Trader: Big sell-off coming so buy this...

Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters

"Halftime Report" trader Joe Terranova fears that after four years without a correction, the S&P 500 is overdue for a significant pullback.

Here's why and what he's doing about it in the show's portfolio competition.

Terranova bought shares of the Barclays S&P 500 VIX Short-Term Futures ETN, which tracks the CBOE Volatility Index, or so-called fear gauge, on a bet rising rates will trigger a downward move in stocks.

The ETN has a history of rising as the S&P 500 falls. It was up about a half of 1 percent in midday trading Wednesday as stocks retreated. The fund may also perform well in an extended period of rapid declines and advances. Confusion drives the gains.

Jon Najarian, another member of the Halftime Portfolio team, also owns ticker 'VXX'.

Terranova also added the Ultrashort 20+ Year Treasury ETF, which rises as prices of U.S. government bonds with longer maturities decline. This could also be considered a bet on rising rates.

"I suspect rates are moving much faster than folks are positioned for," said the trader.

To make room for the volatility ETN, the trader sold shares of Concho Resources, which recently came under fire Tuesday from notable hedge-fund manager David Einhorn.

Concho shares are "back below where I bought it after enjoying a nice multi-week gain," said Terranova, who is senior managing director for Virtus Investment Partners. "Never turn a winner into a loser, no matter what your view is," he added.

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Terranova is beating the market, up more than 4 percent this year, in his Halftime Report Portfolio.

For all the picks, analysis and records for the Halftime Report Portfolio, click here.