Trader shorts oil ETF ahead of eagerly awaited OPEC meeting

Wednesday's OPEC meeting isn't the only thing investors need to worry about, as the oil charts could be hinting that the oil run may be done.

With oil plunging about 4 percent on Tuesday on news that OPEC talks were in a deadlock, Todd Gordon of says that oil-tracking ETF USO's sideways "consolidation" and a rising U.S. dollar do not bode well for the commodity. Since oil is priced in dollars, a stronger U.S. currency typically means that it takes fewer dollars to buy the same amount of crude.

This leads Gordon to bet against the USO ETF by buying the January 10-strike put and selling the January 9-strike put for $0.37 per share, or $37 per options spread.

This is the most he could lose on the trade. If the USO closes below $9 upon January expiration, this options spread will be worth $104, for a profit of $67.

"This is a little bit of a gamble here, but we have a positive reward-to-risk ratio," Gordon said Tuesday on CNBC's "Trading Nation." "I like the setup, so I'm going to take it through the OPEC meeting."

Oil bulls are hoping that OPEC announces a production cut to tamp down on the global oil glut, but as of Tuesday, that prospect is looking less likely.

Crude itself has risen more than 20 percent so far this year, but the USO is down more than 8 percent. The ETF is generally best utilized for short-term trades and avoided for longer-term bets, due to the way the product's price interacts with oil prices.


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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.

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