How to make millions if oil doesn't crater

Options Action: Bottom fishing in big oil
Options Action: Bottom fishing in big oil   

Oil has been on a winning streak recently, gaining almost 9 percent in one week. Now, one trader is trying to capitalize on the recent strength with an options strategy that will pay more than $1 million, as long as crude prices don't fall dramatically in the next few months.

On Thursday, one trader sold 55,000 MRO April 5-strike puts for 28 cents each for a total of $1.5 million in credit. This is a bet that Marathon Oil shares stay above $4.72 by April expiration, a threshold 36 percent lower than where the stock closed Thursday. If MRO manages to stay above $5, the entirety of that $1.5 million is retained by the trader.

Shares of the oil company were up more than 6 percent midmorning Friday, following the bounce in crude prices.

Read MoreOil gains ease after Brent hits $37 on short covering

According to Dan Nathan of RiskReversal.com, selling put options is a good way to collect a high premium from investors who are worried oil prices will fall even further.

"One of the reasons this trader is probably looking to sell out-of-the-money puts [is that] the price of options, they're very elevated," Nathan said Thursday on CNBC's "Fast Money." "They probably have a long way to go if oil starts to settle."

Nathan also noted that Marathon Oil's stock has fallen steeply from its all-time high, trading near its all-time low of $6.52 that it hit in February.

"It's a bit of a mess," Nathan said. "If you think oil's going to settle and you think this balance sheet's OK," Marathon Oil is the place to sell put options.

Options Action Newsletter:

Sign up to receive exclusive Options Action content. Each month you'll receive an exclusive message from host Melissa Lee and insight directly from one of the members of our Options Action panel. Keep your pulse on the market with the Options Action newsletter.

Please enter a valid email address
To learn more about how we use your information, please read our Privacy Policy.

Contact Options Action

  • Showtimes

    Fridays, 5:30p ET
    Saturday, 6a ET
    Sunday, 6a ET
  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

Sponsored Related Links

More on thinkorswim by TD Ameritrade

  • Make sure you’re always keeping up with the market with up-to-the-minute news and breaking stories. Move on possible breakout stocks and options with potential opportunity. Plus, get in-depth analysis on futures and forex in one seamless, integrated experience. Join TD Ameritrade and trade commission-free for 60 days + get up to $600 cash.