Exxon Mobil Stock Long-Term Play: Limit Your Risk With Bullish Options Trade | IBD

TL;DR

Learn about a risk-defined trading strategy called Bull Put Spread, using options, for Exxon Mobil stock.

Transcript

foreign Traders for today's trade we're looking at a bull put spread in oil giant Exxon Mobil so taking a look at the stock on Market Smith Exxon Mobil is trading tightly above support at its 50-day moving average shares are also just one percent below a 114 76 buy point from a consolidation XOM broke out on January 26th ahead of earnings but share... Read More

Key Insights

• 🥳 Exxon Mobil stock is trading near its 50-day moving average and a potential buy point from a consolidation.
• 🫥 The stock's breakout in January has struggled to hold above the entry, but it hasn't undercut the 50-day line.
• 💨 Declining earnings estimates and sector rotation away from oil make it challenging to consider buying the stock outright.
• 👻 A Bull Put Spread options strategy allows traders to take a bullish position without buying the stock.
• ⏳ Longer-term bull put spreads offer more time to adjust or close positions but result in lower annualized returns.
• 🚄 For a bull put spread in Exxon Mobil, traders can buy a 95 strike put and sell a 100 strike put with the June 16th expiration.
• ✳️ The trade generates approximately $105 in premium with a maximum risk of $395 and a potential 26% return on risk.

Questions & Answers

Q: What is a Bull Put Spread and how does it work?

A Bull Put Spread is a options trading strategy involving selling one put option and buying a lower strike put option. It aims for the stock price to stay above the higher strike to keep the full premium.

Q: Why is a longer-term bull put spread being considered for Exxon Mobil?

Longer-term options tend to move slower, allowing more time to adjust or close positions. However, the tradeoff is a lower annualized return.

Q: What strike prices and expiration dates are being used for the bull put spread in Exxon Mobil?

The trade involves buying a 95 strike put option and selling a 100 strike put option with the June 16th expiration.

Q: What is the maximum risk and potential return for this bull put spread?

The spread generates around $105 in premium with a maximum risk of $395. This represents a 26% return on risk between now and June.

Summary & Key Takeaways

• Exxon Mobil stock is trading above its 50-day moving average and is close to a buy point from a consolidation.

• With declining earnings estimates and sector rotation away from oil, it's challenging to consider buying the stock outright.

• A Bull Put Spread options strategy allows traders to get bullish on Exxon Mobil without buying the stock.