Transocean LTD (RIG) Rally Sends Call Volume Soaring

Transocean LTD (NYSE:RIG) is up more than 50% on the week, and call volume is at an annual high

by Karee Venema

Published on Mar 4, 2016 at 2:59 PM
Updated on Jun 24, 2020 at 10:16 AM

Similar to fellow oil-and-gas issue Chesapeake Energy Corporation (NYSE:CHK)Transocean LTD (NYSE:RIG) has had a big week, thanks to a well-received M&A outlook from Chief Financial Officer Mark Mey, some upbeat analyst attention, and rising oil prices. Today, the stock is 23% higher at $13.34 -- up more than 52% on the week -- and on track to close north of its 120-day moving average for the first time since early November. In fact, RIG volume today is at an annual high, while call volume has more than doubled the previous annual high, set on Aug. 6.

By the numbers, more than 126,000 calls were on the tape at last check, versus roughly 88,000 puts. The stock's May 12 call is RIG's most active option, and it looks as if some of the volume may be a result of one speculator rolling her long call position up to the May 14 strike.

Widening the sentiment scope reveals call buying has been a popular strategy in RIG's options pits of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 0.67 ranks in the 81st percentile of its annual range. In other words, calls have been bought to open relative to puts at a faster-than-usual clip.

Echoing this is RIG's Schaeffer's put/call open interest ratio (SOIR) of 1.46, which sits lower than 91% of all comparable readings taken in the past year. Simply stated, short-term speculators are more call-heavy than usual toward the stock.

However, this optimism appears to be relegated to the options pits. Short interest jumped 5.3% in the latest reporting period, and now accounts for nearly two-fifths of Transocean LTD's (NYSE:RIG) available float -- or 10.6 times the stock's average daily trading volume. As such, it's entirely possible that some of this week's upward momentum is a result of a short squeeze. Additionally, the recent rush toward long calls -- especially at out-of-the-money strikes -- could be a result of shorts hedging against any additional upside.

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