Buy Alert: December 2, 2014
Buy Alert: December 2, 2014
Option Strategy:
Buy Exxon Mobil (XOM) February 20, 2015 $92.50 calls for $3.55 or better.
Commodity Outlook: Crude Oil
Well folks, OPEC threw a wild curve ball to the global oil markets last week.
As I’m sure you’re aware, OPEC decided not to cut production in their November 27th meeting. For the first time in over 40 years, the Middle Eastern Oil cartel has essentially given up their role as the global crude price setter.
The decision sent oil tumbling to 5-year lows at $64 a barrel in yesterday’s early morning trading session.
But then the buyers stepped in…
WTI rallied $5 a barrel to close near $69. Believe it or not, it was the biggest one day crude rally this year.
The abrupt bullish turn had institutions suddenly betting the long side of major integrated oil and gas producers like ConocoPhillips (COP), Chevron (CVX), and Exxon Mobil (XOM).
There was abnormally heavy call buying in all three of the names above yesterday. It makes sense, as these energy industry leaders are now trading at extreme value levels.
Now let’s be clear…
Given the fact that the oil market is searching for equilibrium through market forces (something that hasn’t happened in a very long time), it’s extremely challenging for anyone to call a bottom in the crude market.
Fact is, the process of finding equilibrium will take months.
But that doesn’t mean there isn’t bullish opportunity in oil names. Of course, given the low price environment, we must stick to the strongest names in the industry.
And there’s no question the company below is the leader of the pack.
Resource Company: Exxon Mobil (XOM)
With a market cap of $391 billion, XOM is the largest oil company in the world. Despite the punishing 33% downturn in crude the past six months, XOM is down a mere 10.6% from the 52-week high set in late July 2014.
Without question, this global leader is holding up very well in a tough environment. And that’s likely why we saw heavy call buying in the name yesterday.
With OPEC’s decision out of the way, smart money is making bullish bets on oil industry leaders that will weather this downturn in crude the best.
So here’s what we’ll do…
Buy the XOM February 20, 2015 $92.50 calls for $3.55 or better.
The current bid/ask spread for this contract is $3.15/$3.35.
Do not pay more than $3.55 per contract!
Our official entry price for performance tracking is $3.45. Your price may be higher or lower.
Exit Strategy:
Remember, we want XOM to trade higher. Our first profit target is $94.50, while our second target is at $96.00.
The risk control price for this trade is $89.80. If XOM trades below that level, conservative investors should consider closing this trade to preserve capital.
Now keep in mind…
Since the premium we’re paying for these calls is higher than what we’re accustomed to, the risk of this trade is a bit higher as well. If you’re overly conservative, you may want to stick to the sidelines on this trade.
Until next time,
Justin Bennett
Category: Commodity Trading
