This once-hot Trump trade is set for an even bigger drop, trader warns

The Russell 2000 small-cap index hit its lowest levels of the year on Monday, and that has one trader betting on an even bigger drop ahead for the group.

The IWM ETF that tracks the Russell opened Monday trading at $132.76, after peaking at $140.86 at the beginning of March. For Todd Gordon of TradingAnalysis.com, the recent slip is highly significant, as it took the ETF below its recent range of $133 to $135.

That means that "there's plenty of room left on the downside," Gordon said Monday on CNBC's "Trading Nation."

Currently, he sees the next range of support at the $126 to $128 zone — a prior zone of resistance. That is "a key decision point" on the charts, according to the trader.

Since Gordon sees IWM falling to $128, he's looking to buy the April 132-strike put and sell the April 128-strike put for $1.24 per share, or $124 per options spread. The trade expires on April 21, meaning that if IWM closes at or below $128 on that day, then Gordon will make a maximum reward of $276.

IWM only needs to close below $130.75 on April 21 for his trade to make money, but if IWM remains above $132, the entire premium paid will be lost.

In order to mitigate losses, Gordon plans to sell out of the trade if its value falls from $124 to $62. That would indicate to him that "this was just a short-term shakeout."

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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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