Oil prices have become just as fickle as the production promises of those pumping this economic lifeblood out of the ground. And it’s playing havoc with Exxon Mobil Corporation (NYSE:XOM) stock.
Earlier this year, OPEC agreed to cut production by about 1.8 million barrels per day, but increased output by Russia — and more recently, Saudi Arabia — have undermined those efforts. Still, crude is holding its ground somewhat following a bigger-than-expected draw down on U.S. inventories this week.
As a result, even though Exxon Mobil beat earnings expectations last month, XOM stock continues to languish under pressure from persistently low crude oil prices. The company is now desperate for growth, a fact reflected in Exxon’s post-earnings conference call.
XOM Stock Technicals
Click to Enlarge Technically speaking, XOM stock has bounced back from the worst of its post-earnings losses. Shares are up roughly 2% since hitting a low near $80 on April 19, and are once again poised to challenge resistance at $82.
XOM stock is also emerging from oversold conditions, and could benefit from additional buyers coming to the table, if only oil prices would cooperate.
Sentiment toward XOM stock remains largely the same as it did the last time I checked in with the stock. Thomson/First Call reports that 21 of the 26 brokerage firms following Exxon stock rate the shares a “hold” or worse, and the 12-month consensus price target rests at $87.41 — down slightly from its mid-April perch near $88.57.
XOM stock options traders are also in a relative holding pattern. At last check, the June put/call open interest ratio came in at 0.89, up considerably from its pre-earnings perch near 0.57.
As for June implieds, options are pricing in a potential move of about 1.7% for XOM stock through expiration. This places the lower bound near $80.60 and the upper bound at $83.40.
2 Trades for XOM Stock
Put Sell: With oil prices still reluctant to move meaningfully higher, and Saudi Arabia already pumping more than promised, XOM could be left in the lurch for a while longer. As such, a June $80 put sell has a good chance of finishing out of the money. At last check, this put was bid at 70 cents, or $70 per contract.
As with all put sells, traders will keep the premium received for entering the trade as long as XOM stock trades above $80 through June expiration. If XOM were to trade below $80 prior to expiration, then you could be assigned 100 shares of XOM stock per contract sold at a cost of $80 per share.
Call Spread: For those traders willing to take a bet on a continued uptrend for XOM stock, a June $82.50/$85 bull call spread could benefit from a breakout in oil prices. At last check, this spread was offered at 40 cents, or $40 per pair of contracts. Breakeven lies at $82.90, while a maximum profit of $2.10, or $210 per pair of contracts, is possible if XOM stock closes at or above $85 when June options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
