i just want to limit my exposure right now to up 10, down 10. i could see some really disastrous things happening, so i don't want to have exposure beyond that to the down side you don't normally get this, and that is really a function of essentially the dynamic we're talking about, the unusual price of options right now, up side, versus down side, and actually people going out and doing things like i just advocated in apple are helping to contribute to the dynamic dennis has identified to inindex here i think there's a limit to how much up side there is, but i don't want to sell my stock but also unlimited down side risk. putting this on sometimes called a protective caller is a way you can do that. >> i'm independent of the trade and we can get a bouncer structurally the question is the market in a position to bounce

meaningfully or is there down side too what we know is that the market is back. everybody knows it's to its june low. so the question is in all my conversations with clients the market is down so much, but you say, yeah, it hasn't done anything in three months it's unchanged since the middle of june yet everything else is so much worse including all the data we're not extended to the down side look at a longer term iteration, same s&p chart and a final way to draw the lines. yes, you can bounce, but structurally the market has an issue, and i don't think that issue is resolved. i'm playing for lower prices >> all right, still to come gold hasn't been living up to its traditional role of stalwart market hedge, but could chat soon change and how should you plan more options action right after this

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welcome back to "options action." gold, a traditional market hedge hasn't been acting the way it has in the past buck what if it suddenly does professor has a way to prepare.

mike >> we often think of gold being a hedge for other risk assets we might hold truth, one of the reasons people really think of it as a hedge is it's a hedge against a weakening dollar, and of course it hasn't performed well because the dollar has performed well and the dollar has been strangely performing well. and people might not think that makes sense in an inflationary environment. but once policy makers begin to recognize that you have an inflation problem, the dollar will strengthen because you see rising rates and folks are hoping that will stabilize as i indicated earlier they still have a long way to go, and of course if they do pause in their activity here, then i think gold could actually get a little bit of a bump now as i indicated also when we were talking about apple i think

in a fast moving market like the one we have right now it's important to keep your trade simple and be nimble i think here, too, the way to limit your risk, i was looking out to november the 160 calls, those because gold is a relatively low volatility asset could be had for just under $2 so we're talking about only a little bit over 1% of the price of gld to buy those calls. and here's the situation if this thing does catch a bounce, if it does start to rally you could look to spread bits, look to roll them. i think that's what you want to do, and of course we're limiting our risk to the down side in the event that gold continues to weaken and we continue to see a strengthening dollar and continue to see rising rates >> carter, where do you see gold going? >> sure, i think it's important to say, yes, day to day gold is not serving as a hedge but the real way to look at it is this. when did gold peak it peaked at an all-time high

january 4th. and we know the s&p is down since then gold in the period 9%. three gold charts they're all in the same time frame. the first one is this incident, this sequence very similar to the 2020, 2021 draw down same chart and look at the duration of those two this versus then. that was 150 sessions and this was 143 sessions the question is are we down to the point where you get some sort of bounce that's my hunch. >> so, dennis, what do you think of mike's trade? >> i like mike's trade from an options point of view. i'm not a fan of mike's trade from a gold directional point of view so my options -- i would actually be short gold here, but i would still do mike's trade as

a protection trade in case i was wrong. you know, gold could pop back up into carter's area the 200 day looms large. you were only laying out 2% so that's why i like the options trade. i've never been a gold bug i think a lot of the gold bugs have moved out of the space and moved into crypto and other things so i don't know if that's behaving very well i can't get my head around being a gold i would like being shorted, but i like mike's trade from a volatility point of view and stock me up. >> mike, last word >> the real gold buzz and silver, too, by the way, showed up in the 1970s. and that was a period when we were encountering inflation that was not entirely dissimilar to what we're seeing right now. before we dismiss inflation hedges like precious metals, i think we need to remind ourselves it's been a long time

since we saw inflation like this, and we may yet again get big rallies in precious metals if this persists >> all right, up next a special look back on three prior open trades that needs some management right now plus we're tackling your questions. more options action right after this td ameritrade, this is anna. hi anna, this position is all over the place, help! hey professor, subscriptions are down but that's only an estimated 15% of their valuation. do you think the market is overreacting? how'd you know that? the company profile tool, in thinkorswim®. yes, i love you!! please ignore that. td ameritrade. award-winning customer service that has your back.

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welcome back to "options action." over the past several weeks we've laid out several trades in iyr, xpe, the market today and jets, they're all moving in favor and should be actively managed right now amidst this volatility so, mike, what do you do next? >> an important point of course we made bearish bets in several areas. when you put on put spreads, which is the trade we use in these cases, the risk reward dynamic of the trade changes most of the money has been made. you should take your profits in these bearish trades, and if you believe as i do that the market could actually still go lower you can take a portion of those profits and deploy it by rolling down-and-out, and that's what you should do. >> all right, there's your update let's get to some tweets here.

first fan asks looking at a costco december risk reversal in the line of 460, 500, 550. appreciate your insights mike, can you take this one? >> costco, index name. i like the stock i'm not as crazy about the valuation but call spread risk reversal especially in high volatility environments like we find ourselves right now you're going to get near up side, and i would choose lower strikes, though i would be looking more 420, 470, 500 >> our next tweet asks what is the lng chart doing, carter? >> it's doing great. i mean if you use a simple exercise find all stocks that were making new 52-week highs and all-time highs in the last two weeks when the s&p has been dropping for six months it's a pretty small group. lng is in that group

it's already down 50% from that high two weeks ago i think you buy the dip. >> do you like lng, mike >> i do. i like the natural gas names in general. i think this is an area that one of the few has room to the up side >> all right, we have time for one more tweet so here it goes this one asks amazon callerder put spread from a few weeks ago is in the green now, do we close the trade out near the 52-week low? mike, your take. >> so i actually was selling some of my amazon puts today, and part of that is not because i think all the damage is done, but i also was pairing some of my long positions, and sometimes it's nice to offset some of those losers with profits and i was taking some losers with the amazon puts. >> all right up next, the final call.

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i would resist that temptation and anticipate more. >> by the way, we lost brandon because of technical issues. mike, what's your last call? >> i think dennis was expecting a protective caller. ful you're thinking of making long bets you don't have to do so in a len yr fashion by calls instead of stocks. >> that does it for us the cnbc special markets in turmoil starts right now - [narrator] the following is a paid presentation for the premium mattress topper by do dormeo. one of the fastest growing sleep companies in the world. what's captured these people's attention. - whoa! - oh my god! - wow! - that's it. - wow! i'm impressed. - whoa! never would've thought. - never expected that. - it did, it feels like it's a brand new mattress. - yeah. - [narrator] it's not a new mattress that creating this reaction, they're lying on the same old mattress they've had for years. it's time for you to discover the premium mattress topper by dormeo. we believe,