×

After making money on a bold oil trade, trader devises a plan for making even more

After already making money on oil's drop, one trader has a plan for increasing his gains.

Last week on CNBC's "Trading Nation," Todd Gordon of TradingAnalysis.com put a bearish options trade on the oil-tracking USO ETF before the OPEC meeting that took place in Vienna last Thursday. Since the meeting, crude has tumbled 3 percent and has struggled to climb back to $50, making the trade a quick winner.

When he looks at the oil chart, he sees more losses ahead.

"The resistance level around $52 to $54 in crude successfully held, and we're pressing lower," he said Tuesday on "Trading Nation."

Gordon believes that in the short term, USO (which opened on Tuesday at $10.17) could actually fall below $9. As USO continues to make lower highs, Gordon says that the ETF will fall toward the lower end of the trading range, which is at $9.50. But the trader thinks that USO could even break below $9.50 and reach the $9 low unseen since April 2016.

Instead of just taking his profits, then, Gordon has adjusted his trade in an attempt to make yet more money.

"We're towards the profit objective on the original trade, so we need to make some adjustments in the options position to get more downside exposure," Gordon said.

Originally, he had bought the June 9 weekly 11-strike put and sold the June 9 weekly 10-strike put for 43 cents per share. Gordon is continuing to hold on to that 11-strike put, but now is buying back the 10-strike put he sold, and instead selling the June 9 weekly 9-strike put. The adjustment to his trade costs Gordon 12 cents, or $12 per options contract.

The position will return its maximum profits if the USO closes at or below $9 on June 9.

Oil dropped Tuesday, with the commodity down nearly 8 percent year to date.

Videos

Trades to Watch

Trader Bios

About

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.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

Read more

Connect