With today’s surge in oil prices, I unwound the XOP call options trade that I wrote about last week. The exact details:
Sold the May 35-38 call vertical for $1.40 with XOP trading at $35.95 for a $.50 cent gain on my $.90 risk position or +55% in one week.
I left a tiny bit of money on the table so far today, and given the unexpected strength in oil prices once it cleared the $65 per barrel resistance zone, it would not surprise me to see this spread gain even more in value.
However, my target when entering the trade was that $65 oil price level, so I stuck to my trade plan. Few things I have learned over the past few months of trading the energy sector:
1) Energy stocks have lagged the upward move in oil prices going back to the fall of 2017, and today was one of the few days I recall where the stocks kept pace or even out performed the underlying commodity on the upside. There have been way too many days when they under performed in both directions.
2)Many people (investors/traders) can’t/won’t/or are not permitted to trade oil futures. Therefore on days where oil equities act as surrogates for oil futures, I have found it best to follow the old proverb: “Feed the birds when they are chirping”.
3)Lastly, as a trader I need to constantly remind myself of another old proverb: “I am in the moving business, not the storage business”, so a 55% return in a short period fits that description. Decided to ring the profit bell.