Energy stocks were percolating last week. And with a handful of the exchange-traded funds (ETFs) that track the space on the brink of breaking out, I think it’s time to revisit some bullish ideas. Today, we’ll focus on the big guy in the oil patch — Exxon Mobil Corporation (NYSE:XOM).
To set the tone, let’s begin with a look at the Energy Select Sector SPDR (ETF) (NYSEARCA:XLE). Since Exxon Mobil comprises 23% of the fund, they exhibit a strong positive correlation.
Following February’s nosedive, XLE built a box and it has been unable to break out. While it’s a positive that buyers have succeeded in defending the support zone at $66, their inability to breach resistance is keeping a lid on optimism.
Yesterday’s pop carried XLE once again to the upper end of its range at $69. Incidentally, the 50-day moving average is also now coming into play. Take note of the RSI indicator, which is showing momentum bubbling beneath the surface. Consider this another reason to give buyers the benefit of the doubt here.
The strength of XOM stock’s downtrend has been waning. Momentum divergence accompanied its latest pivot low, and the RSI has since lifted back above 50 for the first time since early-February. Yesterday’s rally breached short-term resistance, suggesting a subtle change in character for the oil giant.
Throw it all together, and bottoming trades are worth a shot here.
Get Paid to Bet on a XOM Bottom
With the broader market laden with headline risk, I much prefer a high probability bet instead of swinging for the fence here. Exxon Mobil options also carry a high implied volatility rank making short premium plays particularly attractive.
Sell the May $72.50/$67.50 bull put spread for 90 cents. This creates a positive theta trade that will capitalize on time decay. All XOM needs to do is remain above $72.50 for the next six weeks, and you will capture the max gain of 75 cents. The initial cost and risk is $4.10
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
