Call Volume Spikes as Transocean LTD (RIG) Takes Flight

Transocean LTD (NYSE:RIG) is soaring in the wake of a strong quarterly earnings report

Aug 6, 2015 at 2:38 PM
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Unlike several of its sector peers, oil-and-gas name Transocean LTD (NYSE:RIG) is soaring after reporting second-quarter earnings last night. At last check, the stock has jumped 9.3% to $13.48, and call volume has spiked to four times what's typically seen at this point in the day.

Drilling down, option bulls appear to be purchasing new positions at RIG's weekly 8/7 13-strike call -- which expire at tomorrow's close -- for a volume-weighted average price (VWAP) of $0.30. Thanks to today's earnings-related surge, this call is not only in the money, but the stock has surpassed the call buyers' breakeven mark of $13.30 (strike plus VWAP).

Widening the sentiment scope reveals it's been put buyers who have dominated RIG's options pits in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 50-day put/call volume ratio of 4.68 ranks in the 92nd annual percentile. In other words, puts have been bought to open over calls at a faster clip just 8% of the time within the past year.

In fact, despite today's spike in call activity, there's plenty of action happening on the put side of the aisle. The equity's weekly 8/14 13-strike put is the second most active RIG option this afternoon. It appears as if there's some buy-to-open activity happening here, as speculators roll the dice on RIG retreating south of the strike by next Friday's close, when the weekly options expire.

Outside of the options arena, sentiment is decidedly skeptical of a stock that's followed crude oil into multi-year-low territory. In fact, RIG has shed 65% of its value over the past 52 weeks, and hit a 20-year low of $12.07 yesterday. Against this backdrop, all 17 analysts covering the shares maintain a "hold" or worse recommendation toward RIG.

Elsewhere, short interest jumped 10.2% in the last two reporting periods, and now accounts for almost 30% of the stock's available float. It would take nearly two weeks to cover these shorted shares, at Transocean LTD's (NYSE:RIG) average daily trading volume.

 

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