Exxon Mobil Corporation (NYSE:XOM) has had an ugly chart of late falling over 10% since the beginning of the year. It has undoubtedly seemed unattractive to most investors after all no one want to catch a falling machete.
The blame cannot be placed squarely on oil prices as the charts don’t match up too closely. Yes, oil prices do impact Exxon stock but so do many other factors like investor current insatiable appetite for growth companies.
Using the options markets I have found it relatively easy to profit from XOM stock regardless of trend. In February I shared a trade setup that created income from thin air. Since I booked the profits, today I want to repeat performance. For the past 18 months, it’s been important to not overstay my welcome in winning trades.
Fundamentally, XOM is as solid an energy company can ever be. Its stock price is somewhat tied to oil prices in general, but when all’s said and done the company metrics will prevail.
Technically, XOM stock is in the process of pricing in a measured move that could have more downside left in it. So to find support levels against which I sell risk for income I have to assume that the worst case scenario of the past 12 months can repeat.
The Bet: Sell the XOM 2018 Jan $67.50 put and collect $1.25 per contract. This is a bullish trade where I have a 90% theoretical certainty that XOM stock will stay above $67.50, so I can keep my maximum profits. Otherwise I will accrue losses below $66.25 per share. Not everyone is willing or able to own XOM stock and for those I can modify this trade to be a credit put spread.
The Alternate: Sell the XOM 2018 Jan $67.50/$65 credit put spread where I have about the same success odds and still yield 11% on risk.
Usually I like to sell opposing risk for balance but in this case I will opt out as I would be selling it at a discount. If XOM rallies in the next few weeks, I can sell calls or call spreads to balance the put spreads.
E-mail sellspreads@gmail.com with questions or join me to learn more about options in a personal 1on1 webinar here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.
