Opportunity to Sell Calls Against Exxon Mobil

04/30/2009 12:01 am EST


Nick Perry

Equity Options Trader, Schaeffer's Investment Research

Speculative investors are honing in on Exxon Mobil Corporation (XOM). By midday Wednesday, the stock saw 16,375 calls cross the tape, more than doubling its average daily volume of 8,080 contracts. The bulk of yesterday’s activity traded at the June 75 call, where 9,458 contracts have changed hands on open interest of 6,219.

XOM price chart Taking a closer look at Wednesday's volume on the June 75 call, a block of 5,950 contracts changed hands at 9:56 am ET at $0.54, very close to the bid price of $0.53. Implied volatility on the option dipped slightly, from 26.9% to 26.6%, indicating the contracts were sold.

Selling calls at this out-of-the-money strike would indicate that a trader is not expecting XOM to rally above $75 during the short term. If the trader owns the stock, this option strategy would allow him or her to collect a profit on the stagnating investment by selling premium.

After checking out the charts, it seems unlikely that XOM will be able to topple the 75 level any time soon. The stock has been guided lower by its ten-month moving average since January 2008, and this trend line is currently docked at $75.29.

By Nick Perry of Schaeffer’s Trading Floor Blog

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