Exxon Mobil Earnings Preview: Buy XOM on a Pullback

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Integrated oil and gas giant Exxon Mobil (XOM) reports earnings Friday morning. Let’s take a look at XOM stock’s recent quarterly announcements, price chart and opportunities in Exxon’s options market ahead of the report.

In front of Friday’s premarket Q3 earnings release, analysts are forecasting profits of 89 per share of XOM stock for a fourth consecutive quarter of declining earnings. Year-ago EPS hit $1.89.

In the past year, XOM stock has topped forecasts only twice.

On the revenue side, analysts are calling for $63.8 billion in sales, but views are wide and range from a low estimate of $51.8 billion to a high of $71.9 billion.

Q3’s sales forecast for XOM stock compares to the year-ago period’s much heftier revenues of $107.5 billion. Revenues are expected to shrink by 35% for all of 2015.

XOM Stock Monthly Chart

xom-stock-monthly-chart
Source: Charts by TradingView

Looking at the longer-term monthly chart of XOM stock, the bias is optimistic for eventual higher prices.

As can be seen in the chart above, a large, upwardly-sloping channel appears to have developed off the volatile August pivot low that occurred during the broader market’s flash crash.

Also constructive for XOM, the bullish hammer candlestick held a 50% Fibonacci retracement level dating back to a cycle low from 2002.

Countering the bullish monthly chart is a rally that has extended itself up against 200-day simple moving average resistance on the daily chart.

All things considered, this strategist would rather use potential price weakness in the mid to upper $70s in XOM stock as an entry point for bullish positioning.

XOM Stock Options Pricing

In mid-morning trade Wednesday, XOM stock options traders are currently pricing in a 68% chance that shares of XOM will remain within a range of $79.25 to $84.75 through Friday.

The math behind the calculation uses the 45% implieds of the at-the-money Weeklies $82 straddle market with shares of XOM trading near $82.

The Weeklies contract expires on earnings Friday afternoon. The instrument is a strong pure-play on the event and tells us what traders collectively expect from XOM stock following the quarterly announcement.

The expected dollar move up or down works out to about 3.3% by Friday’s close. The figure is larger than three of the last four immediate, close-to-close reactions in XOM.

Over the past year, XOM stock has delivered post-earnings price moves of 2.4%, 2.48%, -0.57% and, most recently, -4.58%.

XOM Stock Bull Call Spread

xom-volatility
Source: Charts by TradingView

Mixed options pricing relative to recent earnings events reactions and mostly “eh” and evenly-matched implied and statistical readings, reinforce the use of a vertical.

Given the technical outlook of short-term weakness into the mid to upper $70s and the fact that we ultimately want to buy if XOM stock were actually to pullback, an out-of-the-money bull put spread makes the most sense.

The credit received from this type of bullish vertical allows a trader to effectively set up a price in XOM stock where he or she would be comfortable owning shares, while maintaining a limited risk profile in the event that bias changes.

One vertical which fits in with this scenario is the November $77.5/$75 put spread. With Exxon near $82, the spread is priced mid-market for 37 cents.

By selling the put spread, at expiration, the trader keeps the entire credit if XOM stock is above $77.50. Were XOM to be trading below the $77.5 strike put, the trader faces assignment and in effect is long shares at $77.13 after factoring in the credit.

This vertical is similar to a trader putting in “good-till-cancel” buy order below the market in XOM stock. It can also be more attractive, but possibly punitive.

One benefit is with this spread the trader collects income from the credit before the XOM stock trader gets a fill.

But in a bearish gap situation, the trader may wind up buying at a lower price than the original limit order. At the same time, the vertical trader is still long at $77.13 with a guaranteed stop loss at $75.

Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT

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The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2015/10/exxon-mobil-earnings-preview-expecting-profiting-consolidation-xom-stock/.

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