The hot stock that one market bear is buying

Technical analyst Todd Gordon is bearish on the market, but there's one stock he can't resist.

Nvidia is up about 52 percent year to date, although it has had a recent setback. The TradingAnalysis.com founder says the charts are hinting at a possible breakout for semiconductors as a group, and the chipmaker is particularly well positioned for a comeback.

"[The semiconductor ETF (SMH)] is hanging inside of this little range here that we've seen for the summer, and it's possible that we're going to break higher," Gordon said Tuesday on CNBC's "Trading Nation." "The vehicle of choice in the chips, no surprise here, is going to be Nvidia."

Shares of Nvidia are down almost 7 percent from the all-time highs hit earlier this month. Gordon points to an "inverse head and shoulders" pattern that he says is suggesting a bullish reversal for the stock. The trader believes that the "shoulders" of the pattern, which are sitting near $160, are forming a "support shelf" that could send Nvidia back above $170.

As a result, Gordon wants to buy the September monthly 165-strike calls and pair that with the sale of the September monthly 170-strike calls for a total of $1.62, or $162 per options spread. This means that if Nvidia were to close below $165 on the Sept. 15 expiration date, Gordon would lose $162, the premium he paid to make the trade.

On the other hand, if Nvidia closes above $170 on Sept. 15, Gordon stands to gain a maximum reward of $338 on the trade.

However, despite the attractive risk reward, Gordon does establish a stop for himself in order to mitigate risk.

"If [the premium] gets cut to about $80, let's cut the trade, it's obviously not working," he said.

The SMH is currently up 20 percent this year, meaning that Nvidia is far outperforming the group.

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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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