Exxon Mobil Corporation XOM shares are down 12.2% over the past year, but at least one larger option trader is betting the next two years will be much better for the largest U.S. oil major.
The Trades
On Friday morning, Benzinga Pro subscribers received two option alerts related to unusually large Exxon Mobil trades.
- At 9:31 a.m., a trader sold 1,000 Exxon put options with a $70 strike price expiring on Jan. 17 at the bid price of $1.71. The trade represented a $173,000 bullish bet.
- At 9:41 a.m., a trader bought 1,150 Exxon call options with a $60 strike price expiring in January 2022 near the ask price at $11.95. The trade represented an $1.37 million bullish bet.
Why It’s Important
Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.
Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.
Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of the call purchase on Friday, it could certainly be an institutional hedge.
Contrarian Bet On Big Oil
Oil stocks like Exxon have lagged the market for several years. To help support oil prices OPEC and its allies agreed this week to increase crude oil production cuts in the first quarter of 2020 from 1.2 million barrels per day to 1.7 million barrels per day.
The production cut and the large Exxon call purchase come after Saudi Aramco priced its IPO shares at the high end of its predicted range, raising an estimated $25.6 billion at a $1.7 trillion valuation in when will be the largest IPO in history.
Benzinga’s Take
Demand for Saudi Aramco shares show that global investors aren’t bailing on big oil stocks just yet. Now that Aramco is public, Saudi Arabia will face pressures from investors to keep the oil market as profitable as possible, a trend that could also benefit Exxon over time.
The break-even price of the 2022 calls purchased on Friday is just $71.95 requiring just a 3.3% gain for Exxon shares over the next 25 months to turn a profit.
Do you agree with this take? Email feedback@benzinga.com with your thoughts.
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