As crude oil bounced powerfully on Tuesday, the SPDR Energy Select ETF (ticker symbol: XLE) rose nearly 3 percent. And in a huge Tuesday morning trade, one trader is staking nearly $10 million on a bet that the energy comeback will continue.
On Tuesday morning, one trader bought 55,000 June 84/89 call spreads on the XLE for $1.70 per share, for a total outlay of $9.35 million in options premium (given that each options contract controls 100 shares).
This wager, one of the biggest options trade of the day, will only make money if the XLE rises above $85.70 by June expiration. And indeed, if the XLE rises to $89 or above, the trader stands to make $18 million.
The XLE hasn't closed above $89 since September, when crude oil was itself trading above $90 per barrel.
Read More Oil expert: This is a 'dead cat bounce'
For Jim Iuorio of TJM Institutional Services, the key to this trade is indeed crude.
"Oil, in my mind, appears to have bottomed at least for the time being, and that's a market that's extremely short. If oil starts to rally, this will rally with it," he said.
In fact, Iuorio said on Tuesday afternoon that if the XLE closes above $77 or $77.50, "I actually may piggyback this trade, because I think it's a very good value."
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