It seems no matter what OPEC and other international oil producers do, the global oil supply glut isn’t going away. This week, the American Petroleum Institute reported an unexpected 851,000-barrel increase in U.S. crude inventories, with analysts expecting a drop due to weather disruption in the Gulf of Mexico. As a result, oil prices per barrel continue to linger in the low $40s, and that’s bad for Exxon Mobil Corporation (NYSE:XOM).
Click to Enlarge Technically, XOM stock has gone practically nowhere since the beginning of the year. The shares are down more than 10% since their mid-December highs, but Exxon Mobil stock has largely bounced around between support at $80 and resistance in the $83.50-$84 region since the start of 2017.
What’s worrying about XOM stock’s price action is that resistance has seemed nigh impenetrable, while support at $80 suffered a daily closing breach in early June. The message here is that XOM stock is losing support, and could be vulnerable to additional losses on a downside breakout of this trading range.
Even more disconcerting is that sentiment has not budged on XOM stock. In fact, 13 of the 27 brokerage firms following Exxon stock still rate the shares a “hold,” compared to eight “buys” and just five “sell” ratings.
Additionally, the 12-month consensus price target rests at $87.07, a 7.3% percent premium to yesterday’s close. Despite the overall neutral opinion here, there is ample room for bearish sentiment to grow should XOM stock breakout of its recent trading range to the downside — especially if oil prices continue to show no signs of recovery.
Exxon options traders are in a similar situation. The July put/call open interest ratio currently rests at 0.83, with puts just shy of calls in terms of total front-month open interest.
As for July implieds, options are pricing in a potential move of only about 2.5% for XOM stock through expiration. This places the lower bound near $78.93 and the upper bound at $83.07.
2 Trades for XOM Stock
Put Spread: With the potential for heavy short-term losses if XOM breaks below the lower rail of its recent trading range, a bearish strategy seems appropriate heading into July expiration. Traders looking to profit from such a breakdown might want to consider a July $80/$81 bear put spread.
At last check, this spread was offered at 24 cents, or $24 per pair of contracts. Breakeven lies at $80.76, while a maximum profit of 76 cents, or $76 per pair of contracts, is possible if XOM stock closes at or below $80 when July options expire.
Put Sell: Should support hold, however, XOM could still be left to bounce around in its current trading range, with a trend toward the lower end of this range as oil prices languish. Traders looking to profit from technical support might want to consider a July $77.50 put sell. At last check, this put was bid at 17 cents, or $17 per contract.
As with all put sells, traders will keep the premium received for entering the trade as long as XOM stock trades above $77.50 through July expiration. If XOM were to trade below $77.50 prior to expiration, then you could be assigned 100 shares of XOM stock per contract sold at a cost of $77.50 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
