Crude oil is hitting new lows , with WTI (New York Mercantile Exchange: @CL.1) falling as low as $58.80 per barrel in early Friday trading. This, in turn, has crushed energy stocks. But one big trader seems to believe that the selling has produced a fat opportunity, and is now betting millions on an energy turnaround.
In a large trade Thursday on the SPDR S&P Oil & Gas ETF (NYSE Arca: XOP) (XOP), one trader bought 14,500 March 53/62 call spreads for $1.50 each. This trade, which cost $2.2 million in options premium, only makes money if XOP rises above $54.50 by March expiration, which is 23 percent above Thursday's close. Maximum profits come with the ETF at $62.
While that may be far from current levels, it wouldn't bring the ETF back to even on the year. XOP is down 40 percent in three months on the back of the crude oil crush.
So how much does this trader stand to make if such a move plays out? Given that this trade produces profits between $54.50 and $62, that 14,500 contracts were bought, and that each contract controls 100 shares, the maximum profits on this trade are $10.9 million.
Black gold, indeed. Maybe.
Follow the show on Twitter: @OptionsAction .