Trader predicts ‘upside surprise’ for this hot sector

As consumer discretionary stocks have experienced a pullback in the last week, one trader is still betting on a "clear bull channel" ahead.

Andrew Keene of AlphaShark said Wednesday that the sector's recent drop has become a buying opportunity. "I think we're going straight higher, this is a clear, clear upside surprise," he said on CNBC's "Trading Nation."

Consumer discretionary has been the best-performing sector of the S&P 500 this year, having gained more than 11 percent. Keene is trading the XLY, the ETF that tracks the consumer discretionary sector, and is targeting a move to $84 by January.

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For his trade, Keene is selling the December 80-strike put and buying the December 79-strike put to create a bull put spread for a total credit of 30 cents. This is a bet that the ETF is still above $79.70 at December expiration.

"I want to play this a bit more conservative," he said. "On this trade, I can make money if the stock is flat, goes [slightly] lower or goes higher."

XLY was down modestly at $80.08 in late trading Thursday. Keene said XLY should hold support near its current levels, which had previously acted as resistance.

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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 CNBC and 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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