Call Volume Gushes Ahead of Transocean Earnings

by Joseph Hargett | May 2, 2012 9:18 am

Options traders have taken a keen interest in Transocean (NYSE:RIG[1]) calls ahead of the company’s second-quarter earnings report this afternoon.

For the record, Transocean is expected to post a profit of 32 cents per share for the period, compared to a profit of 54 cents per share in the same quarter last year. The company is on poor footing when it comes to earnings, missing the consensus estimate by an average of 37% in each of the prior four reporting periods.

The whisper number appears to be taking its cues from the Transocean’s poor track record, arriving at just 29 cents per share.

That said, options traders appear hopeful that Transocean will turn things around in the second quarter. On Tuesday, RIG saw call volume of roughly 9,500 contracts, compared to put volume of just 4,200 contracts. The result is a bullishly skewed single-session put/call volume ratio of 0.44. In other words, call volume has more than doubled put volume heading into the event.

The most active strike yesterday was the out-of-the-money RIG May 52.50 call, where 3,081 contracts traded on open interest of 10,961 contracts. These calls ended Tuesday with a bid of 94 cents and an ask of 96 cents. The RIG weekly May 52.50 call also saw notable volume, with 2,875 contracts trading on open interest of 1,257 contracts. This weekly option finished Tuesday with a bid of 34 cents and an ask of 37 cents.

Year-to-date, RIG shares have added more than 31%. However, the stock has followed the market lower since the middle of March, with RIG breaching former support at its 200-day moving average. That said, the stock might be ready to rebound, as the shares appear to be forming a base in the $50 region.

With expectations low for Transocean’s quarterly report, the company has a good chance of finally offering a positive surprise. Those traders looking to jump on the bullish bandwagon might want to consider a May 50/55 bull call spread. This trade was last offered at $1.70, or $170 per pair of contracts. Breakeven lies at $51.70, while a maximum profit of $3.30, or $330 per pair of contract, can be had if RIG closes at or above $55 when May options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

Endnotes:
  1. RIG: http://studio-5.financialcontent.com/investplace/quote?Symbol=RIG

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