Trader uses an unusual strategy to bet against oil

Trader Todd Gordon makes an unusual bet on crude oil

Chart-focused trader Todd Gordon thinks oil is set to slide, and he is using an interesting strategy in an attempt to capitalize on crude's next move.

Oil has enjoyed a nice run of late, surging 24 percent in the past 2 ½ weeks, and on Friday is set to log its seventh straight daily gain. This run comes as the U.S. dollar loses value against major currencies, providing a natural boost for the dollar-priced commodity.

Yet since Gordon sees the dollar staging a turnaround in the next few weeks, due to a perceived level of "support" on the charts. This, in turn, could translate into oil weakness.

To further burnish his point, Gordon turns to a chart of the USO, a popular ETF that tracks oil (albeit faultily, as the fact that oil can only be tracked through the futures market has led the USO to substantially underperform the commodity. As the CEO of USO's issuer pointed out to CNBC, it is impossible to get exposure to oil without paying costs of one kind or other; in this case, the structure of the oil futures market imposes a natural cost on USO holders.).

On the USO chart, Gordon finds a level of "resistance" at $12.50, or a bit more than a dollar above where it opened Friday trading. In June, the USO topped out at $12.45.

"I think what's going to happen is, the market is going to show some hesitation at the summer high of 2016, and back up," Gordon said Friday on CNBC's "Trading Nation."

To put his money where his mouth is, Gordon takes to the options market. But here's where things get interesting.

An options trader who is bearish would ordinarily buy a put, which is an option that gives its owner the right to sell a stock or ETF at a given price within a given time frame. But in this case, Gordon instead chooses to sell a call — meaning that he is allowing someone else to buy the stock for a given price within a given time frame, in return for income now.

"I want to take in some premium and generate some income in a slow trading season," he said. "In this summer of [low] volatility, it's better to sell calls [at striking prices] where you believe the market won't go, rather than buy puts where you think the market will go."

To be sure, even while stock market volatility has been low, oil volatility has been markedly high, and has risen considerably in the past few months.

In order to protect himself in case his thesis proves incorrect, Gordon is buying a higher-strike call against his short call. Specifically, he is selling the September 11.50-strike call and buying the September 12.50-strike call, for a credit of about 25 cents per share. If the USO closes below $11.50 on Sept. 16, he will get to keep that entire quarter. However, if it rises above $11.75 he will see losses, and at or above the $12.50 level, he stands to lose 75 cents.

"In exchange for a skewed risk-to-reward ratio, we have a higher probability of success," he explained.