Twin Bull Notes Boost Transocean Shares

Call options traders have been flocking toward Transocean stock

Managing Editor
Sep 19, 2018 at 9:55 AM
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Shares of Transocean Ltd. (NYSE:RIG) are higher in early trading after the stock landed a pair of bull notes. Last night, Morgan Stanley initiated coverage with a "buy" rating and price target of $15, citing a positive contract backlog. Meanwhile, this morning Wells Fargo upgraded the equity to "outperform" from "market perform" and hiked its price target by $3 to $16. However, there is still plenty of room for more analyst upgrades, as over half the firms covering RIG sport tepid "hold" or "strong sell" recommendations.

Last seen up 2.7% at $12.26, Transocean stock has been struggling on the charts, earlier this month falling after the company announced its plans to purchase Ocean Rig UDW (ORIG) for $2.7 billion. The shares then pulled back to the 320-day trendline, which has performed as support for RIG on multiple occasions in the past. While the stock remains up 11% year-to-date, it's staring up at its July high north of $14.

Digging deeper, options traders have been bullish, with data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) showing the drilling concern with a 10-day call/put volume ratio of 7.69, ranking in the 92nd annual percentile. This indicates calls have been bought over puts at a faster-than-usual clip during the past two weeks.

Echoing this bullish sentiment is the security's Schaeffer's put/call open interest ratio (SOIR) of 0.75, which ranks in the 27th percentile of its annual range. In other words, short-term traders have rarely been more call-heavy toward the security in the past year. 

Regardless, those considering betting on Transocean stock may want to do so now with options, per RIG's Schaeffer's Volatility Index (SVI) of 40%, which ranks in the 15th annual percentile. This low ranking indicates that the drilling concern's short-term options are cheap, from a volatility perspective.


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