XOM – Exxon Mobil Corp. – A three-legged bullish play on the oil and gas company this morning indicates one investor is preparing for the price of the underlying stock to climb higher ahead of October expiration. Exxon’s shares rallied 1.70% to $60.90 by 11:50 am ET perhaps following the Federal Reserve’s report of better-than-expected industrial production for the month of July. It looks like the bullish player initiated a risk reversal in conjunction with an added financing vehicle. The trader shed 10,000 now in-the-money calls at the August $60 strike for an average premium of $0.73 each and sold 10,000 puts at the October $52.5 strike at a premium of $0.43 apiece in order to buy 10,000 calls at the October $62.5 strike for premium of $1.16 a-pop. The sale of the August $60 strike calls and the October $52.5 strike puts offsets the premium required to purchase the August $62.5 strike calls. The trader essentially put on the trade for free and is positioned to make money if Exxon’s shares continue to rally in the next few of months. The sale of the in-the-money call options at the August $60 strike may represent a calendar roll of the nearer-term lots up to the higher strike price in the October contract given the large amount of open interest at the August $60 strike. XOM’s shares must increase at least 2.6% in order for the investor to start to amass profits above the effective breakeven price of $62.50 by October expiration. Options implied volatility on XOM fell 8.2% to 19.78% by 12:10 pm ET.
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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