I’m going to make a 400% profit on gold—here’s how: Trader

One trader is betting that gold’s incredible 2016 run has come to an end.

Even after the asset hit a two-year high on Wednesday, Andrew Keene of AlphaShark is preparing a way to cash in on an expected drop in the popular gold ETF (GLD). Looking at a daily chart of the GLD, Keene points out that all signs indicate a downtrend for gold as the yellow metal slipped from its incredible surge during Thursday trading.

“We made a ‘shooting star top’ here at $130. Right at the shooting star top, that is a new 52-week high, and then the next day, it put in a lower low and lower high,” Keene said Thursday on CNBC’s “Trading Nation.””So I think the GLD is headed lower.”

From the same daily chart of the GLD, Keene establishes new levels that he believes investors should watch out for. According to Keene, the previous resistance level of $124 will become support, but at the same time, the GLD could in fact fall below that support level as the intersection between the 50-day moving average and 200-day moving average cross around $120.

On top of this, Keene’s longer-term chart shows that the GLD could see an even bigger downturn than a short-term chart would predict, as the weekly chart’s 50-week and 100-week moving averages intersect at $113.

Keene’s GLD trade involves buying the December 120-strike puts and selling the December 115-strike puts for a cost of $1, meaning he is risking $100 per options contract. If gold closes at or below $115 at mid-December expiration, Keene will see a 400 percent return on the money that he’s putting at risk.

“This is a great way to play GLD to the short side, because I think GLD is heading lower from the shooting star top on the daily and it’s completely overbought,” he said. “The GLD, I think, has a date with $115 by the end of the year.”