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Transocean Option Players Rely On Resistance

A bear put spread is initiated in RIG's November series of options

by 9/28/2012 1:06 PM
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Option players have favored puts over calls on Transocean LTD (NYSE:RIG - 44.97) in recent weeks, per data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, the stock's ISE/CBOE/PHLX 10-day put/call volume ratio of 0.58 ranks in the 86th percentile of its annual range, suggesting puts have been bought to open over calls at an accelerated clip.

Echoing this inclination among option traders is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.98, which ranks higher than 83% of other such readings taken in the last year. In other words, short-term speculators are more put-heavy than usual toward RIG.

The trend is being continued in today's session, with put volume easily outpacing call volume. Nearly 9,700 put contracts have crossed the tape, representing more than two times the average intraday put volume. By comparison, just over 3,200 call contracts have changed hands, fewer than the 4,700 expected. With 2,000 November 45 puts crossing at the ask price for $2.54, and 2,000 November 40 puts simultaneously trading at the bid price for $0.86, a healthy majority of today's put volume looks attributable to the initiation of a bear put spread in RIG's November series of options. A net debit of $1.68 was incurred on the play.

This skeptically skewed speculator will begin to profit should RIG breach the $43.32 (the bought strike minus the net debit) level over the next seven weeks. Should the stock fail to fall south of this breakeven mark, the maximum potential loss is restricted to the initial premium paid. However, by limiting her risk with the short put, the trader has also capped her profit potential at $3.32 (the difference between the two strikes minus the premium paid).

On the charts, RIG has added a respectable 16% on a year-to-date basis. However, any significant moves to the upside have been stunted by the stock's 60-week moving average. This trendline has served as stiff resistance since June 2011, allowing only one weekly win in that time. In fact, that technical triumph occurred just one week ago, but today's court-related troubles have pulled RIG south of this mark. At last check, the stock had given back 0.9% to trade at $44.97.

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