How to Smartly Hedge Exxon Mobil Stock Again!

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XOM stock - How to Smartly Hedge Exxon Mobil Stock Again!

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After an earnings-driven drilling, Exxon Mobil Corporation (NYSE:XOM) shares are now in position to gush higher. But if you’re considering exploratory buy-side operations in XOM stock, this strategist still sees a modified bullish collar as a smarter hedge for risk-averse investors. Let me explain.

XOM stock is a blue-chip stock whose investors have seen better days. Don’t get me wrong. Exxon had a nice rally last week relative to its peers and the price of oil. Bottom line though, shares are up a fairly meek 2.5% in 2018. That trails the Dow Jones Industrial’s own gain of nearly 6.5%.

The big picture for XOM shareholders has been even more difficult. Looking at that squiggly line on the Exxon Mobil stock chart, shares are still roughly 10% below their 2014 and all-time-high of $90.79. Meanwhile and over the same period the Dow has gushed higher more than 60%, with the sky apparently the limit.

I suppose Exxon investors in it for the long haul can take some refuge in XOM’s near-4% dividend. Factoring in the quarterly payout does put shareholders in the black for the past few years. Still, given the terrible underperformance relative to the broader market, being made whole has been M.I.A. But that could be about to change.

XOM Stock Weekly Price Chart

Source: Charts by TradingView

This past week in XOM stock saw shares hit new relative highs since topping out immediately in front of a bearish reaction in late July to the company’s latest earnings disappointment. The breach of July’s resistance and the fact shares put together a higher low by mid-August and failed to challenge two prior false breakdowns of channel support suggests a more buoyant shift in investor sentiment is underway.

Looking forward, shares of Exxon still need to break above longstanding channel resistance, but this strategist is confident the third time will prove the charm for XOM stock bulls. Given years of underperforming the broader market, a meaningful rotation should be close at hand and deliver something a good deal more attractive to shareholders than just a nice quarterly payout.

XOM Stock Modified Collar

Despite our apparent enthusiasm and similar to an article in late May on XOM stock, I still like positioning long in shares in conjunction with a modified collar. Specifically, with shares at $82.92, buying stock in conjunction with the Nov $77.50/$70 put vertical and a sale of the Nov $87.50 call for even money or better is viewed favorably.

If XOM stock fails to rally this strategy offers $7.50 or nearly 10% of protection against any potential downdrafts below $77.50. The coverage kicks in slightly above the mid-August low $76.33 and fully protects an investor to slightly beneath the April low of $70.53 on an expiration basis.

On the upside, profits are initially capped at $87.50 where the short call exists. That’s the price of protection for no out-of-pocket outlay. Having said that, this strategy delivers about 5.5% in XOM stock appreciation over the next two months, while also being positioned for Exxon’s next quarterly payout. You can also make a future adjustment if resistance is overcome. That adds up to plenty of reasons to still like this modified collar on XOM stock.

Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2018/09/how-to-smartly-hedge-exxon-mobil-stock-again/.

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