Option players brace for volatility on Exxon results

*Exxon option projected volatility rises into earnings

*Exxon shares briefly notch 10-month lows

*Exxon breaks key support at $64.46 a share

By Doris Frankel

CHICAGO, Jan 29 (BestGrowthStock) – Option activity in Exxon Mobil
Corp (XOM.N: ) picked up on Friday as investors brace for
potential share price movement after the oil company reports
quarterly results on Monday.

Exxon Mobil shares briefly touched lows not hit since March
2009 after earnings from Chevron Corp (CVX.N: ) which missed Wall
Street expectations. For details, please see [nN29120138].

In the options market, about 90,000 calls changed hands in
Exxon, double their average daily volume and more than three
times the number of put options.

“We are seeing signs from the options market that risk
expectations for Exxon Mobil are relatively high ahead of next
week’s earnings report,” said Ryan Renicker, equity derivatives
strategist at Ticonderoga Securities, an institutional
broker-dealer in New York.

Option implied volatility, a key component of an options
price, measures the expected magnitude of share price movement
and often moves up ahead of an event such as earnings that
could potentially jolt the stock.

“The stock’s average implied volatility is up two percent
to 25 percent as investors look for potential volatility around
the earnings release,” said WhatsTrading.com option strategist
Frederic Ruffy.

Exxon’s at-the-money option implied volatility stood at 21
percent compared to historical volatility of 13.4 percent on
the stock over the past 22 trading days, Renicker said.

In a research note on Friday, Renicker recommended that
investors should consider a covered call strategy to cushion
their existing positions heading into the earnings report after
Chevron reported a decline in quarterly profits.

Chevron, the second-largest U.S. oil company, on Friday
posted a 37 percent drop in quarterly profit as refining
margins have suffered with pricier oil lifting costs even as
the weak economy has shrunk fuel demand.

“I believe these same factors could weigh on Exxon when the
company reports next week,” Renicker said.

Wall Street analysts expect Exxon Mobil to report a profit
of $1.19 per share, according to Thomson Reuters I/B/E/S.

Exxon shares fell 53 cents to $64.43 on the New York Stock
Exchange.

“Traders looking at technical levels would consider Exxon
shares to be vulnerable if they break key support at $64.46 a
level established on July 13, 2009,” Renicker said.

Renicker suggests that investors hedge their long exposure
to Exxon by selling near-term February $65 call strikes for a
premium of about $1.08 in a so-called overwrite, a strategy
that combines stock ownership and options trading.

“These calls are trading relatively rich when compared to
Exxon’s shares recent historical volatility,” he said.

The strategy would allow investors a partial hedge against
a downside move in Exxon shares while at the same time giving
them upside exposure up to $66.08 — the break-even point of
the call trade as of Feb. 20 expiration.

“There has been quite bit of sellers of the Feb $65 calls
today,” said TD Ameritrade chief derivatives strategist Joe
Kinahan.

There are two reasons for it, he said. The earnings are
next week and Exxon is due to go ex-dividend on Feb 8, “which
if you are long the stock would be a nice addition to that
return as well as premium received from the call sale.”

Stocks

(Reporting by Doris Frankel; Editing by Diane Craft)

Option players brace for volatility on Exxon results