Worried about oil? Try this strategy: Trader

The sudden surge in crude in the past month has oil stocks booming — making energy the second best performing sector during that period. But according to one trader who relied heavily on the options market, the move in one of the biggest components of that sector is getting a little long in the tooth.

"Looking at a short- and long-term chart, it looks like Exxon Mobil could be heading lower or could remain flat for a while," Andrew Keene told CNBC's "Trading Nation" on Monday.

Keene noted that since its 15 percent rally off the 2016 low, Exxon's shares have been consolidating above its 100- and 50-day moving averages. "I think Exxon needs to retest these moving averages in order to see if there are any buyers," said Keene, founder of AlphaShark trading. Furthermore, he expects the stock to run into resistance around the $84 level, which corresponds with its 2016 high.

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Rather than get short the stock outright, Keene sold a call spread — a moderately bearish options strategy. Specifically, he sold the April 82.50/85 call spread, collecting $1.00. Keene is hoping Exxon will stay below the strike of the call that he sold, in this case below $82.50 by April expiration. The breakeven on the trade is $83.50, slightly higher than where the stock is currently trading.

"I can make money on this trade if Exxon is flat, goes lower or even rallies about 4 percent," said Keene. "I think Exxon has consolidated here and is going to take another leg lower," he added. "This is a great opportunity to sell a call spread to take advantage of this move."

Wall Street consensus is in line with Keene's thesis that Exxon should at the very least remain flat. Of the 24 analysts surveyed by FactSet, the average price target is $81.57 with a "hold" rating


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Trader Bios


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.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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