Transocean LTD (RIG) is boasting a number of bottoming signs that suggest a pop might just be in the offing.
Bottom fishing in the energy patch has been a frustrating — and costly — endeavor. And once again, oil stocks seem to be slip sliding into the abyss.
And yet, surprisingly, a few energy stocks — including RIG stock — look tempting here.
Whether we’re seeing a longer-term low being established remains to be seen. You never really know until after the fact anyway. But in the short run, things look promising for RIG stock and a tactical bullish play is worth consideration.
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For starters, Transocean has held tough over the past week even though its sector has been rolling over. That, my friends, is some good old fashion relative strength. The recent RIG stock price rally has been sufficient in carrying Transocean shares back above their 50-day moving average — a spot they haven’t seen for three months.
Buyers also have shown up in increasing numbers. Accumulation days have multiplied over the past month, showing elevated aggression by the big boys in snatching up shares of RIG stock.
Naked Puts in RIG Stock
Should the good times keep rolling, Transocean’s stock price could continue climbing toward the 200-day moving average, which represents a healthy 12% rise from its current perch.
Given its gut-wrenching whoops and whirls of late, option prices for RIG remain juiced. Let’s just say that option writers are receiving compensation aplenty for selling their wares. The cheaper price tag of RIG stock is keeping the margin requirement for short option plays relatively low as well.
Sell the Oct $13 put for 66 cents. Consider it a bet that Transocean’s stock price remains above $13 for the next month.
The max reward is limited to the initial 66 cents and will be pocketed provided the put expires out of the money money. That type of reward might not sound like a lot, but if your margin requirement is around $200, you’re still looking at about a 33% return on investment.
By selling the put, you obligate yourself to buy 100 shares of RIG stock at $13. If you prefer to avoid assignment, simply buy back the put if it sits in the money at expiration.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
