The crude awakening is upon us. Oil stocks from Exxon Mobil Corporation (XOM) to Schlumberger Limited (SLB) are surging amid the money rush to energy. Reports of supply cuts — while muted thanks to Iran and Iraq, still represent massive progress — have lit a fire under oil prices this week. Since bottoming at $26.05, crude oil futures have lifted 20% as of Wednesday’s close.
Exxon Mobil stock has understandably thrived during the oil rip. And therein lies opportunity. Should this oil rally go the distance, XOM shares will continue recovering.
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Bulls have been making inroads with Exxon stock of late. One of the most attractive developments is the higher pivot low that formed in mid-January when buyers stepped up to halt the Exxon Mobil stock slide well before its prior support level.
This increased aggression indicates a bullish shift materializing underneath the surface and bodes well for the energy behemoth moving forward.
A second improvement of note is XOM’s ability to remount the 200-day moving average. Although its last attempt at climbing above the oft-watched average failed, this one looks promising as its attacking the average from a decidedly less overbought position. Furthermore, continued bullish action from Exxon Mobil stock should help the 200-day moving average begin to flatten out thereby improving the posture of its longer-term trend.
How to Play Exxon Mobil Stock Right Now
Despite the nascent strength out of XOM, its options remain in demand. The implied volatility rank sits at 53%, which suggests option premiums are still elevated enough to warrant short premium plays.
To exploit the juicy prices plus structure a trade with a high probability of success, consider selling XOM bull put spreads.
Sell the March $77.50/$75 put spread for 37 cents or better. The max reward is limited to the initial 37 cent credit and will be captured if Exxon Mobil stock sits above $77.50 at expiration.
The max risk is limited to the distance between strikes minus the 37 cents, or $2.13, and will be lost if XOM stock price falls below $75 by expiration. By risking $2.13 to score 37 cents, the spread offers a respectable 17% return on investment.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
