Trader aims to triple his money with an emerging markets drop

Trader Todd Gordon sees a way to make money from the plunge in emerging markets, which have skid since the election.

The ETF that tracks emerging markets, EEM, is down almost 9 percent since Tuesday. Gordon of believes the fall isn't over yet. According to Gordon, the strengthening dollar has been wrecking havoc on the emerging markets in light of higher bond yields, which in turn is hurting their economies as their currencies become less valuable in the face of the dollar.

"The for-ex flows like to come in where there are higher rates of return available, which right now, that is in the U.S. strengthening the dollar," Gordon said Monday on CNBC's "Trading Nation."

The weakening of commodities prices following the election has also hurt EEM, as the emerging markets rely heavily on commodities such as oil. Both factors led Gordon to believe that EEM has more room to fall.

Looking at a chart of EEM, Gordon says the ETF seems to have fallen below what he sees as an "uptrend" that he believes started in January. As a result, Gordon believes that EEM could actually be back to its lows near $32, which it hasn't hit since May.

To prepare for the drop, Gordon wants to buy the December 34-strike puts and sell the 32-strike puts for 51 cents, or $51 per options contract. If EEM closes below $32 at expiration, Gordon could make $150.

"If the premium, the value of the options spread drops by half, under 25 cents, let's go ahead and cut the trade and contain the risk," said Gordon.

EEM fell another 1 percent Monday while the dollar strengthened to an 11-month high.


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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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