Hurricane Harvey is feared to be the most powerful storm to hit the U.S. in a dozen years, with the National Hurricane Center warning of “life-threatening and devastating flooding” near the oil-rich Gulf Coast. As such, Exxon Mobil Corporation (NYSE:XOM) is just one of several oil companies to evacuate personnel from facilities in Harvey’s path. Against this backdrop, options traders are coming out of the woodwork on oil stocks XOM and Marathon Petroleum Corp (NYSE:MPC), possibly to speculate on higher oil prices in the wake of production delays. Below, we’ll take a look at how options traders are playing XOM and MPC stocks today — and which one could be headed higher, if recent history is any guide.
XOM Options Traders, Analysts Remain Optimistic
Exxon has seen roughly 26,000 calls change hands so far today, compared to fewer than 6,200 puts. According to Trade-Alert, one speculator likely bought to open 10,000 January 2019 100-strike calls for $0.38 apiece, or $380,000 total ($0.38 x 100 shares per contract x 10K contracts). The calls will move into the money if XOM stock topples $100 — nearly three-year-high territory — by January 2019 options expiration.
XOM was last seen 0.6% higher at $76.75, meaning the stock would need to rally close to 31% in order to topple breakeven of $100.38 (strike plus premium paid). However, with LEAPS options, the buyer has well over a year for the trade to pan out.
Today’s appetite for Exxon Mobil call options is nothing new, though. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 1.78 calls for every put during the past two weeks. This ratio is higher than 72% of all others from the past year, suggesting a bigger-than-usual bias for long calls over puts of late.
This, even as XOM stock has dropped roughly 15% in 2017, and touched an annual low of $76.21 just last week. Further, seven out of 18 analysts maintain “buy” or better ratings on the underperforming blue chip. Should Exxon stock extend its recent downtrend, an unwinding of optimism among options traders or a flood of downgrades could exacerbate selling pressure on the shares.
MPC September Calls Active
Meanwhile, MPC’s calls are trading at three times the average intraday rate, with about 11,000 exchanged — nearly four times the number of puts traded. The September 52.50 and 55.50 calls are most active, as Marathon Petroleum stock trades 1.2% higher at $51.74. Again, today’s appetite for MPC calls is just more of the same, as the stock’s 10-day ISE/CBOE/PHLX call/put volume ratio of 3.54 stands higher than nearly two-thirds of all other readings from the past year.
However, unlike XOM, Marathon option bulls may be onto something, if recent history is any indicator. According to Schaeffer’s Senior Quantitative Analyst Rocky White, a pullback to the 200-day moving average has been among the best “buy” signals for stocks so far in 2017, generating an average one-month return of 1.76%. It just so happens that MPC stock recently pulled back to its upward sloping 200-day trendline, after trading above it for about 10 months.
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