Exploring the Options Trade on Exxon Mobile

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Sept.12 (Bloomberg) -- In today's "Options Update," Bloomberg's Julie Hyman and Alan Knuckman of Trading Advantage examine the options trade on Exxon Mobile in "On The Markets." They speak on Bloomberg Television's "Lunch Money."

Alan, this is not a big fire, if you will, but it is one that you think is relatively low risk going into next year.

Explain to us what you're thinking here.

The thought process on exxon is it has fallen off your we don't want to feel that for exxon, they still make a lot of money, just not as much as they used to.

If you look at, family speaking, it has fallen off, the energy sector is up 18% year to date.

Exxon is only up 2%. look for this to testaverde made a technical triple bottom at $86, trading roughly between $86 and $92 here since november, so if it breaks in the rally, we can see a quick move to $98, $.10 above where we are right now.

What are you looking at here?

What is your time arise in and your trade?

I like to buy deep in the money options.

The stock substitution strategy.

An $80 call gets you a right to go on from $80, and we are trading right now at $88. 25, so your breakeven only $1.25 higher, and the april option had seven months for things to develop weirdness will trade off well.

There is limited downside and exxon.

If you look at the big actor, we talk about crude oil, crude oil sells solidly above $100 a barrel for going onto month, so that trend has changed and we are holding very strong and crude oil.

At the same time in recent earnings report, we're are learning that exxon is making less money from oil and task.

It's refining is holding up ok, but not enough to prop up overall profits.

They were down something like 25% last quarter.

Then you start to understand that discount or that lag that we have seen it in those exxon shares versus the overall energy sector.

What do you think is going to propel its -- i am pretty confident they will figure it out.

They were a triple digit stock not long ago.

They were the world's biggest corporation not long ago.

From a value standpoint, if you lean on a support level, the $86, the triple bottom, we have not been below that in over a year.

From a reward to risk, i would rather be a buyer in keep that support hold.

If it failed on a weekly races, you get out of your option again.

It will behave well when the stock does move up.

You are paying up a little bit for what you see as a low risk here.

You are paying a little bit of a premium.

Right.

It will cost $900 for that option, but what i do with options as you risk half of your premium when you are an option buyer.

Either the market goes the other way, or you were running out of time.

Those of the two things that hurt your option.

That is my inherent stoploss in there.

I'm really risky about $450. all right, alan, thank you

This text has been automatically generated. It may not be 100% accurate.

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