Goldman: Sell This Oil Stock

Most analysts are already bearish on DO stock

Mar 11, 2019 at 11:19 AM
facebook twitter linkedin

The shares of Diamond Offshore Drilling Inc (NYSE:DO) have made a beeline lower since topping out above the round $20 mark back in October. And while the $9 neighborhood has served as a floor during this recent decline -- the lowest the stock ever traded was $8.78 on Jan. 2 -- Goldman Sachs thinks there's more downside to come, with the brokerage firm initiating coverage on the energy shares with a "sell" rating and $8 price target.

Most analysts are already skeptical of Diamond Offshore Drilling, with three-quarters of those in coverage maintaining a "hold" or worse recommendation on the stock. However, the average 12-month price target of $12.01 is a 22.6% premium to current trading levels.

This pessimism is seen elsewhere on Wall Street, with short interest surging 27.2% in the two most recent reporting periods to 23.4 million shares -- the most since mid-September. These bearish bets represent 17% of DO stock's available float, or 8.9 times the average daily pace of trading.

Short-term options traders, on the other hand, are more call-skewed than usual, per DO's Schaeffer's put/call open interest ratio (SOIR) of 0.34 -- in the 6th annual percentile. The March 12.50 call is home to peak front-month open interest of more than 5,000 contracts, and data from the major options exchanges confirms buy-to-open activity at this out-of-the-money strike.

Given Diamond Offshore Drilling's longer-term technical struggles, the activity at this out-of-the-money strike could be a result of shorts initiating an options hedge against any upside risk. Whatever the reason, DO shares were last seen up 2.5% at $9.66, rising as oil prices gain on reports Saudi Arabia may lower crude oil exports next month. Nevertheless, the stock is still staring up at its 50-day moving average, which has served as a stiff ceiling this year.

do stock daily price chart on march 11


Minimize Risk While Maximizing Profits

There is no options strategy like this one, which consistently minimizes risk while maintaining maximum profits. Perfect for traders looking for ways to control risk, reduce losses, and increase the likelihood of success when trading calls and puts. The Schaeffer’s team has over 41 years of options trading success targeting +100% gains on every trade. Rest assured your losses are effectively limited to your initial cost at the time of making your move! Don't waste another second... join us right now before the next trade is released! 



Special Offers from Schaeffer's Trading Partners