Occidental Petroleum may be down 2 percent so far this year, but Andrew Keene of AlphaShark sees a rally ahead in the charts.
Keene is looking specifically at the 50-day and 200-day moving averages on charts of Occidental. The trader points out that while there was a "bear channel" that took the stock down below $70, he predicts that Occidental will eventually move higher toward its 200-day moving average, a longer-term trend that suggests the stock will rise.
To figure out how high Occidental could rally, Keene takes a look at the oil company's weekly chart. The trader believes that Occidental hit "resistance" at around $77.50 mid-last year, leading him to think that the company's shares could return to those levels.
As a result, Keene wants to buy the May 72.5-strike calls and sell the May 75-strike calls for $0.75 per share, expiring May 19. "If the stock goes to $77.50, which is only about 10 percent higher in stock, [I can make] three times the capital on my trade," Keene said Wednesday on CNBC's "Trading Nation."
But Keene has set up his trade so that Occidental only needs to close above $75 at expiration, or 7 percent from its Wednesday levels, for him to make a maximum reward of $2.50 per share. To make any money on the trade at all, Occidental would have to close above the breakeven point of $73.25 on May 19. If it remains below $72.50, any money laid out will be lost.