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What's Motivating Today's Exxon Mobil Corporation (XOM) Put Buyers?

Today's Exxon Mobil Corporation put buying could be speculative or protective

by 12/27/2013 1:36 PM
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Option Brief: Exxon Mobil Corporation (NYSE:XOM) put volume is running at four times the typical intraday rate this afternoon. So far, 42,000 puts are on the tape -- easily outnumbering the 27,000 calls that have traded.

Most active by a mile is XOM's January 2014 100-strike put, where more than 23,000 contracts -- including blocks of 9,746 and 2,500 -- have been exchanged. Fewer than 9,000 contracts make up open interest at the strike, and implied volatility is 1.7 percentage points higher, suggesting the creation of new positions. Also, 86% of the transactions occurred at the ask price, indicating buy-to-open activity -- a conclusion confirmed by information from Trade-Alert and the International Securities Exchange (ISE).

By constructing the long put positions, today's traders will profit if Exxon shares dip below $99.15 -- the strike price less the $0.85 volume-weighted average price paid for each contract -- by Friday, Jan. 17, when the front-month options expire. However, even if the energy stock -- currently hovering at $101.48, just below a record high of $101.69 touched earlier today -- remains above the strike through expiration, the most the speculators have at stake is the initial premium paid.

Taking a step back, Exxon Mobil Corporation (NYSE:XOM) is up roughly 17% year-to-date. However, since a recent closing low of $85.16 in early October, the shares have rallied about 19%, twice bouncing off of support at their 20-day moving average. Therefore, as Trade-Alert mentions, it's possible some of today's XOM put buyers are actually shareholders seeking protection against a short-term pullback in the stock.


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