Exxon Mobil Corporation: Pump XOM Stock for Free Money

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Energy prices have been decimated from their all-time highs. Energy companies like Exxon Mobil Corporation (NYSE:XOM) have suffered as a result.

Exxon Mobil Corporation: XOM Stock Can Fuel Your Portfolio With Free Money

Fundamentally, XOM managed the damage to their bottom line relatively well. Consequently, Wall Street rewarded them with a healthy bounce off the February lows.

The drop in energy prices were the direct result of OPEC wanting to recapture market share. They pushed down crude oil prices to the $30’s and drove out all the new production out of business. As a result, OPEC has almost doubled its market share.

Crude prices under $50 per barrel are not economically profitable for almost anyone other than core OPEC nations like Saudi Arabia, but XOM is diversified enough that it was able to withstand the assault.

XOM Stock Chart
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This was an economic war which OPEC won in a sense. They won the war from the industrial aspect but they lost from the socioeconomic perspective. They may break even at crude under $10 per barrel, but they need it to be over $60 to fund their social programs.

The West won the war since it’s cheaper for us to live when energy prices are this low.

$50 per barrel has recently stood as strong resistance. It’s a natural magnet: $50 is high enough for OPEC to limp along, yet not high enough to invite the new producers back in. So I think that oil prices will be range-bound for the near term, as will XOM stock.

Trade Ideas for XOM Stock

Trade No. 1: Sell XOM Jan $72.50 put. This is a bullish trade for which I collect 92 cents per contract. To be completely successful, I need Exxon stock to stay above $72.50 per share through mid January. This represents a 17% buffer from current price levels.

I only sell naked puts if I am willing and able to own Exxon Mobil at the put strike price sold. If XOM falls below my strike I would be put the stock at $72.5 and accrue losses for as long as it falls lower. To hedge my trade, I could opt to add a bearish side.

Trade No. 2: Sell XOM Jan $95 call. This is a bearish trade for which I collect $1.04 per contract. I only sell naked calls if I am willing and able to be short XOM stock above $95 for the next few months. From current levels, I would have an 8% price buffer. To be entirely successful, I need XOM to stay below $95 per share through mid January.

If I take both trades, I would be short a January XOM $72.50/$95 strangle. My downside and upside breakeven points would be $70.54 and $96.96 per share respectively. I can modify the risk profile by selling a January XOM iron condor instead of a short strangle.

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.

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Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2016/08/exxon-mobil-portfolio-xom-stock/.

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