2 Oil Stocks That Could Get Drilled in September

Exxon Mobil Corporation (NYSE:XOM) and Valero Energy Corporation (NYSE:VLO) could slide in September, especially if option bulls hit the exits

Sep 1, 2016 at 2:09 PM
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Yesterday, we took a look at three stocks that have historically outperformed in September. With the new month upon us, we're going to shift our gaze this afternoon by breaking down a pair of oil stocks that have generally underperformed in September: Exxon Mobil Corporation (NYSE:XOM) and Valero Energy Corporation (NYSE:VLO).

Before digging into the details on XOM and VLO, here's a list of the 20 worst stocks to own in September during the past 10 years, courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. To make the list, which focused strictly on S&P 500 Index (SPX) components, each stock needed to have at least eight returns over the last decade.

worst september stocks september 1

Exxon Mobil Corporation (NYSE:XOM) 

The first September undperformer is blue chip XOM. In the past decade, the shares have finished the month on a gain just three times. On average, though, the stock has squeaked by with a positive return of 0.3%. Based on the chart below, this is due to the fact that in the three instances in which XOM advanced in September, it rallied big -- with gains of 8% (2007), 4.5% (2010), and 4.8% (2012).

xom september returns september 1

More recently, XOM has really struggled. Since topping out in mid-July, the shares have surrendered 9.5% to trade at $86.47, as the firm's earnings report disappointed and crude oil prices have pulled back. Of course, negative August returns are nothing new for the energy stock, either.

Yet, Wall Street remains upbeat. For example, short-term options traders are very call-tilted toward XOM, per its Schaeffer's put/call open interest ratio (SOIR) of 0.80 -- in the low 10th percentile of its annual range. In fact, call buyers are out in force this afternoon, setting their sights on the weekly 9/2 87 strike.

Likewise, a minuscule 1.2% of the stock's float is sold short. From a contrarian perspective, if Exxon Mobil Corporation has another September misstep, an unwinding among option bulls and/or a fresh wave of short selling could turn up the pressure.

Valero Energy Corporation (NYSE:VLO)

VLO has had an even worse time on the charts. The energy stock is down 2.1% this afternoon at $54.18, bringing its year-to-date deficit beyond 23%. Things likely won't get better this month. The shares have averaged a loss of 4.8% during the past 10 Septembers, and have ended the month positive just four times -- contributing to a historically dismal third-quarter performance. In fact, based on the chart below, four of VLO's September losses were worse than 10%.

vlo september returns september 1

According to the stock's September track record, option bulls could get rocked. During the last 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 1.04 calls for every put -- higher than 99% of all readings from the prior year. Today, speculators are purchasing new positions at the weekly 9/9 56-strike call.

What's more, VLO's SOIR sits at 0.99, just 16 percentage points from an annual low. If these bullish holdouts start hitting the exits, another big September loss could be in store.

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