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Oil has bottomed, and here’s how I’m cashing in: Trader

According to one trader, crude oil has gotten so bad, it looks good.

Crude has tumbled almost 9 percent since the start of the year due to fears about rising supply from the United States, as well as anxieties that key OPEC members may not adhere to the organization's production cuts. Todd Gordon of TradingAnalysis.com, however, believes that oil has not only found support, but may even return to the $60 level based on what he sees in the charts.

On a daily chart of crude oil, Gordon spots what he calls a "three-point trendline" that essentially runs along crude oil's lows since summer of 2016. Based on the upward slope of the trendline, Gordon believes that crude will continue to follow it higher with a "zone of support" around the $46 region.

If crude does follow the line, Gordon believes that oil will definitely return into the $50s and possibly run up to $60.


On the other hand, "If crude oil drops below the trendline, and breaks below these recent lows, I would say the trade is invalid and we simply need to move on," he said Monday on CNBC's "Trading Nation." "[I would] protect any premium we've laid out and stop out of the trade."

After working through the oil chart, Gordon turned to the USO, an ETF that roughly tracks crude oil. As oil rises, he sees the ETF moving above the low-$10 levels at which it was trading on Friday.

To make his bullish bet, Gordon chose to buy the May monthly 10-strike call for 64 cents per share. Gordon's trade makes money if the USO closes at or above $10.64 on May 19.

"We're going to put a $9.60 stop-loss on the premium we just paid on those 10-call options, so if we break below $9.60 [on the USO], let's cut the trade," said Gordon. "Otherwise, we should be able to go up and re-test those mid-$50s in crude oil."

USO is down about 12 percent year to date.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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