Building a Jade Lizard on XOM While Oil Runs Higher

Key Concepts

• Bullish Delta Trade: A trading strategy designed to profit from an upward movement in the underlying asset's price.
• Call Spread (Credit Spread): An options strategy involving the simultaneous sale of a call option at a lower strike price and the purchase of a call option at a higher strike price.
• Probability of Success (PoS): A statistical measure indicating the likelihood that an option trade will expire at a profit.
• Legs: The individual components (options contracts) that make up a multi-leg trading strategy.

Trade Overview and Rationale

The speaker identifies a trading opportunity in XOM (Exxon Mobil), noting that while oil prices are elevated, the stock price of XOM is currently trading near its lows. Based on this divergence, the speaker initiates a "bullish delta" trade, anticipating a recovery or upward price movement in the stock.

Strategy Execution: The 155/160 Call Spread

The speaker executes a multi-leg strategy, specifically a bearish call credit spread (used here as a bullish directional play by selling premium). The specific mechanics are as follows:

• Structure: Selling the 155/160 call spread. This involves selling a call option at the $155 strike price and buying a call option at the $160 strike price.
• Execution Price: The speaker reports being filled at a credit of $5.12, though they suggest that market participants could likely achieve a better fill closer to $5.25.
• Strategic Intent: The speaker emphasizes that the primary profit driver is the directional move of the underlying asset (XOM) rather than the specific entry price of the spread.
• Risk/Reward Profile: The trade is characterized as a "good stand-alone trade" with a 60% probability of success. The credit received for the spread is approximately $1.80.

Technical Methodology

The speaker advocates for a "Johnny way" of trading, which involves entering all legs of the trade simultaneously to ensure execution efficiency. By breaking down the legs, the speaker illustrates how the strategy functions as a defined-risk trade:

1. Selling the 155 Call: Generates premium income and establishes the directional bias.
2. Buying the 160 Call: Acts as a hedge to cap the maximum loss, defining the risk of the position.

Synthesis and Takeaways

The core argument presented is that when an underlying asset (XOM) is trading at a relative low despite strength in the broader sector (oil), a bullish delta trade is appropriate. By utilizing a call credit spread, the trader benefits from a high probability of success (60%) while maintaining a defined risk structure. The speaker concludes that while precise entry pricing is beneficial, the success of the trade is fundamentally tied to the trader's ability to correctly predict the directional recovery of the stock.