Trader shorts oil ETF ahead of eagerly awaited OPEC meeting

Wednesday's OPEC meeting isn't the only thing investors need to worry about, as the oil charts could be hinting that the oil run may be done.

With oil plunging about 4 percent on Tuesday on news that OPEC talks were in a deadlock, Todd Gordon of says that oil-tracking ETF USO's sideways "consolidation" and a rising U.S. dollar do not bode well for the commodity. Since oil is priced in dollars, a stronger U.S. currency typically means that it takes fewer dollars to buy the same amount of crude.

This leads Gordon to bet against the USO ETF by buying the January 10-strike put and selling the January 9-strike put for $0.37 per share, or $37 per options spread.

This is the most he could lose on the trade. If the USO closes below $9 upon January expiration, this options spread will be worth $104, for a profit of $67.

"This is a little bit of a gamble here, but we have a positive reward-to-risk ratio," Gordon said Tuesday on CNBC's "Trading Nation." "I like the setup, so I'm going to take it through the OPEC meeting."

Oil bulls are hoping that OPEC announces a production cut to tamp down on the global oil glut, but as of Tuesday, that prospect is looking less likely.

Crude itself has risen more than 20 percent so far this year, but the USO is down more than 8 percent. The ETF is generally best utilized for short-term trades and avoided for longer-term bets, due to the way the product's price interacts with oil prices.

Latest Special Reports

  • A logo sits on a sign at the World Economic Forum in Davos, Switzerland, on Thursday, Jan. 23, 2014.

    Coverage of the World Economic Forum’s annual meeting in Davos, Switzerland.

  • Take an in-depth look at the world of modern medicine - examining the treatments, companies and people making a difference in the way we treat illness and injuries today, and laying the foundation for the medical treatments of tomorrow.

  • Fintech

    From Apple Pay to roboadvisors, the worlds of finance and technology are changing the way we live, work, spend money, and do business.

About Trading Nation

  • Trading Nation will offer enthusiast traders insights from a group of "Trader Coaches," a collection of expert CNBC Contributors who are well-versed in the daily challenges of trading. Each "Trader Coach" will have a different area of expertise, and will share their unique perspective on the markets, allowing new insights to emerge from this collaboration. Trading Nation is not simply about finding that next trade; it's a forum where enthusiast traders can hear and compare investing ideas in order to build confidence in their trading decisions.

On-Air Video



"Power Lunch" Co-Anchor