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Transocean LTD (RIG) Spread Strategist Targets a 10-Year Low

Transocean LTD's January 2015 puts were used to initiate a two-legged bear spread

by 8/21/2014 2:55 PM
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Transocean LTD (NYSE:RIG) has been trending lower for some time now, off nearly 31% from its mid-November annual high of $55.74. In today's session, the stock is extending this decline, down 0.5% at $38.54, prompting one bearish option trader to bet on a longer-term slide to levels not seen in almost 10 years.

Shortly after the open, one block of 5,000 January 2015 30-strike puts was sold for $0.27 apiece, while a symmetrical block of 5,000 January 2015 35-strike puts was simultaneously bought for $1.27 each. Volume exceeds open interest at each strike, making it safe to assume a long put spread was initiated for a net debit of $1.00 per pair of contracts.

By initiating this two-legged strategy, the speculator has set a downside target in mind; specifically, the round-number $30 mark -- an area not seen by RIG since August 2004. In the best-case scenario, RIG will settle squarely at this spot at January 2015 options expiration, allowing the trader to pocket the maximum potential reward of $4.00 (difference between the two strikes less the net debit) on the purchased puts, while the sold puts can be left to expire worthless. However, she will still be able to profit if RIG breaches the breakeven mark of $34.00, which is calculated by subtracting the net debit from the bought strike. On the other hand, the most the speculator stands to lose is the initial net debit, should RIG settle north of $35 at options expiration.

Today's bearish positioning only highlights the withstanding trend witnessed in Transocean LTD's (NYSE:RIG) options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day put/call volume ratio of 1.20 ranks in the 98th percentile of its annual range. In other words, puts have been bought to open over calls at a faster clip just 2% of the time within the past year.


Most Active Options Update: Tesla Motors Inc (TSLA)

Tesla Motors Inc is targeted by option bears just ahead of weekly expiration

by 8/21/2014 2:22 PM
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The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest is Tesla Motors Inc (NASDAQ:TSLA), as option bears bet on the stock to slide into the weekend.

Most Active Options Table

Specifically, the most active Tesla Motors Inc option this afternoon is the weekly 8/22 255-strike put, which is set to expire at tomorrow's close. Roughly 7,600 contracts have changed hands at this strike, outstripping open interest of 4,998 contracts. A healthy portion of these puts have traded at the ask price, implied volatility rose with some of the largest block trades, and the International Securities Exchange (ISE) confirms some buy-to-open activity at this strike.

With TSLA fractionally lower at $254.50, today's last-minute put buyers are betting on the stock to stage a rapid decline. Based on the option's volume-weighted average price (VWAP) of $2.07, in fact, these weekly put buyers won't begin to see profits unless TSLA falls below $252.93 (strike less VWAP) by tomorrow's close -- a drop of roughly 1.6 points, or 0.6%, from the equity's current perch.

The weekly 8/22 255-strike put is just barely in the money, with a little more than one day's worth of time value, and the options market is pricing in an approximately 50-50 chance of an in-the-money finish. The delta on the option is currently negative 0.52, implying a 52% probability TSLA will be trading south of $255 per share at Friday's close.

Short-term bears seem to think TSLA is due for a downturn, with the stock fresh off Monday's all-time high of $267.26. However, the stock still has some supporters in its corner. Late Wednesday, CLSA initiated Tesla Motors Inc (NASDAQ:TSLA) at "outperform," with the analysts noting, "... we see moderate upside potential over the next 12 months."


Options Radar: GameStop, Chipotle Mexican Grill, and JPMorgan Chase

Reviewing notable options activity on GameStop Corp., Chipotle Mexican Grill, Inc., and JPMorgan Chase & Co.

by 8/21/2014 12:56 PM
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Three names seeing notable option activity today are video game retailer GameStop Corp. (NYSE:GME), fast-casual restaurateur Chipotle Mexican Grill, Inc. (NYSE:CMG), and financial firm JPMorgan Chase & Co. (NYSE:JPM). Here's a look at how today's option traders have been placing their bets on GME, CMG, and JPM.

  • GameStop Corp. (NYSE:GME) is down 2.2% at $40.43 ahead of tonight's second-quarter earnings release. The stock's short-term options are in demand, as GME's 30-day at-the-money (ATM) implied volatility (IV) has popped 2.7% to 47.1%. While calls are trading at twice the normal intraday pace, puts are still the options of choice. Specifically, it seems bears are buying to open the weekly 8/22 40-strike put to gamble on a post-earnings retreat for GME tomorrow. One of the most active calls, meanwhile, is the weekly 8/22 42 strike, which is being bought to open to either bet on or hedge against a surge north of $42 by tomorrow's close, when the weekly options expire. Short interest accounts for 27.5% of GME's total available float, and GameStop has averaged a one-day post-earnings gain of 1.7% over the past seven quarters, making protective calls a distinct possibility.

  • Chipotle Mexican Grill, Inc. (NYSE:CMG) touched an all-time high of $697.93 earlier in the session, but has since cooled its jets to flirt with a 0.8% gain at $683.70. The stock's 30-day ATM IV has jumped 4.7% to 18.8%, and intraday call volume is running at twice the typical rate. CMG's quest for new highs has traders eyeing the round-number $700 level, with buy- and sell-to-open activity detected at the weekly 8/22 700-strike call -- the most popular option thus far. While the buyers expect CMG to topple the strike by tomorrow's close, sellers are betting on the shares to remain south of $700 through the end of the week.

  • JPMorgan Chase & Co. (NYSE:JPM) is up 1.2% at $58.30, following sector peer Bank of America Corp (NYSE:BAC) into the black. Intraday call volume is running at three times the average rate, and has eclipsed put volume by a margin of more than 3-to-1. It looks like one trader is expecting JPM to muscle into annual-high territory within the next few months, buying to open more than 11,500 January 2015 60-strike calls at $1.40 apiece. To profit on the play, the buyer needs the stock to be perched atop $61.40 (strike plus premium paid) -- just a chip-shot from JPM's current annual high of $61.48 -- when January options expire. Reward will increase with each step north of breakeven, while risk is capped at the initial net debit.


Marvell Technology Group Ltd. (MRVL) Bulls Active Ahead of Earnings

Marvell Technology Group Ltd. calls are flying off the shelves today

by 8/21/2014 10:57 AM
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Option traders have been bullishly aligning themselves toward Marvell Technology Group Ltd. (NASDAQ:MRVL) in the months leading up to tonight's quarterly earnings announcement. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the stock's 50-day call/put volume ratio of 9.13 ranks in the 97th percentile of its annual range. Simply stated, calls have been bought to open over puts with more rapidity just 3% of the time within the past year.

It's a similar set-up in today's session, where calls are trading at eight times the average intraday rate, and are outpacing puts by a nearly 25-to-1 margin. Buy-to-open activity has been detected at MRVL's November 15 call, which is, by far, the equity's most active option. At-expiration breakeven for today's call buyers is $15.35 (strike plus the volume-weighted average price of $0.35), with profit accruing on each additional step north of here. Losses, meanwhile, are limited to the initial cash outlay, should MRVL finish south of $15 at the close on Friday, Nov. 21, when the options expire.

This bullish positioning is a bit surprising when looking at MRVL's recent technical showing. Specifically, the shares have lagged the broader S&P 500 Index (SPX) by more than 17 percentage points over the past three months, and surrendered 18.3% since tagging a two-year peak of $16.65 in April. In today's session, the stock is enjoying a lift from broad-market tailwinds -- up 0.5% at $13.61 -- but is staring up at its 40-day moving average, a trendline that has ushered the equity lower since early May.

On the fundamental front, Marvell Technology Group Ltd. (NASDAQ:MRVL) is scheduled to report quarterly earnings after tonight's close. The company has matched or exceeded analysts' bottom-line estimates in each of the past seven quarters, yet the stock, on average, is unchanged in the subsequent three-session period. For MRVL's fiscal second quarter, Wall Street is calling for a per-share profit of 28 cents -- a nickel more than what the company brought in one year ago.


Most Active Options Update: Trinity Industries Inc (TRN)

Trinity Industries Inc shareholders may be trying to lock in unrealized gains

by 8/21/2014 10:54 AM
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The 20 stocks listed in the table below are the S&P 400 MidCap Index (MID) components that have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest is Trinity Industries Inc (NYSE:TRN), which experienced an unusually heavy dose of put buying on Wednesday.

Most Active Options Table

Puts were popular on Trinity Industries Inc yesterday, with volume of 3,001 contracts representing 1.49 times the stock's single-session average. The most popular put was the September 40 strike, where 1,058 contracts crossed the tape. More than two-thirds of these puts traded at the ask price, implied volatility on the option rose 2.5 percentage points to 35.5%, and open interest at the strike increased overnight by 776 contracts -- confirming the addition of new bearish bets.

By purchasing September 40 puts, these speculators are betting on TRN to fall below this round-number level over the course of the next month. The contracts traded at a volume-weighted average price (VWAP) of $0.12, which means put buyers will be in profitable territory if TRN is trading below $39.88 (strike price minus VWAP) when September-dated options expire.

TRN is up 0.4% today to trade at $47.46, so these front-month bears are banking on a drop of more than 16%. However, with Trinity Industries Inc (NYSE:TRN) boasting a year-to-date gain of roughly 74%, it's also possible that TRN shareholders are buying short-term puts to lock in some paper profits on their long stock positions.


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