Unusual Options Activity: Transocean (RIG)

Shares of offshore drilling equipment company Transocean (RIG) are up about in line with the S&P 500 over the past year, with a strong rally in recent weeks as oil prices have risen further. One trader sees room for a further rally.

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  • That’s based on the April 8th $6 calls. With 24 days until expiration, 12,623 contracts traded against a prior open interest of 179, for a 70-fold jump in volume on the trade. The buyer of the calls paid $0.36 to make the trade.

    The buy has occurred as shares have hit a price of about $5, so they would need to rise $1, or 20 percent, for the option to move in-the-money. With a 52-week high of about $5.50, shares would need to break to a new high for the option to move in-the-money.

    With oil prices moving higher, shares look like an inexpensive buy here. Unlike a number of oil companies, Transocean is still coming off of losses in the past year, given the long cycle times to restart offshore oil projects.

    Action to take: Shares will likely trend higher as offshore oil operations continue to ramp up in the coming months.

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  • That bodes well for shares, which should continue to trend higher. However, at the moment investors will need to go elsewhere for income.

    For traders, the options have the potential for mid-to-high double-digit returns in the coming weeks, although there isn’t much time left on the trade.

    Traders might want to make a quick trade and then move into an options trade on the stock with more time to play out.

     

    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.

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