Time to buy protection in tech stocks: Trader

In the 2016 market rout, the tech-heavy Nasdaq 100 index has been hit particularly hard, falling 10 percent in the first two weeks of the year. And while the panic has yet to reach levels seen in previous market plunges, one options trader says it's a good time for investors to protect against further losses.

On Friday, Dennis Davitt of Harvest Volatility Advisors recommended buying put options in the Nasdaq 100 ETF, QQQ.

"I would not bet against the QQQ here, but I would certainly buy protection against it. I would put gloves on to catch that falling knife," Davitt said.

Davitt also noted the price of protection in the market looks relatively cheap right now, given that volatility during the sell-off remains muted compared to during the summer swoon.

On Friday, the CBOE Volatility Index rose 12 percent as stocks dropped more than 2 percent. Also known as the VIX, the index is a widely used "fear gauge" in the market, based on the price of S&P 500 options. Higher prices for protective options trades often indicates higher levels of market uncertainty.

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But at 27, the VIX is still a far ways off from its August high of 40.

"This is the worst market in 100 years, but what we're not seeing is a really high price of protection," Davitt said Friday on CNBC's "Trading Nation."

However, technician Katie Stockton of BTIG said if QQQ breaks below $100, it could fall another 10 percent to the $90 level. On Friday, the ETF dropped more than 3 percent to close at a little under $101.

"I'm one of those that has thrown in the towel on the bull market at least for now," Stockton said Friday on "Trading Nation." "In the past couple weeks, the loss of momentum we have seen, especially in technology, has been so significant that we've seen a whole lot of breakdowns on the charts."

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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.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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