Energy Rebound Fails to Ward Off Seadrill Ltd (SDRL) Skeptics

Seadrill Ltd has been in rally mode for the last couple of days

by

Published on Dec 18, 2014 at 10:37 AM
Updated on Apr 20, 2015 at 5:32 PM

Seadrill Ltd (NYSE:SDRL) surged 10.5% yesterday to close at $12.16, as part of a broader rally in energy stocks. Option traders took notice, as calls crossed at a rate double the daily norm, and the equity's 30-day at-the-money implied volatility hit a 52-week high of 79.4%, hinting at strong demand for short-term strikes.

However, not everyone jumped aboard SDRL's bullish bandwagon, nor were front-month contracts exclusively popular. In fact, seeing the most buy-to-open activity was the longer-term July 9 put, where 5,682 contracts were exchanged. These speculators are aiming for the shares to breach $9 -- something that hasn't happened in more than five years -- by July 2015 options expiration.

That bearish bets were popular isn't entirely surprising. Even after factoring in today's 5% pop to hover near $12.79, SDRL is down about 69% year-to-date, and has underperformed the broader S&P 500 Index (SPX) by a brow-raising 56.4 percentage points over the last three months. Nevertheless, it's looking increasingly unlikely that yesterday's puts will be in the money at expiration, as delta has dropped to negative 0.27 from negative 0.32 at Wednesday's close.

Elsewhere on the Street, brokerage firms have been growing increasingly skeptical toward Seadrill Ltd (NYSE:SDRL). In fact, five of the seven analysts covering the shares have handed out "hold" ratings, and Howard Weil yesterday slashed its price target to $15 from $44.


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