Puts Pop as Transocean LTD (RIG) Bucks Bullish Oil Action

Transocean LTD (NYSE:RIG) is sinking, after the company received an early termination notice

Oct 3, 2016 at 3:06 PM
facebook twitter linkedin


Even with oil prices surging -- November-dated crude futures were last seen up 1.4% at $48.90 per barrel -- energy stock Transocean LTD (NYSE:RIG) is down 7.4% at $9.87, staring down stiff historical headwinds. Diving deeper, an early termination notice from Reliance Industries for the Discoverer India has sent RIG stock back into single-digit territory -- and has sparked a rare surge in put volume in Transocean's options pits.

At last check, roughly 15,000 RIG puts had changed hands -- 1.5 times the average intraday pace -- compared to about 13,000 calls. Most active is the stock's October 10.50 put, where it looks like the options are being sold. However, it's not clear at the moment whether speculators are opening or closing positions.

From a wider sentiment perspective, though, options traders have shown a clear preference for long calls over puts in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), RIG's 10-day call/put volume ratio of 1.98 ranks in the 71st annual percentile. In other words, calls have been bought to open over puts at a faster-than-usual clip.

More specifically, RIG's October 11.50 call has seen the biggest rise in open interest over this time frame, with more than 10,800 contracts added. According to the major options exchanges, a healthy portion of this activity has been of the buy-to-open kind, meaning traders are eyeing a breakout above $11.50 by the time the options expire at the close on Friday, Oct. 21.

With more than 28% of the stock's float sold short, though, some of this recent call buying -- particularly at out-of-the-money strikes -- is likely a result of short sellers hedging against any unexpected upside. And while Transocean LTD (NYSE:RIG) has lately rebounded off its most recent lows near $8.80, the stock remains a long-term laggard, down 33% year-over-year.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.
 

  

These investors are using the market's volatility to their advantage and scoring triple-digit gains on many of their trades.

Even in today's sideways bear market, this trading strategy has continued to provide consistency and profitability to a small group of investors. By using this approach, these traders are removing directional risk and still hitting triple-digit returns. If you want access to this strategy, and lower risk with higher returns sounds good to you, then don't wait another minute.

Join us now to receive our next trades the moment they come out!

 

Common mistakes options traders make
 


 


 
Special Offers from Schaeffer's Trading Partners