The Oil King, XOM; 2.37 Million Options Volume Trailing Behind TSLA

Some fun reading before CNY. Writing $Exxon Mobil (XOM.US)$ not just because of its 1. almost 10-year relationship with Red Bull Racing (fun fact, ExxonMobil was at the first F1 race in Silverstone), 2. me as a deep ITM (in-the-mood) swing fan for Maximus Decimus Verstappen, but because of its absolute returns, up 29.79% YTD, while $Occidental Petroleum (OXY.US)$ up 13.94%, $Chevron (CVX.US)$ up 21.94%, and the largest energy sector ETF by AUM, $Energy Select Sector SPDR Fund (XLE.US)$ up 22.37%.

Figure 1: 1 year performance for XOM, OXY, XLE

So we know the energy sector is outperforming the cap-weighted $S&P 500 Index (.SPX.US)$ (+0.92% YTD) or tech-heavy $NASDAQ 100 Index (.NDX.US)$ (-1.27% YTD) because of capital rotation and baseline drivers like OPEC+ on supply constraints, high demand from tech infrastructure, and geopolitical tension.

But why is Exxon doing extraordinarily well?

Besides the fundamental numbers (recent fourth-quarter adjusted EPS of $1.71, beat estimates $1.68, revenue of $82.31B, beat estimate $81.43 billion), Exxon's true royal flush lies in 1. The monopoly of the Stabroek Block 2. The 2016 "ironclad" contract terms.

Figure 2: Max Verstappen - Red Bull Racing

The Monopoly of the Stabroek Block

Stabroek Block (Stabroek) in Guyana covers a huge area of over 6.6 million acres (roughly equivalent to 1,500 Manhattan islands). Geological exploration results show that it contains some of the world's rarest top-tier reservoirs — light oil, low impurities, and very easy to produce.

Exxon holds 45% interest (the other two partners are Hess with 30% and CNOOC with 25%). Other companies (such as Shell or BP), even if they enter now, can only bid for marginal blocks.

Figure 3: Stabroek Block geological location

The problem is that the geology is extremely subtle. Right next to the Stabroek Block, other oil companies (such as Repsol, Tullow Oil, etc.) also drilled wells — but the results were either dry holes (no oil) or heavy oil (very difficult & uneconomic to produce). So it's like DRC solely owning Romanée-Conti and La Tâche (both Grand Cru plots) producing supremacy bottles, but producers a few hundred meters away can drop to okish/average.

Exxon achieved its highest full-year net production in more than 40 years at 4.7 million barrels per day and Guyana is one of the primary drivers along with the Permian Basin. As the operation in the region is rapidly growing, last November, Guyana production hit a milestone of 900,000 bpd after the Yellowtail project reached full capacity.

Figure 4: Exxon's news release

The "ironclad" contract terms (The 2016 PSA)

$Exxon Mobil (XOM.US)$ 's strongest hidden moat. When ExxonMobil signed the Production Sharing Agreement (PSA) with the Guyanese government, the terms were extraordinarily generous (at that time Guyana had not yet discovered the giant fields and urgently needed major companies to come take the exploration risk): Royalty: 2% + Profit split: The companies can first take 75% of production to recover costs.

New contracts are much harsher as the Guyanese government introduced new regulations: Any company newly entering Guyana (or any new blocks auctioned in the future) must accept: Royalty increased to 10% + Corporate income tax rose from 0% to 10% + Cost recovery limits have been significantly tightened / lowered.

A record high in options trading volume

Yesterday's trading volume shows Exxon's volume jumped to 2.37 million, only trailing after Tesla's 2.57 million.

Figure 5: Options trading volume top ranking

For its entire February and March volume composed 95.7% of the total trading volume, and calls outnumbered puts ~31.13x; those calls largely on 120/125 strike, since deep in-the-money, have average delta close to 1, almost same exposure to the price movement as owning the stock.

Figure 6: Feb&Jan volume; IV chart

Behind the bar, it is not for the pure reason of strong bullish conviction, but the company's dividend capture strategy.

Dividends are priced in advance through the forward price. For calls, this means call premiums are suppressed (cheaper) as ex-div approaches because the market expects the stock to drop by roughly the dividend amount on ex-div day. This makes buying calls right before ex-div generally unattractive (you’re paying for a forward that already subtracts the dividend). Instead, the logical play with calls is usually on the selling side, combined with owning the stock.

Figure 7: Historical trading volume excluding 2/11/26

Figure 8: historical trading volume including 2/11/26

Timing around ex-div is critical for dividend capture strategy, deep in-the-money (ITM) covered calls are used right before ex-div (a tactic seen with hedge funds). You get a bigger premium (mostly intrinsic), the net cost basis drops significantly, and the ex-div drop + any remaining time value can make it profitable even if assigned. But what I don't fully understand is why yesterday's volume absolutely massive? Leave your thoughts in the comments, and Happy CNY guys.

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