×

This beaten energy company could rally 37%: Trader

As oil prices bounced on Thursday from the year's steep losses, one options trader is betting on a big rally for one of energy's most beleaguered names.

On Thursday, Marathon Oil surged 11 percent off a 4 percent jump in crude oil. According to Andrew Keene of AlphaShark, the reversal in crude oil should boost the company's shares even further in the next couple of months.

"I don't think the company has that many bad problems. The only thing that's happening is that oil is going lower," Keene said on CNBC's "Trading Nation" Thursday.

Over the past year, Marathon Oil shares have tumbled 67 percent amid the collapse in crude oil prices. From a technical standpoint, Keene said the downtrend in Marathon Oil has been broken in the last two days, which points to a substantial move higher.


"We've finally seen a reversal in oil. We have two straight days where we have the close higher than the open, that's very, very bullish," Keene said.

Read MoreOil rallies hard, but this is not the bottom

Keene is targeting a move to $12, which would be a 37 percent gain from its closing price on Thursday.

But instead of buying the stock outright, Keene is using an options play to limit his losses, should his thesis prove wrong.

To make his bullish bet, Keene is buying the April 11-strike call and simultaneously selling the April 12-strike call for a total of 25 cents per share, in an options strategy known as a "bull call spread."

The trade is profitable if Marathon Oil's stock rises above $11.25 by April expiration. If the stock rises to $12, Keene's 25-cent purchase will be worth $1, for a 300 percent return. Conversely, if Marathon fails to make the expected move, his loss will be limited to the option premium paid.

Want to be a part of the Trading Nation? If you'd like to call in to our live Wednesday show, email your name, number and a question to TradingNation@cnbc.com.

Videos

Trades to Watch

Trader Bios

About

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.

Read more

Connect