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The butterfly effect: How to short the Nasdaq

Technology has been one of the hottest trades of the year. The tech-heavy Nasdaq 100, whose biggest holdings are Apple and Microsoft, is up 5.5 percent this year, while the S&P 500 is up less than 3 percent. But rather than take the rally as a sign that tech is the place to be, one trader says the charts are pointing to near-term trouble.

"Right now we are at a critical level on the chart at the 50-day moving average," technical analyst Andrew Keene said Friday on CNBC's "Trading Nation." Looking at the ETF that tracks the Nasdaq 100, the QQQ, Keene noted that the past six times the ETF has hit its 50-day moving average we've seen buyers, but he believes this time may be different.

"I think the market is due to correct," said Keene, founder of Keene on the Market. The QQQ is currently 2 percent from its high hit in late April. "I wouldn't be surprised if we saw a move lower to the 200-day moving average, about a 7 percent decline." And that level (which comes in around $102), could be an attractive place to buy, Keene said.

So to play for protection from a potential decline while not making an outright bearish bet, Keene purchased a somewhat complicated options trade called put a butterfly for 50 cents. In this strategy, a trader will buy a higher strike put, sell two middle strike puts and then purchase a lower strike put all at the same expiration. In Keene's case, he's targeting that middle strike of about $99.

"In this trade I will make money if the QQQ is between $94.50 and $103.50 by September expiration," said Keene. "This is an unbelievable risk/reward setup where I can make money in the QQQ even if it doesn't selloff as much as I expect it to."

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