Options Activity for RIG, Wednesday, June 09, 2010
Transocean Ltd. (RIG)
As if the ongoing drama in the Gulf of Mexico – and reports of another possible oil spill in the region – weren't enough to sate the skeptics, Goldman Sachs today fueled the bearish bias toward beleaguered drilling diva Transocean Ltd. (RIG). More specifically, the brokerage house slashed its earnings guidance and ratings on a slew of offshore drillers, downgrading its outlook on RIG to "neutral" from "buy."
Furthermore, the firm predicted the current six-month moratorium on drilling – which impacts an estimated 20% of global capacity – to be extended to 12 months, and cautioned investors to expect "limited activity" on the rigs until 2012. In light of the downbeat forecast, the shares of RIG have tapped a new 18-month nadir of $44.05 in intraday activity.
Unsurprisingly, RIG has seen a significant spike in put demand today, with roughly 52,000 puts exchanged so far – nearly triple its predicted single-session volume. In fact, the stock has even attracted a few short-term bulls, with more than 53,000 calls traded – nearly double its expected daily activity.
On the put side of the tape, RIG's out-of-the-money August 40 put has attracted the most attention, with 8,700 contracts exchanged. However, while 95% of the puts crossed the tape at the ask price – suggesting they were likely bought – the back-month strike already harbors nearly 12,000 calls outstanding. In other words, we can't yet tell how much of today's activity will actually translate into fresh bearish bets.
Meanwhile, the equity's out-of-the-money June 50 call has been most popular on the other side of the options aisle, with 13,770 contracts traded so far – the majority of which have traded at the ask price. Plus, with fewer than 7,500 calls docked at the round-number strike, it's safe to assume that at least a healthy portion of the June 50 calls will translate into new bullish positions on RIG.
In fact, despite the stock's recent pounding on the charts, RIG probably has more bullish fans than you'd think. The stock's put/call open interest ratio implies that calls more than double puts among options slated to expire within three months.
Furthermore, this ratio registers in the eighth annual percentile, indicating that short-term speculators have been more optimistically aligned toward RIG only 8% of the time during the past year.
What's more, the options crowd isn't the only group still aboard RIG's bullish bandwagon. According to Zacks, the equity still harbors a whopping 15 "strong buys" and four "buy" ratings, compared to 11 lukewarm "holds" and only a single "sell." In the same vein, Thomson Reuters deems the consensus 12-month price target on the security at a lofty $96.41 – more than double RIG's new low of $44.05.
Technically speaking, it's been a rough ride for RIG recently, with the shares surrendering more than 50% since mid-April. Guiding the stock into the red has been staunch resistance at its 10-day and 20-day moving averages, which previously acted as support.
Plus, from a longer-term perspective, the security is attempting to establish a foothold in the $45 neighborhood. This region acted as support in early 2005, and contained RIG's pullback in late 2008.
In conclusion, should RIG fail to find an ally in the $45 region, the stock's remaining bulls could hit the exits. An unwinding of optimism among the options crowd, or another round of negative analyst attention, could exacerbate the shares' recent slide.
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