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.

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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