This trade on Japan can double your money: Trader

The Bank of Japan is set to conclude its two-day monetary policy meeting on Wednesday, and one trader is gearing up for a rally in Japanese equities.

"I'm looking for ways to play for upside ahead of the Bank of Japan meetings, while limiting my downside risk," said Stacey Gilbert, head of derivative strategy at Susquehanna. Specifically, Gilbert turned to DXJ options for opportunity. The DXJ is a hedged Japanese equity fund, which removes currency exposure.

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The DXJ is up roughly 18 percent over the past year, and in October of 2014, the ETF saw a 6 percent pop when the BOJ did a surprise easing. "The Bank of Japan is set to meet [this week] and again on April 30. And there is much debate if there will be any additional easing," said Gilbert on Monday's "Trading Nation." "I'm looking to the options market in case there is surprise easing, or more importantly as the general sentiment shifts and becomes more bullish on Japan."

Bank of Japan headquarters in Tokyo.
Tomohiro Ohsumi | Bloomberg | Getty Images
Bank of Japan headquarters in Tokyo.

Much like other central banks around the world, the Bank of Japan is in the midst of a massive stimulus program with the hopes of reviving the Japanese economy. With rates on the Japanese 10-year hovering below a half a percent, many investors are plowing money into Japanese equities. The Nikkei, Japan's primary market, is up over 28 percent in the past year and up 72 percent in the last five years.

So to make a bullish call on the DXJ, Gilbert bought May 54.22/58.22 call spread for a total of $1.84. Specifically, Gilbert bought the May 54.22-strike call for $2.24 and then looked to reduce the costs of that call by selling the May 58.22-strike call for 40 cents. So Gilbert will see profits if the DXJ rallies above $56.06 by May expiration. If the DXJ rises above the strike of the call that she sold, or in this case, above $58.22, Gilbert can make $2.16 by expiration, or a little more than double her money.

"This is a good strategy to play for a bounce, while not risking a lot of money," said Gilbert.

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