Trader chases 420% profit by betting on a hot tech stock

The tech sector will continue to see big gains, according to one trader who is making a bet on Google parent Alphabet.

Over the past three months, the S&P 500 information technology sector has risen 12 percent — more than twice the performance of any other sector.

"Technology continues to lead, so we've got to go with it," Gordon said Thursday on CNBC's "Trading Nation."

Within the sector, Gordon favors Alphabet, a stock that hit a record high on Thursday.

Looking at the chart, Gordon notes that Alphabet has often approached the "$820 region." After rising to nearly $820 three times, he believes the stock is set to break through the level.

"Usually when the market comes back for a third test of resistance, it goes."


To take advantage of such a move, Gordon turns to the options market.

Specifically, he purchased the October 840-strike calls and sold the 845-strike calls for a total cost of 95 cents per share, or $95 per call spread. If the stock makes it to the $841 region, Gordon will break even on his trade; if it rises to $845 or above within the next month, his $95 spread will be worth $500, for a profit of more than 420 percent.

"That's an exceptional risk-to-reward ratio," Gordon said.

However, if the value of the call spread falls to $45 or below, Gordon plans to "move out of the trade, protect the risk and simply move on to the next trade."

In order to see maximum profits on the trade, Gordon would need Alphabet shares to rise another 3.6 percent in the next month.


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