The rally comes amid a massive comeback for crude oil. The commodity surged more than 8 percent Monday, settling above $49 a barrel and is now up nearly 30 percent in the last week.
But despite the recent strength, one trader is betting that the space will soon resume its decline.
"I think this is a pop that should be sold," Andrew Keene said Monday on CNBC's "Trading Nation." The XLE, the ETF that tracks energy stocks, was up more than 1 percent Monday while the other S&P 500 sectors were in the red. "I think the XLE heads back to the lows."
Looking at a short-term chart of the XLE, Keene noted that the ETF is once again trading at its 20-day moving average. "Every time we've seen the XLE trade at the 20-day, we have found sellers," said the founder of Keene on the Market. "We haven't traded above this moving average since May." Energy is still the worst performing sector in the S&P 500 year to date, down a staggering 17 percent.
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So to protect himself from a potential selloff, Keene turned to the options market. Specifically, he purchased the XLE October 61/60 put spread for 20 cents. This is a bearish strategy where a trader will buy a put and then sell a lower strike put to offset the cost—both of the same expiration. In Keene's case, he is targeting a move to $60.80, more than 8 percent lower than its current level.
"I'm giving this trade some time in case we see the rally continue in the short term," added Keene.
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