It's been a frustrating couple of months for investors as stocks continue to churn in a narrow range. But according to one trader who relies heavily on the charts and options market, a bounce could be in store, and he has a strategy that could make a lot off of a small move.
"I think it's time to move into a countertrend trade to the long side," Todd Gordon told CNBC's "Trading Nation" on Monday. "I think we do have an established [long-term] downtrend, but we are beginning to bounce back from oversold levels."
Looking at the SPY, the ETF that tracks the S&P 500, Gordon noted that the index has recently rallied off of support at the $204 level. "There's a chance that we are going to get a countertrend rally right back into resistance around $208," explained the founder of TradingAnalysis.com. "As a short-term trade, I'd like to take advantage of this little oversold bounce up into [the top end of the trading range]."
To leverage the move, Gordon turned to the options market. Specifically, he bought a call spread, a bullish strategy where a trader will buy a call and then sell a higher strike call to offset the cost. In Gordon's case, he purchased the SPY May 207/208 call spread for 44 cents. Gordon is hoping the ETF will rise to the call that he is short — or in this case $208 in the next nine trading sessions.
In this specific wager, the 44 cents Gordon is spending is the most he can lose on the trade. But if the SPY is above that short call strike by expiration, he can make a total of 56 cents — meaning he could more than double his money if the S&P 500 raises just 1 percent by May 20.
"We are playing a short-term bounce in the SPY in what could be a more established downtrend," added Gordon. "We want to be nimble with this trade."