Bullish Options Active as RIG Stock Sinks to New Lifetime Low – Schaeffers Research (blog)

Offshore driller Transocean Ltd (NYSE:RIG) is trading down 4.1% at $7.59 this afternoon, as oil services stocks take a beating across the board. The VanEck Vectors Oil Services ETF (NYSEARCA:OIH) has slipped 1.3% to $22.07 after today’s crude inventories report showed domestic production jumping to a two-year high, which effectively overshadowed a deeper-than-forecast drawdown in oil stockpiles. Against this bleak technical and fundamental backdrop, however, at least one options trader is eyeing a comeback for RIG.

As we approach the closing bell, RIG call volume is running at roughly double the usual intraday level. Just shy of 23,700 calls have traded so far — an amount that registers in the 93rd annual percentile of all daily readings for RIG, according to Trade-Alert. The vast majority of the action has taken place at the stock’s overhead September 8 call, where 15,189 contracts have crossed the tape.

The top RIG options trade of the day was a block of 11,896 contracts at this strike, which were exchanged at the ask price of $0.37 in morning action. With only 1,970 contracts in open interest at the September 8 call as of this morning, it’s safe to say new calls are being purchased here in today’s trading.

Traders buying RIG’s September 8 call are betting on a short-term rally in the shares. Based on the ask price of $0.37 for that big block trade, the breakeven point at expiration would be $8.37 — more than 10% above the stock’s current price.

The skew toward bullish bets is nothing new for Transocean stock, though. The equity’s Schaeffer’s put/call open interest ratio (SOIR) of 0.56 reveals that calls nearly double puts among options set to expire within three months, and it ranks below 100% of comparable daily readings from the past year — pointing to an extreme preference for short-term calls over puts.

That said, some of these RIG call players could simply be shorts looking to hedge their bets. Short interest accounts for a formidable 16.7% of the stock’s float, which means there are plenty of bears betting on further downside. But with RIG shares down by nearly 50% year-to-date — and fresh off their latest record low of $7.52, set earlier in the session — shorts may be buying call options to lock in some paper profits, or protect against a possible short-term rebound.

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