Put Buyers Blast Chevron, Exxon Mobil Stocks Ahead of Earnings

Chevron and Exxon Mobil stocks have been struggling with oil prices, and their post-earnings history isn't encouraging

Apr 27, 2017 at 11:29 AM
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It's been a busy week on the earnings front. The action heats up after tonight's close with a handful of big tech earnings due, while oil giants Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM) are slated to report tomorrow morning. Shares of both Dow stocks have a pretty dismal post-earnings track record, and according to Schaeffer's Senior V.P. of Research Todd Salamone, "the energy sector is a group to avoid, as it is overcrowded and underperforming." Against this backdrop, options traders have been increasingly skeptical of CVX and XOM ahead of earnings.

Chevron Options Trader Places a $2.6 Million Bearish Bet

CVX's single-day put/call volume ratio hit a 52-week peak of 5.33 on Wednesday, when 32,000 puts and 5,982 calls were traded. A significant portion of the activity was due to a 10,358-contract block of June 105 puts that was bought to open for $2.6 million (number of contracts * $2.50 premium paid * 100 shares per contract). This is the most the put buyer stands to lose, should CVX settle north of $105 at the close on Friday, June 16 -- when the back-month options expire. Profit, meanwhile, will accumulate on a move below breakeven at $102.50 (strike minus premium paid).

At last check, CVX stock was trading down 0.9% at $105.10. This just echoes the equity's recent price action, with Chevron shares off 11.7% from their Jan. 3 two-year high of $119 amid crude oil's decline. The stock is now trading south of its formerly supportive 200-day moving average.

Historically speaking, CVX stock has closed lower in the session subsequent to reporting in four of the past eight quarters, including a 2.4% drop in January. For tomorrow's trading, the options market is pricing in a 2.9% single-session post-earnings move for Chevron Corporation -- regardless of direction.

Weekly Puts Hot on Exxon Mobil Stock Ahead of Earnings

XOM put options are trading at roughly two times the expected intraday pace today, with 16,000 contracts on the tape. Pre-earnings options traders appear to be purchasing new positions at XOM's weekly 5/5 79-strike put, one of the stock's most active contracts so far. If this is the case, the goal is for Exxon stock to breach $79 by expiration at next Friday's close. 

Meanwhile, over the past 10 sessions, XOM's weekly 4/28 80-strike put has seen a large increase in open interest, with roughly 5,800 contracts added. Data from the major options exchanges points to notable buy-to-open activity, meaning put buyers expect XOM stock to settle south of $80 at tomorrow's close, when the weekly series expires.

Looking back over the past eight quarters, XOM stock has closed lower in the session after reporting six times -- including the most recent three. While the shares have averaged a single-session post-earnings move of 1.7% in the last two years regardless of direction, the options market is pricing in a loftier 2.4% swing this time around. At last check, the stock was trading down 0.4% at $81.06, after a judge in Texas ordered Exxon Mobil Corporation to pay $20 million in fines after multiple violations of the Clean Air Act. Longer term, XOM has shed 10.6% year-to-date.

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