A funny thing happened on the way to Cap Gains

BY ANDREW GIOVINAZZI

January 26, 2024

Yo Pit Crazies,

Sign up while the getting is good for the Option Pit Live Trading Extravaganza in Chicago in July. Mark, Andrew, Frank, Licia and Voz will be there.

Frank wrote recently that the Biden Administration could pull a climate coup and stop exports of Natural Gas due to climate concerns. I am sure the freezing Europeans who import our gas now instead of from Russia will be thrilled to hear that. That should affect small producers and Big Oil producers differently.

That got me looking at the poster child for Big Oil, ExxonMobil Corp (Ticker: XOM). The last time the Biden Adm got tough with oil production prices shot up over $100 per barrel. Since then drilling has increased and supply is more plentiful. XOM is down from $120 highs trading $102 from $95 just a few days ago.

With the SPX closing at all time highs recently and Tech burning a hole in all time highs and valuations on a daily basis, money will start to find good companies that are out of favor. Oil fits that bill.

XOM 5 Year chart with 90 day IV and HV on the bottom chart

Frank had the story and stock. I got to pick the volatility

Let’s see why I did that.

Both 90 Day IV and HV are at 3 year lows

IV, Implied Volatility is what traders pay for options and HV, Historic Volatility, is what the stock is doing. Premiums are lower and the stock activity is sinking. Who wants an oil stock when Tech is putting in 50-70% gains per year? That is also how bottoms happen.

With XOM popping $5 off the low I like it moving higher here on the spec coming out of the Biden Administration. Frank and I did put on a short side in a small pipeline company that could be hurt by the No Export move. OPEC predicted robust demand this year as the big slowdown folks keep thinking will happen but fails to materialize.

When realized vol bottoms that is usually the end of a long trend. XOM options were crazy cheap with XOM Mar15 105s trading 1.55 in class today when I bought them, trading 2.20 on the close. Low IV calls with long duration can move in a hurry if the stock moves.

This is very exciting.

To Your Trading Success,