Unusual Options Activity: Transocean (RIG)

Shares of offshore drilling equipment company Transocean (RIG) are up about 7 percent in the past year. One trader sees the potential for share to fall in the months ahead.

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  • That’s based on the May 2023 $3.00 puts. With 361 days until expiration, 10,032 contracts traded compared to a prior open interest of 352, for a 29-fold rise in volume on the trade. The buyer of the puts paid $0.60 to get into the trade.

    Shares recently traded for about $4.00, so they would need to decline about 25 percent in the space of a year for these put options to move in-the-money.

    Even with a surge in oil prices in the past year, the company hasn’t been able to turn a profit, and revenue is down 10 percent in the past year. The boom in oil prices hasn’t translated into higher offshore demand, and that could lead to a drop in shares, even if oil prices hold up strong.

    Action to take: Given the company’s high debt to equity ratio, its weak financial performance here could lead to a lower share price in the months ahead. Investors have better places to go to on the long side in the energy space.

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  • For traders, the options look like an attractive downside play here. They’re fairly inexpensive and have a long time to play out, so they could potentially be a triple-digit winner.

     

    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 of the companies mentioned in this article.