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Get a Free Refill on Exxon Mobil Corporation (XOM)

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Last fall when Exxon Mobil Corporation (NYSE: XOM ) fell hard, I wrote on how to catch a falling machete . The trade was profitable and I have since booked it. On this dip, I want to reload the same setup for the opportunity for more profits.

Why Exxon Mobil Corporation (XOM) Stock Could Jump 20% Higher

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I am not one who likes to reinvent the wheel, so I will retrace my steps almost exactly from the last time I traded XOM stock.

Since my last trade, oil prices overcame the $50 crude oil resistance price and established it as support. But they still haven't lived up to the entire upside measured move that should have taken out $58 per barrel. So crude oil prices are now stuck in a range.

One major development since last fall is that OPEC is now committed to defending energy prices, so I don't anticipate oil falling too far. Consequently, I view any weakness in XOM stock as temporary and that buyers will step in to defend XOM stock.

Click to Enlarge Fundamentally, XOM and Chevron Corporation (NYSE: CVX ) are giants with little worry over their viability. However, technically XOM is at a must-bounce level. Else, and if it loses current levels, it could invite more technical sellers and retest $79 per share.

This is not a forecast, but I do have to acknowledge it as a possibility.

XOM Stock Trade Idea

The Trade - Long XOM: Sell Jan 2018 $65 put. For this I collect $1.5 per contract to open. I only sell naked puts if I am willing and able to own the stock at the strike sold. I need XOM stock to stay above my strike sold. I have a 90% theoretical chance of success with this 21% buffer from current price. My breakeven price is $63.50 per share.

I chose $65 per share because it gives me room for error and it puts my risk below recent lows.

Selling naked puts is not appropriate for all investors. Luckily, I can modify the trade to better suit more conservative risk tastes.

The Alternate Trade - Less Aggressively Long XOM: Sell the Jan 2018 $70/$67.50 credit put spread. This is a bullish trade for which I collected 40 cents per contract to open. I have a 95% theoretical chance of success to yield 17%. I have to note that the tradeoff for having a limited loss, this trade has a slightly smaller price buffer from current levels.

I am not selling opposing credit spreads to hedge the trade. Instead I will closely manage the risk. I don't like to sell credit call spreads after a sharp drop in price like XOM has recently had.

I can close it at any time for partial gains or losses. I may need to manage this risk through future earnings reports. The short-term price reactions earnings report are often a coin flip.

Nicolas Chahine is the managing director of SellSpreads.com . As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and StockTwits at @racernic .

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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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