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Exxon's Conundrum

If you were a stock holder, would you rather have a buyback, or a dividend?

If you own Exxon Mobil , you probably want the latter.

The company sits on a mountain of cash and has decided to use much it to repurchase its stock. But so far, that has failed to meaningfully move the stock. In the last six months, oil has risen some 43%, while Exxon stock has registered a scant 3% rise. That's not so unusual according to industry watchers. Integrated names tend to underperform oil to the upside, and outperform it to the downside. On the year, oil is down 29% on the year, while Exxon has only fallen 14%. More interesting is the relative underperformance to its peers. While the S&P is up 17% year-to-date, Exxon is down 14%, and the integrated space is up 2%. And some point the finger squarely in the direction of management.

"Their obsession with the buyback over other shareholder-friendly initiatives, like a dividend hike, is killing the stock," said Mark Gilman, (SELL) of the Benchmark Company. "And yet in spite of the buy back, the company still trades at a huge premium to its peers, so it should continue to underperform," Gilman added.

Exxon trades at an 11 forward multiple, while Chevron and Connoco trade at a respective 9 and 7 times next year's earnings. And its 2.4% dividend is significantly less than Chevron's 3.4% yield, or Connoco's 4.2%. But those stats are a little misleading on face value. Exxon already pays a comparable percentage of its earnings in dividends. The only reason the yield looks low on a comparable basis is that the valuation is so much richer than the other names.

Interesting enough, Exxon's options trade at more compelling valuation relative to its peers when one looks at the companies' respective implied volatilities.

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And the buyback may in fact make Exxon's options look more attractive going forward.

"If the buy back continues, the company should become more levered to oil. And if that happens, you should see prices for Exxon options stabilize or rise," said Mike Khouw, Cantor's resident TV guru head of their US equity derivative rally.

What does that mean for an options trader?

Stear clear of buy-writes, says Khouw.

"If I were looking to a buy-write opportunity in the integrated space ,I’d prefer the less expensive names like COP and CVX, because I prefer the valuation, and because I prefer the vol premium."

Questions, comments send them to us at: optionsaction@cnbc.com

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