Markets will soon feel a Trump hangover—here’s my plan for cashing in: Trader

Trader bets against the market

Despite widespread predictions that a Donald Trump victory would lead to a substantial market drop, the has enjoyed a nice bounce since Trump surprised many by prevailing in the presidential election.

The rally has been particularly pronounced among stocks that could benefit from reduced regulations, such as biotech stocks and the banks, or those that increased infrastructure spending would advantage, such as construction and engineering stocks.

But according to Andrew Keene, CEO of AlphaShark Trading, the market's 1.7 percent rise since the election is set to be reversed — and then some.

"[If, before the election] someone said to me, 'Donald Trump's going to win the presidency and then we're going to be up in the next week after that,' I would have told them they're crazy," Keene mused Wednesday on CNBC's "Trading Nation."

At some point, anxiety over the potential unknowns that could cloud a Donald Trump presidency faded, and a chase for performance set in, in Keene's analysis.

Yet looking forward, he sees the market running into resistance. Diving into a chart of the SPDR S&P 500 ETF (SPY), Keene opines that the ETF will have a hard time getting about $219, a level that roughly corresponds to a record high for the S&P 500.

Below that, Keene says that the $208 level, which appeared to serve as resistance several times before switching over to support, is a "magnet" for the market. Significantly, that is the level at which the SPY bottomed out at the beginning of the month, when Trump-based anxiety was running high.

"I think the market's going to sell off down to the $208 level," Keene said. "But I don't think it's going to happen until the end of the year."

The theory is that once 2016 ends, managers' end-of-year quest to show impressive performance will have passed, removing a bullish tailwind, and the Federal Reserve may well have embarked on rate increases, creating a bearish headwind.

In order to play for an early-2017 drop to $208, Keene bought the March 212/208 put spread on (SPY) for $1 per share.

If the (SPY) does indeed close at or below $208 upon the trade's expiration in mid-March, the spread will be worth $4, for a profit of 300 percent. On the other hand, if the SPY closes above $212, the trade will expire worthless and the entire premium paid will be lost.

"I think this is a good risk-to-reward setup," Keene said.