One trader tries for a 575% profit in a month’s time

One trader is betting on an embattled health-care name to reap him huge rewards should his high-risk trade pay off.

Todd Gordon of TradingAnalysis.com is wagering against CVS Health, which has underperformed in 2016 even within the poorly performing consumer staples sector.

"[The staples] have come under pressure as U.S. Treasury prices have been declining from a combination of expected Fed rate increases as well as foreign central banks selling our Treasurys," he said Wednesday on CNBC's "Trading Nation."

Many staples stocks have high dividend yields, meaning they are in trouble if bond yields rise, as they become less attractive by comparison. It's worth noting, however, that CVS doesn't have a particularly high yield.

On a chart of CVS, Gordon sees the stock breaking below what he deems a support line stretching from a "flash crash" that happened last September.


Gordon wants to buy the November 85-strike puts and sell the November 80-strike puts for 74 cents, or $74 per options contract. The $74 premium is the most Gordon can lose on the trade.

If CVS does close at or below $80 on November expiration, however, Gordon will make a $426 reward, for a 575 percent profit.

To be sure, Gordon's trade is quite the gamble. CVS would have to drop about 10 percent by November expiration for him to reap the rewards.

"This is a far-out-of-the-money put debit spread," said Gordon. "[It has a] huge reward-to-risk ratio, [but] the probability of success is lower because we are taking a little bit of a punt here on this trade."


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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.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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