Turn Pump Pain Into Profit With Exxon Mobil

by John Kmiecik | August 20, 2012 8:35 am

Turn Pump Pain Into Profit With Exxon Mobil

It’s hard to believe that summer is coming to a close. The tell-tale signs are the kids are heading back to school and family vacations are winding down. Pretty soon the weather will be changing, and the trading volume will start to increase (we hope) because it has been a real quiet summer for trading with a few exceptions.

Here’s a trade idea on Exxon Mobil (NYSE:XOM[1]) that may benefit from something that didn’t change much this summer: high prices at the gas pump.

Exxon Mobil ($88.40): Long Calls

The trade: Buy the October 90 calls for $1.35 or less.

The strategy: Buying a call is an option strategy that can take advantage of a bullish outlook on a stock. A long call can profit if the stock rises and the call premium increases to an amount more than was paid. Maximum profit is essentially unlimited with a long call because the stock can continue to rise. The maximum loss is $1.35 if XOM finishes below $90 at October expiration. Breakeven is at $91.35 at expiration based on a cost of $1.35.

The rationale: XOM specializes in the exploration and production of crude oil and natural gas. The company’s strengths can be seen in growing revenue and an increase in earnings per share. If you have noticed gas prices this summer, it comes as no surprise. The company is generally well regarded by many analysts and has more upside potential.

Technically, the stock is only up about 4% for the year, but it just closed over a high it set back in the spring of 2011. Now that this resistance area has been toppled, how much higher will the stock go?

The answer to that question remains to be answered, but the next area of resistance comes in right around $94. If the stock makes it close to there at any point before expiration, it will be feel like getting some gas for free!

As of this writing, John Kmiecik has no position in any security mentioned here.

Endnotes:
  1. XOM: http://studio-5.financialcontent.com/investplace/quote?Symbol=XOM

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