Seadrill Limited (SDRL) Traders See a Sinking Ship

Seadrill Ltd (SDRL) touched a fresh five-year low today

Digital Content Group
Mar 13, 2015 at 2:37 PM
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The sell-off in crude is weighing on energy stocks this afternoon, not the least of which is Seadrill Ltd (NYSE:SDRL). Shares of this offshore driller staggered to a near-six-year low of $9 earlier, and were last seen down 6.8% at $9.02. Turning to the stock's options pits, at least one group of traders anticipates additional downside in the months ahead.

Taking a quick step back, SDRL options are crossing at nearly double the usual amount for this point in the day. While the headline trade involved matching blocks of 5,500 April 10 and July 10 calls -- which appear to be tied to stock -- more straightforward activity is transpiring at the January 2016 5-strike put. Speculators buying to open these out-of-the-money positions are convinced SDRL will retreat below $5 -- and into all-time-low territory -- by January 2016 options expiration.

From a slightly longer-term perspective, puts have been the options of choice in the stock's options pits. During the last two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly four SDRL puts for every call. The resultant 10-day ISE/CBOE/PHLX put/call volume ratio of 3.96 ranks in the 91st percentile of its annual range.

As a result, open interest among options set to expire in three months or less is decidedly put-skewed. Seadrill Ltd's (NYSE:SDRL) Schaeffer's put/call open interest ratio (SOIR) of 1.17 outranks two-thirds of comparable readings from the last 12 months.

 

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