The Nasdaq sell-off continued on Friday, its fourth day in decline.
The tech-heavy index has fallen victim to rising rates, which makes the high-growth stocks the Nasdaq is known for less attractive to investors. The more concentrated Nasdaq 100 is pacing for a 4% weekly decline.
Todd Gordon, founder of TradingAnalysis.com, put on a hedge trade using options last week. He said it makes sense to stick with this strategy to weather any more downside.
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"The technology market as well as the broader indexes have sold off. ... I think there's more room to go, and the way I'm using this is I am, with my clients, hedging using options, so I want to leave the hedge on," Gordon told CNBC's "Trading Nation" on Thursday.
Tracking the two prior declines, Gordon said this sell-off is likely to follow a two-step pattern or three-wave correction, where the XLK technology ETF falls, makes a lower high in a countertrend rally and then a lower low.
"That winds up being a good buying opportunity," said Gordon. "If we go down, rally back up and then make an equal leg move down, again that's pretty common, support might be viewed around $125 in XLK."
Money Report
The ETF, which holds Apple and Microsoft among its major components, was trading at around $126 on Friday.
Tesla, which is not in the XLK but often caught up in tech sell-offs, is one name Gordon is looking to add on the downside. He said investors could buy shares outright or use the options market. One strategy he laid out involves selling a 635 put and buying a 725 call with April expiration.
"If Tesla starts to move up towards these old highs around $730, what you can do is just simply close out the put, take the profits, exercise the call, and then you will have been paid about $33 a share to accumulate 100 shares of Tesla. That's one way you can do it," he said.
Disclosure: Todd Gordon holds shares of Tesla.
