Here’s how to trade Exxon on crude rally

Oil giant ExxonMobil is set to break to new highs thanks to the crude-oil bounce, one technically minded trader argues.

"It looks like Exxon is struggling with the $90 region here," Todd Gordon of said Wednesday on CNBC's "Trading Nation." "The market is pulling back and it looks like we're set to toggle back to that $90 level. [But] if crude can go higher, I think Exxon is set to break that $90 region."

The key, according to Gordon, is in crude's rally. Looking at the USO, the crude oil ETF, Gordon pointed out that with two rapid upswings in succession, it looks as though oil is set to move back up after falling last week.

"The first [rally] topped out at about $11 in the ETF, we set back, then have begun the next rally," he said. "A technical target would be the distance traveled in the first round. The yellow line [in the above chart] highlights that, which is right around the $12 region [and] corresponds to a move back into the upper 40s for crude oil."

To take advantage of a potential uptrend, Gordon said he would buy Exxon's June 90-strike call, and sell the 95-strike calls, to create a bullish call spread. To do so, he is paying $1.44 per share.

If crude does rally and Exxon breaks through $95, Gordon is set to make a maximum of $3.53 per share. The payout is just over 2 to 1, making it a worthwhile trade in Gordon's eyes despite the potential for a drop in crude.

"If we don't start moving here very soon and if we start breaking below the $89 level, I'm going to move out of this trade to control risk," he said. "Otherwise, we should be fine in the upside in Exxon."

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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.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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