Here’s one trader’s plan for quadrupling his money in the energy sector

The energy sector has been outperforming the S&P 500, with the energy-tracing ETF XLE on a steady rise since January. But can energy keep up the pace even with oil on a losing streak?

Andrew Keene of AlphaShark not only believes the answer is "yes," but that the XLE is going to keep rising through the summer.

"I think there's an opportunity to get long in the XLE," he said Thursday on CNBC's "Trading Nation." "I'm not sure about the next couple of days or the next couple of weeks, but I think September [is the timeline]."

On the daily chart, Keene points to what he sees as a "bold channel" from $50 upward, coupled with a total of five indications of buying pressure along the 50-day moving average. This, along with a "measured move" target of about $72 on the weekly chart, gives Keene the impression that the XLE will continue its uptrend.

Keene does find one problem in the charts, but he believes it gives him a new marker for making his trade.

"One thing I don't like here is we see lower lows and lower highs, it looks like a double top," he said. "[But] what looks like resistance becomes support, and support becomes resistance. So I think XLE can take out $70 to the upside, I think it can hit $72 by September."

To put together a bullish bet, Keene is buying the September 70-strike calls and selling the September 72-strike calls for a total cost of 50 cents per share. If the XLE keeps rising to the point where Keene thinks it will, the trader stands to make much more than he risks.

"I will get 300 percent of my capital on this trade on just a 10 percent move to the upside," he explained, given that he will see profit of $1.50 per share if XLE closes on September expiration at or above $72.

The trade's breakeven level is $70.50, which would represent a 6 percent rise from current levels. The XLE has not traded above $70.50 since November.


Trades to Watch

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.

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

Read more