It may be time to protect some technology holdings, one trader says.
Volatility has taken hold of the tech sector in recent weeks as Treasury yields rose, with the tech-heavy Nasdaq 100 index falling nearly 6% in September.
Bond prices, which trade inversely to yields, could be signaling more trouble for tech stocks, Inside Edge Capital Management founder Todd Gordon told CNBC’s “Trading Nation” on Thursday.
The iShares 20+ Year Treasury Bond ETF (TLT), for one, revisited a low this week not seen since July, Gordon said.
“If … interest rates are going to push up, will the Nasdaq break this trend line?” he said, pointing to key uptrend support for the index that has been in place since October 2020.
“If the Nasdaq were to break through this key uptrend support, a likely stopping point could be this old high” around $13,805, where it traded in February and April of this year, Gordon said.
To guard against that possibility, Gordon — who owns several tech stocks and ETFs — set up a put spread on the Nasdaq 100, buying the $14,500 puts expiring on Oct. 11 and Oct. 13 and selling the $14,000 puts. That expects the Nasdaq to see a moderate decline and carries less risk than an individual put or short strategy.
If the Nasdaq 100 falls to $14,000 by expiration, Gordon’s trade would make $39,230, he said, adding that the trade’s structure makes it easy to exit if it’s not working out.
“It’s better, I feel, to do that rather than try to exit a lot of your underlying positions,” Gordon said.
“It’s a nice way to hedge rather than taking off all those positions, paying short-term and long-term capital gains,” he said. “Hopefully the market holds the lows and moves up and I can just take that hedge off.”
