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A Long Entry Into Exxon Mobil

By Dragonfly Capital (Gregory W. Harmon)Stock MarketsJan 04, 2013 02:32AM ET
A Long Entry Into Exxon Mobil
By Dragonfly Capital (Gregory W. Harmon)   |  Jan 04, 2013 02:32AM ET
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And I am talking long in both senses of the word. Back in August I saw interesting price action in Exxon Mobil (XOM), and discussed it in Exxon Mobil Set to Become a $500 Billion Company. The breakout did come on September 6th (I missed it – probably getting lunch or something) and it settled a few days later. Without any stock I took to planning an entry. This would happen at either a breakout of the consolidation or a retest and hold lower. I was presented with the latter as it started falling in mid-October.

A potential bottom hit on November 15th (#1 on the chart below). It was noted by the doji candle that touched the 200 day Simple Moving Average. I chose to employ an options strategy for an entry. The strategy I used is known as selling a naked put or a cash secured put. In this strategy you sell a put naked at a strike price where, combined with the premium you receive from selling that put, you are comfortable owning the stock.

Expecting a move back higher I sold to open December 87.50 Puts for $2.71. A close below 87.50 on December 22 expiry would end up with me owning the stock with a basis of 84.79 (87.50 less the 2.41 premium), below the level at the time. Of course that would not be such a good level if the stock continued lower to 80. Time went by and then into the December Expiry week I was presented with an option.


Face assignment or roll the puts out for more time. On December 22nd, rather than take assignment I bought the December 87.5 Puts back for 35 cents and sold to open the weekly December 28 Expiry 87.5 Puts for 98c, lowering my potential basis to 84.16 (#2), if I were to be assigned the following week. The stock continued lower into December 28th with all the mumbo-jumbo on the fiscal cliff, so with the same option, assignment or roll, I elected to give it another week.

This time I bought to close the December 28 Expiry 87.5 Strike Puts and sold to open the January 4 Expiry 87.50 Strike Puts for a credit of 28 cents (#3), lowering the basis again to 83.88. Which brings us to today. With the prospect of the January 4 Expiry Puts expiring worthless tomorrow, my choice is to book the $3.62 gain since November 15th or rollout again (#4). I chose more time again, buying to close the January 4 Expiry Puts and selling the January monthly 87.5 Puts for a further 45 cent credit, dropping the basis again to 83.43.

I will eventually take assignment on this stock, but might still roll it one or two more times, before the next ex-dividend date. I like that it continues to hold over the long-term breakout level at 85.60 on the weekly chart. In the meantime I am holding a 4.6% gain, that if it stands up over the next two weeks annualizes to 27.6%. In ExxonMobil.

Disclaimer: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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A Long Entry Into Exxon Mobil
A Long Entry Into Exxon Mobil

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