The smart money is betting on this sector

The smart money is betting on this sector
The smart money is betting on this sector   

The American consumer is spending money, and investors are cashing in.

The consumer discretionary ETF, the XLY, is up more than 4 percent this year, making it the second-best performing sector in 2015. And one trader who relies heavily on the options market is betting on a massive breakout over the next two months.

"I think the XLY is heading to $80," said Andrew Keene, founder of Keene on the Market. And his reasoning is based on a combination of strong technical patterns and large institutional call buying in the options market.

"The XLY has been in a very clear bullish uptrend channel since consolidating in 2012," Keene said Thursday on's "Trading Nation." "But recently we've seen a little bit of a pullback." The XLY is down 2 percent from its recent high. "But the ETF has found support at its 50-day moving average," Keene said, adding that the next level of downside risk could be at the 100-day moving average at around $72. "I like to buy strong [trends] on a pullback."

Additionally, Keene has seen some notably bullish activity in the options market. "There's been some strong institutional order flow," he said. "We saw an institution targeting those June 80-strike calls." Specifically, there were 50,000 June 80-strike calls bought for 37 cents each. Since one options contract accounts for 100 shares (50,000 x $37), this is a $1.8 million wager that the XLY will be above $80.37, or roughly 7 percent higher, by June expiration. "This trade would take out the previous high of [about] $77," Keene said.

In other words, the smart money is betting big on the XLY.

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The large bet prompted Keene to put on a similar strategy, "I bought the XLY June 80-strike calls for 36 cents," he said. "My potential reward on this trade is unlimited."

"Buying on a pullback in the XLY is a great risk/reward setup here."

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