tradeMONSTER: Trade free for 90 days

Options Trading News

September 6, 2013  Fri 3:47 AM CT

One investor is letting the bears pay for a bullish trade in Exxon Mobil.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 9,000 April 105 calls for $0.25 and the sale of 3,000 April 70 puts for $0.81. There was barely any open interest at either strike before the transaction appeared, so new positions were initiated.

The trader collected a credit of $18,000 and now controls the equivalent of 510 shares in the oil giant. That correlation will increase exponentially if XOM rises and could translate to 900,000 shares if the stock goes above $105. A close at $110 on expiration would yield returns of $4.5 million, and $120 would produce $13.5 million.

XOM fell 0.47 percent to $87.35 yesterday. The stock is down almost 5 percent in the last month but is trying to hold support around the same $87 level where it peaked in 2011 and early 2012. That could make some chart watchers think that it's working its way higher, albeit slowly and arduously.

The unusual aspect of yesterday's option strategy is that XOM stands almost exactly between the two strike prices, yet the puts were much more expensive because they had greater implied volatility. Selling those contracts exploited the market's fears about a drop to finance an upside wager. (See our Education section for more on long calls and short puts.)

Disclosure: I own XOM shares.
Share this article with your friends

Related Stories


Cramer: Goldilocks vs. the 3 bears

December 17, 2014

Let's put them in perspective with Goldilocks who, of course, triumphs in the fairy tale but has gotten eaten a lot lately if only to snap back to life the next day.


Cramer: Oil debacle in perspective

December 12, 2014

Consider Exxon as a potentially gigantic repo man that cobbles together whatever properties it wants and creates a domestic powerhouse of unbelievable proportions.


Cramer: Potential oil names to like

December 4, 2014

Major oils like Exxon don't just suddenly decide to buy beaten-down names. A stretched company that goes belly-up puts pressure on all of these independents.


Bulls bet on rebound in Exxon Mobil

December 1, 2014

The entire energy sector has been under heavy selling pressure since OPEC decided last Thursday to leave oil production unchanged, but traders are looking for a rebound.

Invest Like a Monster - Las Vegas: March 13-14

Premium Services

Archived Webinar

The Art of Trading: Forgiving the Spread

Education & Strategy

Know thy Greeks!

One of the most important roles played by the Option Pricing Model is the calculation of an important family of...

View more education articles »