×

One trader’s plan to quadruple his money by betting against a sliding sector

There's big money to be made by betting against health-care stocks, according to one chart-minded trader.

The SPDR health-care ETF (XLV) is down nearly 7 percent since hitting its 2016 peak in August. And as of midday Tuesday, the health-care sector was the worst performer on the day, dropping about 2 percent.

"We're looking at a broader rollover in stock market averages today, and specifically we're being led in the sector space by health care," Todd Gordon of TradingAnalysis.com said Tuesday on CNBC's "Trading Nation." "Health care has been an underperforming sector SPDR, and today it seems like they want to punch through."

Below the $72 "support level" he spots, Gordon thinks that the XLV could fall to as low as $67 or $68.


In order to profit off of such a move, Gordon turns to the options market. Specifically, he buys the November 70-strike puts and sells the November 68-strike puts for a total cost of 45 cents per share. If Gordon's trade succeeds, and XLV closes at or below $68 on Nov. 18, then this options spread will be worth $2.00 per share, for a profit of $1.55.

In other words, Gordon would more than quadruple his money on the trade.


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.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

Read more

Connect