Exxon Mobil Corporation (NYSE:XOM) has suffered amid the super slide in crude oil. The energy giant finds itself down 18% since peaking north of $104 last year.
Would-be XOM buyers should take note, however. The stock’s price action has improved mildly in recent weeks and a short-term bullish play looks to be in the offing.
Oil prices have stabilized, bringing all sorts of bottom fishers to the energy sector in search of a bargain. The popular energy ETFs like Energy Select Sector SPDR (ETF) (NYSEARCA:XLE), SPDR S&P Oil & Gas Explore & Prod. (ETF) (NYSEARCA:XOP), and Market Vectors Oil Services ETF (NYSEARCA:OIH) are all exhibiting bottoming patterns.
Exxon Mobil has yet to be bitten by the bottoming bug, but the time appears close at hand. Over the past few weeks, XOM stock has consolidated in a nice little range between $83 and $86. With support and resistance clearly defined at these two levels XOM stock’s next move should be easy to play.
And, in light of the recent bullish behavior out of the rest of the sector I suspect that next move will be to the upside.
A Bet on Stabilization in XOM
Traders willing to bet on neutral to bullish movement for XOM stock in the coming weeks could sell a May $82.50/$80 put spread for 51 cents credit.
Consider it a bet XOM remains above $82.50 by May expiration. Should this scenario come to pass you will pocket the maximum reward of 51 cents.
The maximum risk is limited to the distance between strikes minus the net credit, or $1.99, and will be forfeited if XOM falls below $80 at expiration.
By risking $1.99 to capture 51 cents, the potential return on investment is a respectable 25%.
At the time of this writing Tyler Craig owned bullish option positions on XOP and crude oil.
