Playing XOM for a Regression to the Mean
By Dr. Paul Price of Market Shadows
Exxon Mobil (XOM) has been pummeled over the last two-and-a-half months. The shares dropped on 38 out of 50 trading days through Oct. 1, 2013. That is extraordinary and so far from normal that I expect a reversion to the mean rally before long.
The stock is near its 52-week low, provides stable yield, and has a sterling balance sheet.
Our Virtual Put Selling Portfolio sold one contract of the Jan. 2015 $85 put for $8.15 per share today. We collected $815 up front while committing to buy 100 shares at a net cost of $76.85:
$85 (strike price) – $8.15 (put premium) = $76.85 per share
The ‘if put’ of $76.85 break-even price is lower than the worst price posted during all of 2012. It well below the 2013 absolute nadir of $84.70.
Research outfits Morningstar and S&P both rate XOM with 4-stars (out of 5). They believe that fair value is substantially higher than today’s quote of $85.37.
The trade is now reflected on our open positions list. See full details on the whole Put Writing Portfolio here.
