The consumer discretionary ETF (XLY) is on the rise, and its new momentum leads one trader to believe that the ETF can climb even higher.
“[If we look at the daily chart] we see this clear bottoming out, and it’s started to just move straight higher,” said options expert Andrew Keene of AlphaShark. “It recently topped out at that $80 level. But I think it can get back to recent highs, which is $82.”
Keene believes that the XLY, which opened Wednesday trading at $79.81, will hit the $82 level by June.
The XLY has been bolstered by its bigger holdings’ upswings, including Amazon and McDonald’s, both of which exceeded earnings forecasts and are some of the market’s best performing stocks. Keene believes that longer-term trends also suggest that the XLY will keep moving up.
“We have the 50 and 100-week moving average, a clear bold channel [upward],” said Keene. “This is a pullback to the 50-week moving average, so I can use the options market to magnify my risk and rewards setup and also get a better return on investment.”
Given his optimistic forecast, Keene is looking to buy the June XLY 81/82 bull call spread for $0.25.
“If it gets to $82, which is my measured move target by June, the spread would be worth $1 minus the $0.25 I paid for it,” he explained. “So I have a $0.75 profit — that would be good for 300 percent return.”
“If I’m wrong, all I lose is what I paid for the spread,” Keene added.