I know this is somewhat old, but according to an Q&A done with one of the Doctor Strange's screenwriters, C. Robert Cargill, Nightmare is most likely to be the main big baddie in the second movie of the sorcerer:
"Me and Scott have not laid the groundwork for it but what I can say is that I have a feeling that whatever Nightmare is involved with, Baron Mordo, being somebody who considers himself the defender of natural law will have something to do with it."
Most people(Including myself) presumed that Nightmare would actually turn out to be the first villain of the franchise instead of Dormammu back then when the movie wasn't released yet, after all, the character was even the first enemy to appear in a Doctor Strange comic/storyline during Strange Tales#111. Funnily enough, Nighmare could be a "redemption" for Derrickson to indeed introduce some horror-elements this time as oppose to what was first promised and never delivered to us...Nightmare being one of the main Fear-Lords who hunt humanity's dark feelings, its an one-time-chance, maybe having Willem Dafoe back to MU for the role?
Another thing is how they plan to expand Mordo's character, so he may likely become one of the greatness villains or anti-heroes in the verse:
"For those of you who have ever read the comics, you know that Baron Mordo has a very particular arc, and that's something we discussed with Chiwetel while working on the first movie," he said. "And part of the reason Chiwetel wanted to play Mordo was because he has a definitive ending as a character and it's such a fascinating ending. And I do know that whether we're attached or not, that Marvel plans on working towards that ending and fully realizing Mordo as more than just a cardboard cutout villain, but actually taking him to kind of Loki levels of awesomeness. That's the goal with him."
From what I can tell, Cargill is talking about one of the final arcs of the third volume from DS comics(Doctor Strange, Sorcerer Supreme#84-87), Mordo's history and feelings were handled in an amazing writing by J.M DeMatteis. We learn more of his past, such as his dread meet with destiny by a sickness/cancer and his sorrow choices in the past, thruth be told, I don't know how they plan to adapt most of Mordo's backstory and characters present on it such as his uncle, Viscount Krowler. Up to this point, we know nothing of Karl and so can only hope Derrickson does set a path for him to be as great as they suppose plan.