Exxon Mobil Slip Despite Record Earnings

Exxon Mobil Slip Despite Record Earnings

Exxon Mobil Corp. (NYSE: XOM) opened higher but has fallen so far this morning after the oil company posted a fourth quarter profit of $11.7 billion, or $2.13 a share, beating analyst estimates of $1.95 a share. XOM also posted a fiscal-2007 profit of $40.6 billion, the largest ever for an American company. However, falling crude oil futures are dragging XOM lower as US unemployment figures indicate a still-slowing economy. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on XOM.

After hitting a one-year low of $69.02 in March, the stock hit a one-year high of $95.27 in October. XOM opened this morning at $87.70. So far today the stock has hit a low of $85.05 and a high of $87.86. As of 10:50, XOM is trading at $86.06, down $0.34 (-0.4%). The chart for XOM looks bearish but improving slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a March bull-put credit spread below the $75 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in just seven weeks as long as XOM is above $75 at March expiration. Exxon Mobil would have to fall by more than 12% before we would start to lose money.

XOM hasn't been below $75 since March and has shown support around $83 recently. This trade could be risky if the market has not yet formed a bottom and oil prices head lower, but even if that happens, this position could be protected by the support the stock might find between $80 and $85, where it has bounced three times in the past six months.

News From: http://www.bloggingstocks.com/2008/02/01/exxon-mobil-xom-slips-despite-record-earnings/