Unusual Options Activity: Transocean (RIG)

Shares of offshore oil and gas services company Transocean (RIG) are up 83 percent over the past year. One trader sees a pullback in the next two months.

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  • That’s based on the March $5 puts. With 51 days until expiration, 13,472 contracts traded compared to a prior open interest of 108, for a 91-fold jump in volume on the trade. The buyer of the puts paid $0.22 to make the bearish bet.

    Shares recently traded for $6, so the stock would need to drop $1, or about 17 percent over the next two months. That would still leave shares well over their 52-week low of $2.32.

    Transocean has benefited from rising energy prices over the past year. Revenues rose 10 percent, even as the company failed to be profitable on an earnings basis. However, oil prices have calmed down considerably from last year’s highs, and offshore oil tends to be the most expensive to produce.

    Action to take: Shares have had a sizeable jump in the past few weeks, and may give back some of those gains. Shares are also susceptible to the company’s high debt load and negative earnings right now. Interested investors can likely get a far better entry price for shares.

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  • For those looking for a short trade candidate, the March $5 puts are aggressive, but could play out well. Given how inexpensive the trade is, a big drop in Transocean shares in the coming weeks could lead to high-double-digit gains, or potentially even triple-digit gains.

     

    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.