Netflix is going lower—here's how to play it: Trader

So far, the best stock of 2015 is having a trying time in the new year.

After more than doubling in 2015, Netflix shares fell about 4 percent on the first day of trading in 2016 amid a broad market sell-off, and were down 8 percent at their lows. According to Todd Gordon of TradingAnalysis.com, technical indicators in the charts give investors serious reasons to pause when it comes to the popular stock.

Gordon said Monday's drop broke through an important uptrend from 2015. That, along with the gap made by a sharp decline in the share price, will create notable resistance for the stock, he said.

"We're going to use this as a ceiling to sell," Gordon said Monday on CNBC's "Trading Nation." "We could start to move lower here and look to be retesting the old lows here around $96-$97 in Netflix. So it does look like we have lower prices to come."

A move to $96 would be a 13 percent decline from where Netflix closed Monday.

Read MoreHow to play 2015's best sector in the new year

To profit from the new resistance level, Gordon is selling the February 110-strike calls for $9 each and buying the February 115-strike calls for $6.80 each. This trade creates an options call spread for a total of $2.20 per share, in a bet that Netflix shares are below $112.20 by February expiration.

"By selling calls above the market and above resistance, you have a high probability of success for the trade to work, better than 60 percent. What you're giving up in your risk reward is being offset by the probability of success in the trade," Gordon said.

Correction: An earlier version misstated the pricing of Netflix options.

Want to be a part of the Trading Nation? If you'd like to call into our live Wednesday show, email your name, number and a question to TradingNation@cnbc.com.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

Read more