The SEC recently announced that they are beginning an investigation into Exxon Mobil, one of the largest oil companies in the world. The allegations say that Exxon has improperly valued their assets in the light of the drop in oil price, and that the company is not worth what the released documents say that it is. Specifically, the SEC believes that Exxon has not been properly valuing its oil reserves when prices decline, and that this has artificially boosted what the company is valued at on paper, but does not actually reflect the real value of the company as oil price swings occur.
The implication here is that when oil drops in price, as it has been doing with all of the volatility that crude oil has seen over the past few years, Exxon should be dropping in price, too. However, this particular company does not seem to have been hurt as much as other oil companies have been. For example, its oil company peers, such as Chevron, have had to take write downs totaling about $50 billion. Of all the major oil companies located in the U.S., Exxon is the only one not to have taken advantage of a write down or an impairment charge.
Now that oil has begun to stabilize and might even be growing long term in price, Exxon’s legal problems are coming at one of the worst times possible for the fiscal health of the company. Formally announcing the investigation is more than likely to hurt Exxon’s price over the next few weeks. If the investigation concludes with charges being placed against the company, the price of the stock will drop even more. At this point, actually selling the stock short could be too risky, but a series of binary options relying on the put side of things would give you more wiggle room for risk management.
This is the type of news event that you won’t always find in your news feed, but it has huge potential for creating profits for you. Even if you don’t know the company well, situations like this make for a very straightforward approach. And, since the U.S. stock market is not open around the clock, there is plenty of time to prepare a strategy during off hours so that you can be prepared when the trading floor does actually open.
This also underscores the importance of thorough fundamental analysis on your part if you are going to be investing in stocks over the long term. Exxon is a highly traded company, and they are one of the biggest companies in the U.S. The company is also highly traded in the binary options market thanks to its worldwide ubiquity. However, by looking at financial report sheets on Exxon and comparing them to the assets that they claim and how those assets are valued, you can get a far better idea of what the company is truly worth. In this case, you may have found that a short sale was the right move for you a few months ago. Likewise, this situation could easily be replicated with any other major company. And it doesn’t need to just happen with short sales. You might look at a company and find that they are significantly undervalued and decide that buying several shares of the company is a good long term move. These kinds of long term moves can be done in the traditional stock market, or in the binary market, depending on the stock itself. Whatever you decide, adding strong fundamental analysis to your routine can help you find new opportunities and new ways to diversify that you may have never considered.