Transocean LTD (RIG) Put Players Call a Bottom

Put selling has been a popular strategy on Transocean LTD (NYSE:RIG) of late

by Karee Venema

Published on Mar 29, 2016 at 2:40 PM
Updated on Mar 29, 2016 at 2:43 PM

Transocean LTD (NYSE:RIG) is tumbling today -- down 3.9% at $8.95, and the second biggest loser on the S&P 500 Index (SPX) -- as crumbling oil prices pressure energy stocks. In RIG's options pits, meanwhile, put volume is running at two times the average intraday pace, although not all of the day's activity is of the traditional bearish variety.

In fact, RIG's two most active options are the April 8 and 8.50 put, where more than 31,000 contracts have collectively crossed the tape. According to Trade-Alert, it appears as if both strikes are being sold to open -- a theory data from the International Securities Exchange (ISE) echoes for the lower strike. By selling to open the puts, traders are betting on the respective strikes to serve as a foothold for the shares through the close on Friday, April 15 -- when front-month options expire.

Widening the scope reveals put writing has been a popular strategy in RIG's options pits of late. In fact, over the past 10 sessions, traders at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have sold to open 1.90 puts for each one they've bought.

Now appears to be a prime time to sell premium on RIG, as opposed to buy it. Not only does the stock's Schaeffer's Volatility Index (SVI) of 75% rest in the 61st annual percentile, but its 30-day at-the-money implied volatility of 77% sits above 82% of all comparable readings taken in the past year. Summing it all up, premium on RIG's near-term options is pricing in relatively lofty volatility expectations.

Technically, today's negative price action just echoes RIG's longer-term trajectory, with the shares off more than 59% from their May 14 annual high of $21.90. However, the shares of Transocean LTD (NYSE:RIG) have only breached the $8 level on two occasions in intraday trading during this time frame (Feb. 24 and 25), and earlier hit an intraday low at exactly $8.50.

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