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How to double your money by betting against small-cap stocks

It's high time to bet against small caps, according to one chart-minded trader.

The Russell 2000 Index "is underperforming the S&P 500 and the Nasdaq relative to the 2015 highs," Todd Gordon of TradingAnalysis.com said last week on CNBC's "Trading Nation."

That means that "if indexes start rolling over, we could be relatively certain [traders] are going to come after small caps first," Gordon added.

Looking at a daily chart of the IWM, which tracks the Russell 2000, Gordon predicts that the exchange traded fund (ETF) could drop to its apparent support level of $119, which previously appeared to serve as a level of resistance.


Given the apparent potential for small-cap stocks to fall, Gordon wants to buy the October 7th weekly 124-strike puts and sell the October 7th weekly 120-strike puts for a total of $1.42 per share, or $142 per options contract.

The analyst is risking $142 to potentially make $258 in profits—meaning that he would nearly triple his money if he is proven correct.

The IWM was down nearly 2 percent as of Friday trading, falling as low as $122.64.


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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.

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.

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