Transocean LTD (RIG: sentiment, chart, options) was a popular target in the options pits on Friday, with both call and put volume surpassing the norm. More specifically, the offshore drilling diva saw about 19,000 calls and 19,000 puts cross the tape – nearly doubling its expected single-session volume of fewer than 9,900 calls and 10,000 puts.
On the call side, the equity's at-the-money February 85 strike garnered the most attention, with 5,900 calls exchanged – 35% of which traded at the ask price, suggesting they were likely bought. Nevertheless, the in-the-money 70 strike remains home to peak call open interest in the front-month series, with almost 16,000 contracts in residence.
On the put side, the stock's February 80 strike was most active, with close to 4,500 puts changing hands – 41% of which crossed at the ask price. The round-number 80 strike has now edged out the in-the-money 90 strike as home to peak put open interest in the February series, with almost 9,100 puts outstanding.
However, while Friday's single-session option activity reveals a similar affinity for RIG puts and calls, the latest data from the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) indicates that traders' preference for puts is picking up steam.
The equity's 10-day put/call volume ratio on the exchanges rests at 1.02, in the 91st annual percentile. In other words, during the past couple of weeks, speculators on the ISE and CBOE have bought to open RIG puts at a much faster pace than usual.
Echoing that sentiment is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.76, which ranks in the 79th annual percentile. This skeptically skewed reading implies that short-term options speculators have been more bearishly biased toward RIG only 21% of the time during the past 52 weeks.
Technically speaking, the shares of RIG flexed some muscle on the charts recently, closing January atop both their 10- and 20-month moving averages for the first time since mid-2008. In fact, this duo of trendlines is on the verge of a bullish cross – which often points to more technical strength on the horizon.
However, despite the stock's technical feat, RIG is still facing a potential hurdle in the round-number $90 region. This neighborhood rejected the security's rally attempts during most of 2006 – 2007, and hasn't been toppled on a monthly closing basis since September 2008.
Nevertheless, unlike option traders – who are mostly skeptical of the stock – analysts have high hopes for RIG. In fact, the security has earned a whopping 20 "strong buys" and three "buy" ratings, according to Zacks, compared to seven lukewarm "holds" and only a single "sell."
Furthermore, the consensus 12-month price target on the equity stands at a lofty $109.12, Thomson Reuters reports – about 15 points above RIG's 52-week high of $94.88, and more than 20 points above RIG's current share price.
In conclusion, should the $90 neighborhood continue to stifle the commodities concern, the bulls in the brokerage bunch could abandon ship. A fresh wave of downgrades and/or price-target reductions could spark added selling pressure on the stock.
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