It’s time to bet on the consumer, and here’s how: Trader

The consumer discretionary ETF (XLY) is on the rise, and its new momentum leads one trader to believe that the ETF can climb even higher.

"[If we look at the daily chart] we see this clear bottoming out, and it's started to just move straight higher," said options expert Andrew Keene of AlphaShark. "It recently topped out at that $80 level. But I think it can get back to recent highs, which is $82."

Keene believes that the XLY, which opened Wednesday trading at $79.81, will hit the $82 level by June.

The XLY has been bolstered by its bigger holdings' upswings, including Amazon and McDonald's, both of which exceeded earnings forecasts and are some of the market's best performing stocks. Keene believes that longer-term trends also suggest that the XLY will keep moving up.


"We have the 50 and 100-week moving average, a clear bold channel [upward]," said Keene. "This is a pullback to the 50-week moving average, so I can use the options market to magnify my risk and rewards setup and also get a better return on investment."

Given his optimistic forecast, Keene is looking to buy the June XLY 81/82 bull call spread for $0.25.

"If it gets to $82, which is my measured move target by June, the spread would be worth $1 minus the $0.25 I paid for it," he explained. "So I have a $0.75 profit — that would be good for 300 percent return."

"If I'm wrong, all I lose is what I paid for the spread," Keene added.


Videos

Trades to Watch

Trader Bios

About

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

Read more

Connect