Let’s get this out of the way first. I was wrong on Exxon Mobil Corporation (NYSE:XOM) stock back in early January. Well … half wrong, that is. The XOM stock rally I expected from an extended “Trump bump,” Rex Tillerson being confirmed as Secretary of State and rising oil prices never materialized.
In fact, Trump’s “drill baby drill” attitude toward American crude and a glut of global oil supply all contributed to undermine the longer-term fundamentals for XOM — despite oil prices rising above $53 per barrel.
But XOM stock has held above its September lows and long-term support at $80. So, while the Feb $90/$92.50 call is likely a bust (unless XOM rallies sharply in the next two weeks), the Feb $80 put sell remains a solid recommendation.
That said, I remain bullish on XOM, as all of the major long-term drivers remain in effect for Exxon stock. When trading options, it’s often a matter of getting the timing right. And now could be the right time, after Exxon Mobil shares appear to have finally put in a bottom following last week’s quarterly earnings report.
Sentiment toward XOM stock remains largely the same as it did heading into last week’s report, with Thomson/First Call reporting that 20 of the 26 brokerage firms following Exxon stock doling out “hold” or worse ratings. Additionally, the 12-month consensus price target rests at $88.57, representing a premium of about 6% to Friday’s close. In short, there is room for upgrades and target-price increases that should help firm up XOM’s price action.
Click to Enlarge On the options front, XOM traders remain largely bullish on the stock’s prospects. Currently, the March put/call open interest ratio rests at 0.57, down sharply from the prior February put/call OI ratio of 0.70.
While February call options traders were targeting $92.50 strike, March traders have readjusted their targets to the $85 strike, which is home to 7,100 contracts at last check.
As for March implieds, options are pricing in a potential move of about 2.5% for XOM stock through expiration. This places the lower bound near $81.35 and the upper bound at $85.65. A breakout above $85 could signal a return to XOM’s former rally, while support remains firm near $80.
2 Trades for XOM Stock
Put Spread: Given the volatility in the global oil market, and XOM’s reluctance to move higher following the OPEC production cut, a more neutral-to-bullish stance should work well for XOM options traders. As such, a March $80 put sell has a good chance of finishing out of the money. At last check, this put was bid at 67 cents, or $67 per contract.
As with all put sells, traders will keep the premium received for entering the trade as long as XOM stock trades above $80 through March expiration. If XOM were to trade below $80 prior to expiration, then you could be assigned 100 shares of Exxon stock per contract sold at a cost of $80 per share.
Call Spread: For those traders willing to take a bet on a rebound in XOM stock, a March $82.50/$85 bull call spread stands a solid chance at realizing a profit. At last check, this spread was offered at $1.12, or $112 per pair of contracts. Breakeven lies at $83.62, while a maximum profit of $1.38, or $138 per pair of contracts, is possible if XOM stock closes at or above $85 when March options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
