Is Transocean LTD (RIG) At Risk of Additional Losses?

Pockets of optimism can still be found on struggling Transocean LTD

Nov 26, 2014 at 2:14 PM
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With energy prices on the decline -- and more recently, news of a suspended dividend payment from one of its sector peers -- it's been a terrible month for Transocean LTD (NYSE:RIG). The stock is down almost 8% today to churn near $23.31 -- and earlier hit a 10-year low of $23.22 -- extending its month-to-date decline to 22%. Not surprisingly, option players have shown a distinct bearish bias toward RIG in recent weeks.

At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the equity's 10-day put/call volume ratio of 1.56 ranks in the 76th percentile of its annual range. Simply stated, puts have been bought to open over calls at a faster-than-usual clip of late.

Echoing this put-skewed bias is the stock's Schaeffer's put/call open interest ratio (SOIR) of 2.35, which rests higher than 90% of similar readings taken in the past year. In other words, short-term speculators have been more put-heavy toward RIG just 10% of the time within the past year.

This glass-half-empty approach has spilled outside of the options arena, as well. Short interest jumped 6.3% during the last two reporting periods, and now accounts for more than one-quarter of the stock's float. What's more, looking back to June 2000, the 83.54 million shares currently sold short are the most RIG has seen over this 14-year time span.

That said, not everyone has climbed on the bearish bandwagon. Specifically, the stock's average 12-month price target of $27.70 stands at a nearly 19% premium to current trading levels -- leaving RIG at risk of future price-target cuts, which could pressure the shares lower. Today, in fact, Zephirin Group reiterated its "sell" rating on Transocean LTD (NYSE:RIG), and slashed its price target by $8 to $20 -- territory not charted by the stock since December 2003.

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