The Nasdaq sell-off continued on Friday, its fourth day in decline.
The tech-heavy index has fallen victim to rising rates, which makes the high-growth stocks the Nasdaq is known for less attractive to investors. The more concentrated Nasdaq 100 is pacing for a 4% weekly decline.
Todd Gordon, founder of TradingAnalysis.com, put on a hedge trade using options last week. He said it makes sense to stick with this strategy to weather any more downside.
“The technology market as well as the broader indexes have sold off. … I think there’s more room to go, and the way I’m using this is I am, with my clients, hedging using options, so I want to leave the hedge on,” Gordon told CNBC’s “Trading Nation” on Thursday.
Tracking the two prior declines, Gordon said this sell-off is likely to follow a two-step pattern or three-wave correction, where the XLK technology ETF falls, makes a lower high in a countertrend rally and then a lower low.
“That winds up being a good buying opportunity,” said Gordon. “If we go down, rally back up and then make an equal leg move down, again that’s pretty common, support might be viewed around $125 in XLK.”
The ETF, which holds Apple and Microsoft among its major components, was trading at around $126 on Friday.
Tesla, which is not in the XLK but often caught up in tech sell-offs, is one name Gordon is looking to add on the downside. He said investors could buy shares outright or use the options market. One strategy he laid out involves selling a 635 put and buying a 725 call with April expiration.
“If Tesla starts to move up towards these old highs around $730, what you can do is just simply close out the put, take the profits, exercise the call, and then you will have been paid about $33 a share to accumulate 100 shares of Tesla. That’s one way you can do it,” he said.
Disclosure: Todd Gordon holds shares of Tesla.
