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2 Trades to Play the Exxon Mobil (XOM) Stock Breakout (or Breakdown)

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Exxon Mobil Corporation (NYSE: XOM ) stock is up since Donald Trump's election, and not just because CEO Rex Tillerson was nominated for Secretary of State.

The confluence that has pushed XOM stock more than 4% higher since the election includes agreements on production cuts from OPEC and non-OPEC members, including Russia, normalizing global crude oil stockpiles, rising demand from emerging markets (such as India) and a 15% spike in crude oil prices.

Oil prices couldn't stay at multi-year lows forever, and the life-blood of the industrial complex appears to be working on a comeback. This bodes well for XOM stock, as it is on the verge of making a comeback itself.

Click to Enlarge After falling for most of 2014 and 2015, Exxon stock bounced back in 2016, topping out near $95. The shares hit a rough patch mid-year, but have mounted a comeback following the November elections.

XOM stock is now hovering near former support/resistance in the $87 to $90 region, with trendline support just below the shares at their 50-day and 200-day moving averages. The shares recent retreat to this support area could mark an excellent entry point for a long position.

Checking in with sentiment, analysts remain largely on the sidelines when it comes to XOM stock. According to Thomson/First Call, 19 of the 26 brokerage firms offering up an opinion on Exxon stock rate the shares a "hold" or worse.

Furthermore, the 12-month consensus price target rests at $88.30, a hair's breadth above XOM's current perch. With oil poised to move higher and take XOM with it, there is plenty of room for upgrades or price-target increases that could send the stock higher.

Options traders, meanwhile, appear to be betting on a rally. Looking out to February, XOM stock's put/call open interest ratio rests at 0.70, with typically bullish calls in control over the next two months. In fact, call traders have their sights set on the Feb $92.50 strike, which sports peak OI for the series of 7,400 contracts.

Now, $92.50 seems like a lofty goal, but February implieds are pricing in a potential move of about 5% for XOM stock over the next two months. This places the lower bound near $82.50 and the upper bound just shy of $92.

A break above technical resistance at $90 could elicit a larger move than many options traders are pricing in, while support should hold firm in the $82.50/$83 region.

2 Trades for XOM Stock

Call Spread: Those traders looking to bet bullish on XOM stock might want to consider a Feb $90/$92.50 bull call spread. At last check, this spread was offered at 42 cents, or $42 per pair of contracts. Breakeven lies at $90.42, while a maximum profit of $2.08, or $208 per pair of contracts, is possible if XOM stock closes at or above $92.50 when February options expire.

Put Spread: On the other hand, oil prices have been fickle of late, leading to erratic price action from XOM stock. Traders nervous that these gyrations will lead to sidling activity from Exxon stock might consider a Feb $80 put sell. At last check, this put was bid at 45 cents, or $45 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 February expiration.

If XOM were to trade below $80 prior to expiration, then you could be assigned 100 shares of Exxon stock per contract sold at a cost of $80 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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The post 2 Trades to Play the Exxon Mobil (XOM) Stock Breakout (or Breakdown) appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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