Unusual Option Activity: Transocean (RIG)

Offshore drilling service provider Transocean (RIG) is down 10 percent over the past year, amid a decline in energy prices. One trader sees a rebound in the months ahead.

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  • That’s based on the August $6 calls. With 205 days until expiration, 11,794 contracts traded compared to a prior open interest of 205, for a 58-fold rise in volume on the trade. The buyer of the calls paid $0.64 to make the bullish bet.

    Transocean recently traded for about $5.30, so shares would need to rise about $0.70, or just over 13 percent, for the option to move in-the-money.

    The strike price is still well under the stock’s 52-week high of $8.88.

    Even in a challenging market for offshore oil production, Transocean managed to increase its revenues by 3 percent last year, although the company still lost money overall.

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  • Action to take: Shares look oversold after their steep drop in recent weeks. Investors may like shares as a short-term recovery opportunity for low double-digit gains. At present, Transocean does not pay a dividend.

    For traders, the August calls work well for a short-term bounce higher in shares in the months ahead. Traders should look for shares to move off of oversold conditions as a sign to take profits on the trade. The option can likely deliver mid-double-digit returns on such a bounce higher.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

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