Skepticism Grows On Underperforming Transocean LTD (RIG)

Transocean LTD's weekly 10/31 30-strike call is being sold to open today

Oct 17, 2014 at 2:34 PM
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Cowen weighed in on a number of oil-and-gas issues today following Baker Hughes Incorporated's (NYSE:BHI) dismal earnings report, and for Transocean LTD (NYSE:RIG), that meant a downgrade to "market perform" from "outperform" and price-target cut to $30 from $39. Against this backdrop, shares of RIG have plunged 5.9% to $28.37. Meanwhile, in the options pits, overall volume is running at a slightly accelerated clip, and a number of speculators are setting a ceiling for the shares through month's end.

Specifically, the stock's most active call is the weekly 10/31 30 strike, where 2,205 contracts have changed hands -- mostly at the bid price, hinting at seller-driven activity. Plus, volume outstrips open interest, pointing to the initiation of new short positions. By writing the calls to open, traders expect RIG to stay south of $30 through the close on Friday, Oct. 31 -- when the weekly series expires. Amid today's plunge, delta on the call has dropped to 0.34 from 0.54 at last night's close, suggesting a decreased probability the option will expire in the money.

Today's steep sell-off only highlights RIG's withstanding technical troubles, with the shares down more than 42% year-to-date. In spite of this, there are still pockets of optimism found around the Street. In fact, the consensus 12-month price target of $32.19 stands at a 13.5% premium to the equity's current perch. Should Transocean LTD (NYSE:RIG) continue in its downward trajectory, another round of price-target cuts could pressure the shares lower.

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