Trading Nation

Here's how one trader is hedging his portfolio amid all the market-moving headlines

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How to hedge any more downside on the S&P 500, technician says

It's been a wild week for stocks amid a number of market-moving headlines.

Most notably, stocks have rebounded after posting their worst day of the year so far on Monday as the coronavirus outbreak spooked investors.

Now, with earnings season in full swing, Ascent Wealth Partners' Todd Gordon thinks it's time for investors to protect themselves against any potential pullback in the market.

"I think it's a time here to hedge your portfolio," he said Tuesday on CNBC's "Trading Nation." "I continue to be heavily long in [my personal stock portfolio], and I'd like to use the options market here to hedge any potential downside."

In order to do so, Gordon is looking specifically at the S&P 500 ETF (SPY). Gordon says SPY has broken below an uptrend line that extends from its October 2019 lows.

This means the trend line Gordon references is now what he deems the "resistance" for the ETF, making $325, where the uptrend line currently sits, the level that Gordon is watching.

Gordon is also eyeing the ETF's 50-day moving average as another level SPY could hit if it were to pull back. That means he believes SPY could fall to around the $319 level, where the indicator currently sits.

Gordon is buying the February monthly 325-strike put and pairing his purchase by selling the February monthly 318-strike put for about $1.63.

This means Gordon risks seeing a maximum loss of $163 should SPY close above $325 on Feb. 21 expiration. But should SPY close below $318 on the expiration day, Gordon could make a maximum profit of around $536.

SPY is currently up about 2% this year and has bounced back this week after dropping on coronavirus outbreak fears.