ExxonMobil (XOM): Collecting a War Premium on a Quiet Chart
ExxonMobil (XOM) against costly crude, record diesel and rising long yields: what the letter argues about energy volatility and what to watch next.
Premium priced for war
The letter opens with a government at war with itself. Washington wants cheaper long-term borrowing and a firmer yen at once. The Treasury steps up purchases of its own longest bonds to drag yields lower, a rounding error against the national debt, then links arms with Tokyo to defend the yen for the first time in a generation. Tokyo pays for that defense by dumping Treasuries, which sends those same yields straight back up. I likened it to filling a pool with a bucket while a friend pulls the plug.
The Fed lives inside the same contradiction. The White House wants a policy rate near nothing while the long bond yields 5.3%, a level unseen since before the financial crisis, because its holders fear inflation more than they fear the central bank. My view is that the hawkish path and the dovish path arrive at the same place. A single hike that kills the inflation fear would pull the long end down by more than it lifts the overnight rate. Standing pat leaves the long bond pricing a central bank that takes dictation.
Exxon enters because energy stays expensive whichever way that argument breaks. Brent sits above $98 after attacks on tankers and Iranian threats to seal off the Gulf, Hormuz traffic has thinned to its lowest in months, diesel prints records and the strategic reserve offers little cushion. Meanwhile the option chain on oil names carries a war premium while the stock itself grinds higher along its rising moving average. The letter's answer is an iron condor with a mild upward lean, expiring before earnings, built to harvest the gap between the fear in the options and the calm on the chart.
What changes for options traders
For anyone writing options, the interesting question is where volatility is mispriced rather than where price is headed. Energy implied volatility is bid because ships are being hit. The chart is dull because an integrated major does not trade like a tanker. That mismatch shows up on my screens as premium worth collecting, and for once the machine and I agree. Earnings falling after the structure expires removes the single scheduled event that could blow the range apart, which leaves geopolitics as the risk. A genuine closure of Hormuz would threaten the ceiling; a sudden ceasefire and a crude collapse would test the floor.
Index skew sits at its lowest percentile of the year, so broad put protection is as cheap as it gets, and energy and power exposure stay in the book as the inflation hedge while equity leadership flips from week to week. Brazil and China are the crowded corners: EWZ has ripped as runoff polls swung toward the candidate markets read as the tighter fiscal hand, with call open interest at records, and speculators are stacking call spreads on Chinese indexes on top of a bank rescue that fixes capital but forces nobody to borrow. The letter treats both as options rather than core, sized so that being wrong is survivable.
Dates and levels on the calendar
The calendar does most of the work. Apple takes the stage Wednesday. Thursday piles up producer prices, jobless claims, an ECB hike the market treats as done, and Oracle and Adobe reporting after the bell, both read as proxies for whether OpenAI's Astra expands demand or merely trims the token bill. Friday brings consumer prices and Michigan sentiment. Fed officials stay silent until the decision on September 16; the Bank of Japan follows within days, alongside a record options expiry.
On the chart, the levels that count are the rising 50-day average that has carried the stock and the August high it has yet to clear, with Brent, diesel and Hormuz transit as the tells for whether the war premium in the option chain earns its keep. Further out, prediction markets lean toward a Democratic sweep in the midterms, which points to lower yields and a weaker dollar, and the next Brazilian runoff poll decides the direction of the most crowded corner of the tape.
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