Trade Update $XOM: Closing July Weekly Puts

by Dan July 31, 2015 9:34 am • Trade Updates

Yesterday (read below) I made the case that options prices on a directional basis were just too low heading into this morning’s Q2 earnings print for XOM.  I expressed that view in a one day option that was likely to have a fairly binary outcome, but given the stock’s 5% rally off of fresh 52 week lows, and the volatility in crude, and the strong likelihood that they would miss and guide down, I couldn’t help myself, from yesterday:

Trade: XOM ($83) Buy to open 1 July 31st 83 put for 82 cents

Well they did miss and stated that they would be further reducing share buybacks in Q3 by half to $500 million, I suspect this was the unexpected announcement that should weigh on shares today.

At this point with 6 hours to July 31st weekly expiration I am not going to take any chances and book the gains and move on:

Action: Sell to Close XOM ($80) July 31st weekly put at $3 for a $2.18 gain

Not bad for less than a days work.



New Trade $XOM: This One’s For Cecil

Event: Exxon (XOM) reports Q2 results tomorrow morning before the open. The options market is implying about a 2% one day move, which is actually shy of the 4 qtr avg of just less than 2.5%.

Price Action / Technicals:  The stock is down 10% on the year, and down 20% from the all time highs made a year ago.  The stock caught a fairly sharp bid on Tuesday, after making new 52 week lows:

XOM 4 day chart from Bloomberg

On a longer term basis, $80 is a fairly obvious massive support level:

XOM 5yr chart from Bloomberg

My View:  I am going to keep this short and sweet. OIL IS NOT DONE GOING DOWN. The macro factors at play, dollar strength, oversupply and weak emerging market demand are likely to persist for the balance of 2015 and I suspect we will need to see some sort of capitulation bottom, an all out panic from oversold levels, that we have yet to see before its all said and done.

Its my view that XOM’s volatility this week might have been greatly exacerbated by a large bearish roll that took place on July 16th where a dealer is now short 50,000 of the Aug 82.50 puts that were bought for 1.66 when the stock was $83.

At this point , the 5% bounce off of Tuesday’s 52 week lows, with the stock now approaching the stock’s declining 50 day moving average could provide a good short entry into tomorrow’s print:

XOM ytd from Bloomberg

SO what’s the trade??  

Options prices seem too long for the event, the at the money straddle offered at just 2% seems way cheap given the stock’s volatility this week and that of the crude oil. For those who are willing to pick a direction, the tomorrow expiration 83 call or put are offered at about 82 cents, or about 1%!!

I think you know what direction I am going to chose given the stock’s bounce.

Trade: XOM ($83) Buy to open 1 July 31st 83 put for 82 cents

Break-Even on Tomorrow’s close:

Profits: below $82.18

Losses: up to 82 cents between $82.18 and $83, max loss of 82 cents above $83

Rationale:  Options prices just seem to cheap, and the bounce off of the lows of the week provide a good short term entry.