Exxon Stock has been in my portfolio since 2010. Exxon Stock symbol is XOM. Put Selling has been the primary investing method and if you select the links at the bottom of this article you can review the terrific returns that I have received during that period. One of the factors within these returns has been the price of oil and understanding the pattern oil prices creates.
Lately the price of oil is back climbing. While I believe that the price of oil is too high in relation to just how severe the Syrian crisis may turn out to be, I have no control over the price of oil. But as an investor I know that I can earn very good returns through trading within an oil stock such as my favorite, Exxon Stock and take advantage of the price swings in oil.
Crude Oil Prices Aug 2012 to Aug 2013
I do not enjoy trading many commodities. In May 2012 I wrote Trading Commodities and Why I Avoid Them which explains my reasons for not trading commodities. However trading the commodity related stock, to me, makes a lot of sense.
For example if we look at the past 12 months of the price of oil in the chart from the NASDAQ below, we can see that there is a pattern that develops between the $90 and $95 price level. At present oil is at $108.80 (Aug 29 2013) which I believe is overvalued even with the Syrian crisis and the possibility of US involvement. But while I may have no control over the price of oil, I know that I can profit from the turmoil through keeping an eye on the oil price chart and the Exxon Stock chart (XOM).
Exxon Stock (XOM) 12 Month Daily Chart
Exxon Stock (XOM) 12 Month Daily ChartBelow is the same period with Exxon Stock. You can see that while there is more fluctuations within Exxon Stock chart than there is in the oil chart, there is also a distinct pattern that co-relates to the oil chart pattern, that can be traded against especially for Put Selling. That pattern sets up quite nicely at $90 on the high side and $87.50 on the low side. For Put Selling then, I try to stay at or below the $87.50 valuation level.
If you look at my Put Selling trades on Exxon Stock for 2013, seen in this Exxon Stock table, you can see that for Put Selling I have been almost completely selling the $85 put strike. This is the first level just below the $87.50 valuation. My most recent Put Selling was on August 19 and once again it was the $85 put strike for September 21 options expiry which I sold for .80 cents. Not only is the chance of assignment at $85 slim at this point in time, but it is also easy to construct rescue strategies should I not wish to be assigned shares of Exxon Stock.
Let’s look a little closer at these two charts to see how I can use the price of oil to determine Put Selling periods against Exxon Stock. In essence then I am using Exxon Stock to sell puts against the price of oil.
Put Selling Oil Through Exxon Stock
In the two charts below you can see through the red arrows that move top to bottom between the Exxon Stock chart and the oil chart that Exxon Stock to a large degree does follow the price of oil. It is this latest period marked with blue arrows, where Exxon Stock has pulled back hard and dramatically while the price of oil has continued higher, that breaks this trend of the price of oil being followed by the price of Exxon Stock. But this is not a cause for alarm but an excellent opportunity for Put Selling the $85 strike again even while the price of oil is climbing.
While the stock should be higher if it was to continue to match the oil price movement higher, this also tells me that this is an excellent opportunity for Put Selling at the $85 put strike as the price of oil being this high will make it difficult for investors to sell shares much below $86.
Exxon Stock 3 Month Chart
If we look at the 3 month daily chart for Exxon Stock below we can see that the stock hit a new low of $86.39 on August 21 and has been trending sideways ever since. This is a good sign as the trend sideways has a slight upward bias which, based on the price of oil, is not surprising.
You can also see by looking at the volume technical indicator that volume is weaker at this point when in fact it should be stronger with investors buying back into Exxon Stock since it is below $88.00. But while it shows a lack of buying it also shows there is a lack of selling at the $86 level in the stock.
I have drawn a cyan arrow against volume which shows the average daily volume in Exxon Stock. Anything above the Cyan arrow is an above average day of stock trading. You can see that in June there was more buying interest than in July or August. Many of the buyers of Exxon Stock during the June period would be holding shares at $89 to $90 in value. With the stock now down to just below $88, it tells me that there is a lot of support for the stock at $89 to $90 and those investors holding there will be reluctant to sell for a loss.
This means Exxon stock has a very good chance of bouncing back to that level each time it gets oversold. This is indeed what happened this week when Exxon Stock reached a high of $88.99 on August 28 2013. From there the stock fell. Part of the reason for the fall was too many sellers at the $89 level who just want out of Exxon stock.
Exxon Stock – Two Consistently Winning Trade Strategies
With the above chart pattern for the past year there are two trade strategies I have done repeatedly with Exxon Stock.
Trade 1 – Put Selling
The first is Put Selling on any pull back when Exxon Stock hits the Lower Bollinger Band and the $85 put strike has enough premium to warrant Put Selling it and risking my capital. This has been a very simple trade because it is based only on the stock touching the Lower Bollinger Band. It has not mattered whether the stock bounces back or continues to move lower. It only matters if the $85 put strike has enough premium to warrant Put Selling. This is because I am not concerned about assignment at the $85 put strike unless the price of oil gets back below $87.50. That could push down Exxon Stock to the $85 strike, which would mean Put Selling the $82.50 strike. Right now it is unlikely the price of oil will fall to $87.50 in the short-term.
Trade 2 – Stock Trading Off The Lower Bollinger Band
The second trade has been buying stock each time Exxon Stock reached the Lower Bollinger Band and then pulls away from the Lower Bollinger Band. That strategy is discussed in detail within the Members Section of FullyInformed.com.
Put Selling The Present Downturn
Based on the price of oil and the huge pullback in Exxon Stock you can see in the 3 month chart above that Exxon Stock even with the present pull back, is refusing to fall below $86.00. For me, this present situation is an opportunity for Put Selling a great stock at an attractive price. Today (August 29 2013) for example, the $85 put strike for September 21 expiry could have been sold for .60 cents for a return of .70% for 3 weeks of risk.
Another trade that can be considered is the weekly puts which can often return a quarter of a percent for a few days of risk. For example today, the $85 put strike could have been sold for .20 cents. This amounts to 1 percent every 4 weeks or 12% a year against the risk of just 5 days of exposure to the stock market.
Summary of Put Selling Exxon Stock Using Oil Prices
Sometimes turmoil within the commodity of oil assists in setting up an easy and profitable trade. It pushes up the volatility of not just oil but also oil related stocks which in turn pushing up option premiums.
I like Exxon Stock at present level and you can see in my 2013 trades for Exxon Stock that I have been consistently Put Selling the $85 strike and have done a number of stock trades. Each of these have been successful in large part to watching the price of oil and comparing its move against Exxon Stock valuations and put strikes.
If you read back through the various strategy articles on Exxon Stock you can see how consistent the trades can be especially for Put Selling without being assigned shares. This is because I have been following the above chart patterns, of the price of oil and Exxon Stock. It is understanding how the two are connected and that the price of the commodity itself helps to support the pattern you can see in Exxon Stock which has made Exxon Stock easy to sell puts against and very easy to earn substantial profits.
I don’t trade commodities themselves, but obviously many commodity based stocks are great candidates for Put Selling as long as I stay on top of the pattern of the underlying commodity. To sum up I must mention that not all commodity based stocks follow the commodity itself. While it is not often, any time I find a commodity related stock and its stock pattern does not exhibit similarities with the commodity itself, I do not trade within it but instead move on to another stock. The same with the pattern of the commodity. There must be a recognizable pattern to the price movements of the commodity, otherwise I will not use it for trading the related stock.
Exxon Stock (XOM) Internal Links
Review Exxon Stock Trades For 2013
Review Exxon Stock Trades For 2012
Review Exxon Stock Trades For 2011
Review Exxon Stock Trades For 2010
Review all articles about Exxon Stock
Review all Members only articles about Exxon Stock