Don’t discount Thursday’s bullish action in XOM as a one-off, as Exxon Mobil Corporation (NYSE:XOM) is looking good, both on and off the price chart entering 2017. And for investors looking to participate and tilt the odds in their favor, a buy-write strategy on Exxon Mobil stock should trump the alternatives. Let me explain.
If there’s one company that exemplifies corporate America and the power that comes with it, Exxon Mobil would certainly be in the running. And Exxon Mobil should prove even more influential under the incoming administration, making Exxon Mobil stock a stronger investment.
It’s no secret the world’s largest energy company has a Washington insider in Rex Tillerson. Less than two weeks ago, the Exxon head was tapped by the president-elect to take on the role of Secretary of State.
XOM investors, almost explicitly, have the proverbial put or stop-loss, courtesy of our business-friendly Republican comrades now holding the keys to the castle. And that should be great news for Exxon Mobil stock.
And if Trump does start making “great deals,” well, that’s even better for XOM! It doesn’t take much in the way of connecting the dots to figure his new friends at Exxon Mobil will be major beneficiaries, either directly or indirectly — or more likely, both over time.
Let’s not forget there’s also OPEC’s planned production cuts to consider in helping support XOM stock. With the agreement, business as usual for Exxon Mobil, should prove more profitable as both upstream and downstream operations stand to benefit.
Bottom line, top line (and even on those price lines that work their way around investors stock charts), Exxon Mobil stock looks great.
Exxon Mobil Stock Daily Chart
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For pattern seekers, Exxon Mobil’s stock chart now appears to be putting together the final touches on a handle structure within a bullish cup-shaped base that’s readying for an upside breakout.
Looking forward, the expectation is this year’s solid return will be improved upon, beginning with a successful base breakout. I also anticipate gains will come with reduced volatility for Exxon Mobil stock, given the supportive factors touched upon earlier.
If we’re right about XOM in entering 2017, the technical outlook should prove good for Exxon stock investors — but even better for XOM buy-writes.
Exxon Mobil Stock Buy-Write Strategy
Given the bullish and steadier appraisal for Exxon Mobil stock, a buy-write to generate extra income or total return from a long investment in shares of XOM is an attractive proposition.
Reviewing Exxon Mobil’s options board, the XOM Jan $92.50 buy-write is one such opportunity. With shares of XOM at $90.88, the trader offsets the stock purchase with the sale of the $92.50 call for 84 cents for a net package price of $90.04.
The credit of nearly 1% for a one-month holding period approaches an annualized return of 12%, or roughly 12% better than the return on XOM shares on a standalone investment if the buy-write strategy is maintained.
The return on the XOM buy-write is capped at $92.50 and allows for an unadjusted max return of 2.7% for the month if Exxon Mobil stock rallies north of the sold call strike. Annualized, that works out to nearly 33%.
Bottom line, I’m bullish on Exxon Mobil stock’s prospects. But given the risk versus reward, and politics aside, a conservative, albeit somewhat optimistic buy-write trumps simply holding shares of XOM.
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.
