Oil could be in for some longer-term trouble, according to one trader who's looking to cash in on an oil market fall.
Crude hit its highest level in almost three months on Tuesday, but Andrew Keene of AlphaShark isn't fully convinced that the oil rally can be sustained. In fact, he's seeing some problems arise amid the oil and gas exploration and production stocks contained within the XOP ETF, as he made clear Tuesday on CNBC's "Trading Nation."
E&P names have soared this year, with the XOP up 26 percent year to date, but Keene believes his charts are signaling a dip.
Looking at a daily chart of the XOP, Keene sees what he terms a "false breakout" for the ETF at various points during the year. Keene points specifically to April, June and September to show that XOP seems to be having trouble maintaining every rally. He believes that $35 is the XOP's current support level and one to watch as it sits on the 100-day moving average.
On a weekly chart of XOP, Keene also points to $35 and names that the long-term support as well, especially since XOP seemed to find "overhead resistance" at the 100-week moving average. This $35 gives Keene what he thinks is a key level for a trade in XOP.
"I think [XOP is seeing] a false breakout, and I want to play it to the downside," he said.
Keene bought the December 36-strike put and sold the December 35-strike put for a total of 30 cents, which means he's paying $30 per options spread. This $30 premium is what Keene would be risking to make the trade, and is the most he can lose.
If XOP falls below $35 by December expiration, Keene's spread will be worth $100, meaning this trade gives Keene the opportunity to more than triple his money.