I just shorted the market; here's why: Trader

U.S. stocks opened higher on Wednesday, with major indices on track for their best month in four years. However, one trader is betting on a sizable pullback for stocks in the next couple months.

Andrew Keene of AlphaShark said the options market is implying a $12 move lower for the S&P 500 ETF, SPY, by January, which would be a 6 percent drop from its current price.

"When I look at the daily chart, I agree that we had a nice rally off the August lows, and then we had a rally off the October lows," Keene said Tuesday on CNBC's "Trading Nation." "However, at this price point, we are completely overbought."

He said that as stocks move higher, they should run into resistance at the July lows, a previous level of support.

Read MoreIf stocks fall below the 'Mendoza line,' watch out!

Keene is betting that SPY falls below $195 by January. To capitalize on that expected move, the trader recommends using a bearish options strategy called a "put spread." Specifically, Keen is buying the January 200-strike puts in order to speculate on downside, and selling the January 195-strike puts in order to reduce his costs.

SPY gained about 0.4 percent on Wednesday morning to $207.

"I'm not saying we're going to have a huge market correction. I'm just making a case [for a] sell-off to the 195 level," he said.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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