Trader betting on this ETF ahead of Trump’s inauguration

Stocks have surged and bonds have sunk following Donald Trump's election, but as his inauguration approaches, one trader is looking for a bit of a reversal.

"We're starting to see the bond market and the gold market rally up into Inauguration Day as the stock market is acting a little weak up here," Todd Gordon of said Tuesday on CNBC's "Trading Nation."

Gordon recommends playing the iShares Barclays 20+ Year Treasury Bond ETF, the TLT, to capitalize on the strength he forecasts in the bond market.

Examining a chart of the TLT, Gordon points out that the ETF is forming a kind of a rounded bottom around the $120 mark and inching higher, indicating to him that shares of the ETF are set to advance.

"It looks like we're going to try to pierce up through this resistance level just at about $123, and we're focusing in on this little gap up here just around the $130 mark," Gordon said.

"I don't know if we're going to get up that high into inauguration, but let's play a move up through this resistance on an approach of that gap close," he said, marking a gap between the $130 level and the upper $120s.

Turning to the options market to trade the TLT, Gordon recommends buying the Jan. 27 weekly 123-strike calls and selling the Jan. 27 weekly 125-strike calls for a cost of 64 cents per share, or $64 per options spread.

In order for Gordon to make money on his trade, the TLT would have to close at or above $123.64 on Jan. 27. If the ETF closes above $125 on that date, Gordon's trade would earn him a maximum reward of $2 per share, just about tripling the money he spent on the trade. However, if the price of the TLT remains below $123 on Jan. 27, Gordon will lose the $64 he initially spent.

That said, he has a plan to back out of the trade if his theory proves wrong.

"If it gets down to 30 cents, in terms of premium remaining, the trade goes against us, let's cut the trade and move on," Gordon said.


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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