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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Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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