Options for Transocean (RIG)
Wall Street is anticipating a profit of $1 per share from the oil and gas services firm, but many are concerned that a slowdown in offshore drilling could negatively impact these results. On the other hand, a surprise could be in the making, as Transocean is seeing higher daily rates. Meanwhile, the company also has confirmed that it will spin off part of its fleet as part of an agreement with billionaire investor Carl Icahn.
Overall, not too many brokerage firms are on board with Transocean’s direction. According to Thomsons/First Call, RIG stock has attracted just six “buy” ratings, compared to 21 “holds” and 11 “sell” ratings. The stock is also trading north of the consensus 12-month price target of $42.
Elsewhere, short interest totals 43 million shares, or 13.8% of the stock’s total float, and RIG’s May/June put/call open interest ratio arrives at an elevated reading of 0.89.
Technically, RIG stock looks top heavy, despite its months-long decline from its November highs near $55 in November. Shares have tried to bounce back, regaining some ground after hitting a low near $38 in March, but resistance near $44 has halted RIG stock once again.
May implieds for RIG stock don’t look very promising, pricing in a potential post-earnings move of only about 4%. This places the upper bound near $44.87, with the lower bound arriving at $41.13.
Options trade: Those looking to trade RIG heading into this week’s earnings report might want to side with the bears on this one by entering a June bear put spread. At last check, the June $40/$43 bear put spread was offered at $1.34, or $134 per pair of contracts. Breakeven lies at $41.66, while a maximum profit of $1.66 is possible if RIG closes at or below $40 when June options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.