[Options] Going Back to the Well

Sean McLaughlin
May 4, 2022

It's no secret the oil and energy sectors have been outperforming in 2022.

Of course, when a trend like that is no secret, it tends to become a crowded trade. And we've seen a taste of the ramifications of that in recent weeks. There were some vicious pullbacks in all the biggest winners about two weeks ago.

Fast forward to today, and the smoke has cleared a bit. Many of these names survived the exits of hot money and are now showing signs of resuming their prior uptrends.

At the top of this list right now is Exxon Mobil $XOM.

Have a look at this resiliency:

This is the XOM chart as of yesterday. Today, we've seen XOM pop up above $89, signaling to me it's ready to go.

We have two things going on in this chart that I love:

  1. $XOM is breaking out to new 4-year highs, with 10-year highs within oil spigot distance.
  2. We've got that $100 price level dangling up there. This wouldn't be a true "hundred-dollar-roll" trade since XOM has been there before, but it's been nearly 8 years. And if I learned anything over the years, traders love going after big round numbers like $100. I don't make these rules, but I've seen it happen time and again.

Both of these bullets are enough to get me involved.

Here's the Play:

We're buying an $XOM September 90/100 Bull Call Spread for an approximately $3.60 debit. This means we'll be long the 90 calls and short an equal amount of 100 calls for a net debit.

If $XOM cannot hold the $82 level, that will be my signal to exit the trade. $82 was the peak of the first ramp at the beginning of this year. And that level appears to be holding some memory with several retests since early March. So any close below $82 tells me we're early or wrong, either way, I'll want out.

Meanwhile, I'll leave a resting order to exit this trade for a profit when I can get out for a $6.80 credit. This would represent a capture of 50% of the maximum possible profit in the trade without having to hold it all the way until September expiration. Take the money and run to the next trade!

If you have any questions on this trade, please send them here.

~ @chicagosean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7991.

Filed Under: