Trading Nation

Sell energy stocks on the recent pop: Trader

Sell energy stocks on the recent pop: Trader

Suddenly, the market has a new favorite sector: energy. The beaten sector is up more than 10 percent in the past five trading sessions, making it the best performer in the S&P 500 over that period.

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.

Read More US oil settles up $3.98, or 8.8%, at $49.20 a barrel

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.

Read More Famed oil bear loses his growl

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.

Want to be a part of the Trading Nation? If you'd like to call into our live Wednesday show, email your name, number and a question to