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Transocean LTD (RIG) Option Players Predict Post-Earnings Upside

RIG speculators are buying call options at a rapid-fire rate

by 5/8/2013 10:49 AM
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Offshore drilling concern Transocean LTD (NYSE:RIG) is scheduled to step into the earnings spotlight after the close, and options traders are betting bullishly on the stock. During the past two weeks, speculators have purchased to open nearly five RIG calls for every put on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In fact, the stock's 10-day call/put volume ratio of 4.54 ranks in the 80th percentile of its annual range, pointing to a healthier-than-usual appetite for bullish bets of late.

As a result, the stock's Schaeffer's put/call open interest ratio (SOIR) has fallen to 0.59, indicating that calls outnumber puts among options with a shelf-life of three months or less. What's more, this ratio sits just 9 percentage points from a 52-week low, implying that near-term options players have rarely been more call-heavy during the past year.

Attracting notable attention of late has been the June 55 call -- which is at the money, with RIG last seen trading at $55.08. More than 2,800 calls have been added here during the past two weeks, and this strike now harbors more than 3,300 calls outstanding. In the front-month series, the in-the-money May 50 call is most popular, with 13,000 contracts in residence.

Elsewhere on Wall Street, analysts are also optimistic ahead of Transocean's turn in the earnings confessional. Sixteen brokerage firms deem RIG worthy of a "buy" or better endorsement, compared to seven with "hold" ratings and just one suggesting a "strong sell." Plus, the average 12-month price target sits at $60.45 -- in a neighborhood not explored since August 2011.

In fact, the $60 region has translated into a formidable hurdle for Transocean LTD, rejecting the stock's rebound attempts on several occasions during the past year-plus. This area is also home to the equity's descending 50-month moving average, which hasn't been toppled on a monthly closing basis since late 2008.

Historically speaking, Transocean has topped Wall Street's bottom-line earnings estimates in each of the past four quarters. For the first quarter, analysts are anticipating a per-share profit of $1.00 for the company. Should RIG miss the mark tonight, an unwinding of optimism on Wall Street could translate into added selling pressure on the shares.


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