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Exxon Mobil Iron Condor Could Net 25% In 3 Weeks

Barchart - Fri Sep 30, 1:40AM CDT
Oil - Offhsore Oil Platform in Ocean

Exxon Mobil (XOM) sitting right between the 50 and 200-day moving averages. The stock is also showing high volatility with an IV Percentile of 92% and an IV Rank of 85%

The Barchart Technical Opinion rating is an 8% Buy with a Weakest short term outlook on maintaining the current direction. 

XOM rates as a Strong Buy according to 7 analysts with 1 Moderate Buy ratings, 5 Hold rating and 1 Strong Sell rating.

ExxonMobil's bellwether status in the energy space, optimal integrated capital structure that has historically produced industry-leading returns and management's track record of capex discipline across the commodity price cycle make it a relatively lower-risk energy sector play. The company owns some of the most prolific upstream assets globally. Other aspects of the company's story include the largest global refining operations, substantial chemicals assets and a dividend history and credit profile that are second to none in the space. ExxonMobil's capital spending discipline is quite aggressive. The company has a plan in place to allocate significant proportion of its budget to key oil and gas projects. The company's business perspective looks different from most peers since big oil rivals have pledged to lower carbon emissions to tackle climate change. ExxonMobil divides its operations into three main segments: Upstream, Downstream and Chemical.

Today, we’re going to look at an iron condor trade. You may have watched my recent video on how to find iron condor trade ideas.

An iron condor aims to profit from a drop in implied volatility, with the stock staying within an expected range.

When implied volatility is high, the wider the expected range becomes.

The maximum profit for an iron condor is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.

XOM IRON CONDOR

XOM is sitting right between the 50 and 200-day moving averages. Traders that think the stock might stay at this level over the next few weeks could look at an iron condor.

As a reminder, an iron condor is a combination of a bull put spread and a bear call spread.

The idea with the trade is to profit from time decay while expecting that the stock will not move too much in either direction.

First, we take the bull put spread. Using the October 21 expiry, we could sell the 80 put and buy the 75 put. That spread could be sold yesterday for around $0.50.

Then the bear call spread, which could be placed by selling the 98 call and buying the 103 call. This spread could also be sold yesterday for around $0.50.

In total, the iron condor will generate around $1.00 per contract or $100 of premium.

The profit zone ranges between 79 and 104. This can be calculated by taking the short strikes and adding or subtracting the premium received.

As both spreads are $5 wide, the maximum risk in the trade is 5 – 1.00 x 100 = $400.

Therefore, if we take the premium ($100) divided by the maximum risk ($400), this iron condor trade has the potential to return 25%.

If price action stabilizes, then iron condors will work well. However, if XOM stock makes a bigger than expected move, the trade will suffer losses.

Conclusion And Risk Management

One way to set a stop loss for an iron condor is based on the premium received. In this case, we received $100, so we could set a stop loss equal to the premium received, or a loss of around $100.

Another way to manage the trade is to set a point on the chart where the trade will be adjusted or closed. That could be around 85 on the downside and 93 on the upside.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

*Disclaimer: On the date of publication, Gavin McMaster did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. Data as of after-hours, September 29, 2022.



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Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.