Options Traders Place Fresh Bets On Spiraling Seadrill Ltd (SDRL) Stock

"Complex" restructuring talks drop Seadrill Ltd (NYSE:SDRL)

Jan 31, 2017 at 3:14 PM
facebook X logo linkedin


Shares of Seadrill Ltd (NYSE:SDRL) are trading down 28.4% at $1.90 -- on the short-sale restricted list -- after the offshore drilling operator said restructuring talks are proving to be "more complex than ... originally anticipated." Additionally, the company is looking to raise at least $1 billion in new capital. Against this backdrop, speculators are flooding SDRL's options pits, and with 54,081 contracts on the tape, volume is trading at four times the average intraday rate.

In a change of pace, calls are edging out puts, with 27,392 of the former and 26,752 of the latter exchanged so far. Two of the most active contracts are SDRL's January 2018 2- and 3.50-strike calls, where it looks as if new positions are being purchased. While the expectation of "vanilla" call buyers would be for SDRL to rally back above the strikes over the next 12 months, it's likely some of the activity at these out-of-the-money strikes is a result of short sellers hedging against any upside risk. In fact, SDRL is a heavily shorted stock, with 26% of its float dedicated to these bearish bets.

In fact, the withstanding trend in SDRL's options pits has been toward puts. Among all SDRL options, more than 526,000 puts are currently outstanding, compared to 273,908 calls. Narrowing the scope to focus on the front three-months' series of options just highlights this put-bias. Specifically, SDRL's Schaeffer's put/call open interest ratio (SOIR) of 2.36 ranks in the 98th percentile of its annual range. In other words, short-term options traders have rarely been as put-heavy toward the stock as they are now.

In the past two weeks, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 3.45 puts for every call. What's more, this ratio ranks just 7 percentage points from a 52-week peak, indicating puts have been bought to open over calls at a near-annual-high clip. Today, although calls have a rare lead over puts, short-term traders are purchasing new positions at SDRL's March 2 put -- bracing for additional losses for the energy stock over the next several weeks.

Looking at the charts, today's negative price action is nothing new for SDRL. Since topping out at a record peak north of $48 in September 2013, the shares have lost 96%. More recently, the stock's rally off its late-2016 double-bottom in the $1.85-$2.00 region was quickly rejected by SDRL's 80-week moving average -- a trendline that served as resistance in late 2013 and mid-2014.

SDRL weekly since july 2013

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.
 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

Rainmaker Ads CGI