With your markup do this:
$("button").on("click", function() {
$('.selected').insertBefore($('ul:eq(1) li:first'));
});
Demo
Or you can update to this:
$("button").on("click", function() {
if($('.selected').closest('ul').index() < $('.selected').closest('ul').siblings('ul').index()){
$('.selected').insertBefore($('ul:eq(1) li:first'));
}else{
$('.selected').insertBefore($('ul:eq(0) li:first'));
}
});