Here's how to double your money if stocks rally 1%: Trader

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 "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]."

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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."


Trades to Watch

Trader Bios


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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