How to make money off a crazy energy stock

It's been a wild ride for shares of Southwestern Energy.

After falling as much as 25 percent in the first few months of the year, the stock has ridden crude oil and natural gas prices for a massive comeback, and as of Wednesday's opening, price has doubled in 2016.

"This is a volatile animal," said Rich Ross, head of technical analysis at Evercore ISI.

However, Ross believes Southwestern Energy could actually be an attractive buy. He points out that the stock's 50-day moving average has crossed above its 200-day, which is often taken as an indicator of positive momentum.

In addition, he believes the crude oil and natural gas charts have turned around for good, which should certainly help shares of the energy company.

His advice, then, is that "you can buy this stock — but buy a smaller amount than you might typically buy of a larger, less volatile stock."

Amazingly, Southwestern Energy has been more than twice as volatile as the crude oil commodity over the past 20 days, and traders aren't expecting the stock to get any less volatile in the days ahead.

Dennis Davitt, portfolio manager at Harvest Volatility Management, agrees that the stock's upward momentum is a bit of a self-fulfilling prophecy.

"There's a large contingent of momentum trading strategies out there," and funds pursuing such strategies appear to be pouring into the stock, Davitt said.

In addition, with crude oil turning higher, the chance of energy bankruptcies appears to have decreased, which lessens a key force behind the stock's rising short interest — the hedging desires of funds already long energy company bonds.

These "structural changes" could well support the stock in the near future, according to Davitt.


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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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