Embrace the Strength in RIG Stock With Naked Puts

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Tuesday’s stock swoon was a bloodbath to be sure, but not all equities fell victim to the bears’ wrath. A select few were able to stand strong in the face of wave after wave of selling.

Transocean (RIG) was a bastion of strength sheltering shareholders from losses. Maybe it was a one-off event. Maybe a bout of randomness kept RIG stock afloat. Or maybe the driller is so beaten up that sellers are simply exhausted.

Regardless, the bulls have wrested control of Transocean, and RIG stock has one of the better looking price charts in the market these days. While the long-term trend of RIG — along with the entire energy sector — remains a wreck, things have turned decisively positive in the short run.

The recent rally was sufficient to carry RIG above both its 20-day and 50-day moving averages. A pair of higher pivot highs and higher pivot lows have materialized ushering in a full-fledged uptrend.

The current pullback in RIG stock is providing a nice little dip buying opportunity for those looking for further upside.

rig-stock

Source: OptionsAnalytix

On the options front, implied volatility is perched near the upper end of its one-year range, making option premiums quite pricey. And why shouldn’t they be? The action in RIG has been incredibly volatile. If you’re willing to step up and sell options, the compensation is very lucrative here.

Short RIG Puts for Profits

The cheap price tag of RIG stock coupled with pumped up option premiums is creating an attractive naked put opportunity. If you’re willing to bet RIG stock price remains above $13 for the next month, sell the October $13 put for 50 cents.

The max reward is limited to the initial 50 cent credit and will be captured if the put expires out-of-the-money. By selling the put, you obligate yourself to buy 100 shares of stock at $13. To avoid assignment, you can simply exit if RIG stock price sits below $13 prior to expiration.

If your broker holds aside 15% of the stock price as margin required for the short put you’re looking at an initial cost of around $220 in cost. By scoring $50 (50 cents x 100) of income on a $220 initial cost, the naked put is offering an oh-so-juicy 22% return.

At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/09/big-payday-awaits-rig-stock/.

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