Bet on health-care stocks ahead of earnings, trader advises

Health-care stocks have been on a tear, and with Johnson & Johnson and United Health Group reporting earnings on Tuesday, Todd Gordon of TradingAnalysis.com sees the sector rising even higher.

The health-care-tracking ETF (XLV) is already up more than 16 percent year to date, and from a technical standpoint, the XLV is forming a "pattern" that leads Gordon to believe the ETF could hit an all-time high as soon as next month.

On a chart of XLV, Gordon points out that the ETF has been making a continuous "uptrend" parallel channel, and there is still room to run on the upside.

"You can see that the market is more or less in the middle of this uptrending channel," the trader said Monday on CNBC's "Trading Nation." "[This] means with some strong earnings, we could continue to push up towards that upper end of that channel, right around the $83 region."

To play for that bounce to all-time highs, Gordon wants to buy the August monthly 79-strike call and sell the August monthly 82-strike calls, expiring August 18. Since Gordon is paying $1.48 total for the trade, or $148 per options contract, he would lose that amount if XLV were to close below $79 on the expiration date.

But if XLV were to close above $82 on August 18, then Gordon would make $152 on the trade.

Johnson & Johnson and United Health are two of the biggest holdings in XLV. Johnson & Johnson is currently up 14 percent year to date while UnitedHealth has also surged over 16 percent this year.


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