Expect more pain for this FANG stock: Trader

It's been a tough year for many of the beloved FANG stocks.

Since the start of 2016, shares of the once high-flying Amazon, Netflix and Alphabet have fallen a respective 18, 18 and 8 percent, the exception being Facebook, which has managed to eke out a gain of 2 percent despite the market volatility. But as investors take turns fishing for a bottom, one trader warns there could be more downside ahead.

"I think this group of stocks, specifically Netflix, is ready to roll over along with the broader market," TradingAnalysis.com founder Todd Gordon told CNBC's "Trading Nation" on Monday. Netflix, which was the best-performing stock in the S&P 500 in 2015, is sitting firmly in a bear market, with shares down nearly 30 percent from its December all-time high.

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Looking at a year-to-date chart of Netflix, he noted that the stock is now trading in a downtrend channel, which, according to Gordon, has created a "zone of resistance" between $98 and $105 a share. The stock closed Monday down more than 1 percent at $93.41. "I think we could retest the lows of around $80," said Gordon.

But rather than just short the stock, he recommended using the channel as an opportunity to sell call options. Specifically, he sold the April 100/105 call spread for $1.75. This is a bearish strategy where a trader will sell a lower strike call and then buy a higher strike call of the same expiration. The goal is for the stock to trade below the strike you are short, or in Gordon's case, for Netflix shares to remain below $100 through April expiration.

"The probability of success is quite high when you are selling calls above the current price and above technical resistance," he added.


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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.

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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