Puts have been preferred on Transocean LTD
(NYSE:RIG) in recent months, per data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, the stock's 50-day put/call volume ratio of 0.71 ranks just two percentage points from a 52-week peak, indicating puts have been bought to open over calls at a near annual-high clip during the past 10 weeks.
This penchant for puts is echoed in RIG's Schaeffer's put/call open interest ratio (SOIR) of 0.95, which ranks in the 85th percentile of its annual range. In other words, short-term speculators are more put-heavy than usual toward the stock.
However, calls emerged as the options of choice in yesterday's session, after the morning's better-than-expected earnings results sent the shares almost 5% higher. As of this writing yesterday afternoon, roughly 12,000 calls had crossed the tape, compared to fewer than 9,100 puts. Short-term traders have turned their attention to the November 45-strike call, which has seen around 2,300 contracts change hands. The majority of these have traded at the ask price, volume is outstripping open interest, and implied volatility has moved 3.8 percentage points higher. Summing it all up, it appears new positions were initiated yesterday.
By buying these at-the-money calls to open for a volume-weighted average price of $3.24, traders are expecting RIG to finish above $48.24 (the strike plus the premium paid) by Friday, Nov. 16. Thanks to today's post-earnings rally, this breakeven level is just a stone's throw from the stock's current price.
On a technical basis, RIG's time on the charts has resembled a roller-coaster ride. Although the stock has shed roughly 4% of its value over the past 52 weeks, the shares have added more than 22% since hitting their year-to-date low of $39.32 on June 4.
Given this recent run up the charts, the overriding trend toward puts in the options pits may simply represent shareholders protecting their portfolios against a potential pullback. However, since protective put buyers are shareholders first and foremost, today's pop certainly isn't disappointing.
Meanwhile, should RIG fail to topple the breakeven mark for the November 45-strike call, the most the speculators stand to lose is the initial premium paid.
This article by Karee Venema was originally published on Schaeffer's Investment Research.
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