Large option bear sees downside in Exxon Mobil

CHICAGO (Reuters) - A sizable bearish options play on Exxon Mobil Corp (XOM.N) transacted on Tuesday suggests the energy company's stock could drop 10 percent ahead of August expiration.

Shares of Exxon Mobil, the world's largest publicly traded oil company, ended 1.07 percent higher to $80.57. The stock is down 8 percent from this year's closing high of $88 on April 29, but is up more than 10 percent year-to-date.

Early option trades included an August $72.50-$77.50 put ratio spread that is apparently looking for shares to head lower once again, said OptionMonster analyst Chris McKhann.

"This could be a protective position against a long equity holding or a play on the price of crude oil," said Patrick Mortimer, director of options trading at stock and options block execution firm Pipeline Trading Systems in New Hope, Pennsylvania.

"With Exxon's shares mirroring the fluctuation in crude oil prices, this trade could be a play on an increase in supply over the summer months with some political stability coming to oil producing counties," Mortimer said.

Option analysts and traders said the strategist purchased 7,500 August $77.5 XOM strike puts for a premium of $1.79 each and simultaneously sold 15,000 lower August $72.50 XOM strike puts at 78 cents apiece. The net cost of the ratio spread was 23 cents per contract for the position.

The investor may be taking an outright bearish stance on the stock or could be hedging a long stock position ahead of Exxon Mobil's July 28 second-quarter earnings report, said Interactive Brokers Group options strategist Caitlin Duffy in a note on Tuesday.

The number of existing positions held by investors at both strikes was less than 200 contracts, so it was a new opening spread, OptionMonster's McKhann said on the firm's website.

The spread cost 23 cents. The trade would yield a maximum profit of $4.77 per contract if Exxon shares fall to $72.50 at August 19 expiration, which represents a 10 percent decline over the next 59 days.

The risk is that the trader may be required to buy a net quantity of 750,000 shares of Exxon stock if the August $72.5 puts land in the money. Losses would start to build if shares fall below the lower break-even point of $67.73, Duffy said.

A bearish ratio put spread is when an investor buys a near-the-money put and sells two out-of-the-money put options. The premium received for the two puts dramatically offsets the cost of the single put but it exposes the trader to full stock risk below the break-even point.

Other signs of investor pessimism on Exxon cropped up in the August $85 strike call where it appears some 2,600 contracts were sold for an average premium of 70 cents apiece, Duffy said.

(Reporting by Doris Frankel; Editing by Leslie Adler)