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Trade Anatomy
Charities Are An Industry
Fed Understatement - Defying Logic
A Personal Comment On RIM
Exxon - Patience Is A Strategy
VISA - Risk Against Reward
Microsoft- Reverse Put Ladder
Research In Motion - Not For Investing
Thank You Ben Bernanke
Greek Debt Crisis
Dividend Stocks That Cut Dividends
The Cautious Bull Strategy
Defensive Stock Investing

Spreads VS Selling Puts

Thank You Tax Man
What Next For Research In Motion Stock

Latest Microsoft Stock Report

April Options Results
Comparing The Bear Markets Of 2000 to 2003 and 2007 to 2009
Microsoft Puts Are Better Than Gold
Dance Near The Exit
How I Treat My Investing Like A Business
Microsoft - The Ultimate Utility Stock
The Value Of A Plan
Staying In The Game
It's All About Oil
Market Trend: Still Up - But Watch For June

 

June 19 2011  / Exxon Mobil - Stock Symbol - XOM

What Next For Exxon Stock

Patience Is A Strategy Many Ignore

 

Market Turmoil and Exxon Mobile Stock

On Friday my Exxon Mobil put options for June expired. Oil is remaining volatile, the Greek Debt Crisis still dominates the news, there is concern over the ending of QE2 and the overall stock market is pulling back. Exxon Mobil is down 10% from its recent high of $88.00. 10% in any stock can give an investor pause for thought. It is a moment like this when patience is a strategy that shouldn't be ignored. Patience allows time for studying the stock's chart to pick support levels and planning on put strike points to consider for selling once a clearer indication of the stock trend is presented.

Patience is too often ignored by investors. Investing is a long term strategy of years and decades. Unless one is a day or swing trader, patience for a clear indication as to stock direction, is an important strategy to use, both to profit from possible increased premiums in selling options as well as protection of available capital from possible loss in a more severe downturn.

The key to success in investing is consistency. My plan with Exxon Mobil Stock was to sell naked puts until either assigned or until I accept stock at a level I feel is the true value. In my original plan I indicated "Should Exxon Mobil fall into what I believe is under valued territory I will consider selling in the money puts on Exxon Mobil Stock". If the market is entering a more unstable period and prices do decline lower, I will be unable to take advantage of any such decline if I do not have patience but simply use the rest of my capital immediately on this trade. Therefore often patience is a great strategy to use.

In my comments on May 23 2011 I indicated that I believe strong support for Exxon Stock is around the $70.00 value. In the Exxon chart below I am looking at 6 months. Looking at the chart I can see that the $79.00 level which was support for much of the last 6 months has been tested and then broken in the last two sessions.

On Friday, the stock fell below $79 but still closed at the $79.00 strike. The same the previous day. However on the 15th of June the stock closed below $79.00 a sign of weakness and a warning that the $79 level could be breached. Over the next few sessions the question will be whether or the $79.00 strike holds. If it breaks, the 200 day is around $77.00. If that breaks then the stock could quickly fall to around the $72.00 level. Strong support is at $70.00 and I would think the price of oil would have to pull back dramatically for this to occur.

Exxon Mobile Stock Chart - 6 months

I am still holding 5 puts for July at the $75 strike. At $75, the stock has to fall another 5% from Friday's close. Meanwhile the Ultimate Oscillator is a very negative 36.42 and momentum is still negative. With the constant trading at the $79 support level established back in January, I see no reason to buy back my July $75 puts yet. If the stock can hold here for a few more sessions it could move back up to the $80.00 level.

On the other hand should the stock fall, I will look to roll down my July $75.00 puts. Meanwhile I will hold back my additional capital in case the stock falls further. This could push up option premiums even higher making it possible to sell the $72.50 put for decent premiums. Presently the July $72.50 put is being traded for around .40 cents or just slightly more than half a percent. If however the stock should pull back below $78, the premiums will be attractive on this put. I will then try to sell the $72.50 put for August.

SUMMARY

Exxon stock could be at a pivotal point for the year. With oil under pressure and Exxon Mobil stock already down 10% from its recent high, it may appear safe to sell put strikes slightly out of the money, but aside from support at the 6th month low of $79.00, all indicators presently point to continued weakness in Exxon. This makes any selling of puts at present, questionable until some direction is clear.

This is the great advantage of not selling all the puts at one time at one strike. Leading up to June options expiry I had two sets of puts - one at the July $75 and the other at the June $77.50. This affords me opportunity to stay within XOM but through a more protected strategy of holding two differing strikes in differing months with the furthest month at the lower strike. This means when August becomes available, I can then consider selling puts even lower into August for what could be a decent premium, but again protecting my capital by continuing to sell at lower strikes. When I either buy to close July puts or have them expire, I can then roll those puts into September and if possible again at lower strikes. In this manner should XOM's retreat be orderly, I should be able to stay ahead of the pullback in Exxon Mobil by selling further out of the money strikes, two months out. If on the other hand, XOM should collapse quickly, I have a chance that perhaps only one set of the sold puts may get caught in the money, but with the second set I may have the opportunity to quickly close, or it may be far enough out of the money to not get caught in a fast collapse of the stock.

Therefore the prudent thing to do is to apply the strategy of patience to see what happens in the next few sessions before I use more capital to this trade. Click here to return to the Exxon Mobile trade for 2011 

 

Disclaimer: There are considerable risks involved in all investment strategies. Trade at your own risk.
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