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Should Transocean LTD (RIG) Option Traders Be Worried?

Transocean LTD (NYSE:RIG) is trading lower after the company's presentation at the Scotia Howard Weil Energy Conference

Mar 22, 2016 at 10:28 AM
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Transocean LTD (NYSE:RIG) is down 4.9% today at $10.01 to test support at its 40-day moving average, following the company's presentation at the Scotia Howard Weil Energy Conference on Monday. At the event, CEO Jeremy Thigpen said it could be more than three years before the energy company can charge higher rates for its offshore drilling rigs, while adding the next two years could be "tough." Unfortunately, this may not be what some option traders want to hear, as they've been wagering bullishly on the oil-and-gas stock. 

Looking back, the shares have dropped almost 35% in the past 12 months, weighed down recently by negative analyst attention. While put buying has been more popular than call buying on an absolute basis at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), call buying has seen an uptick in popularity, relatively speaking. By the numbers, RIG's 50-day call/put volume ratio across these three exchanges comes in at 0.72, which is an annual high. 

What's more, the stock's Schaeffer's put/call open interest (SOIR) of 1.11 sits below 99% of all other readings from the past year. What this SOIR is telling us, then, is that short-term option traders are more call-skewed on RIG now than at nearly any other point in the past 12 months. 

However, some of this interest in calls may have something to do with Transocean LTD's (NYSE:RIG) elevated short-interest levels. Over 38% of the stock's float is sold short, and it would take almost nine sessions for these bears to cover their positions, at average daily volumes. As such, it's possible short sellers have been using call options to hedge their positions, in the event of an unforeseen pop in RIG shares. 

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