Offshore oil and gas drilling supplier Transocean (RIG) is up nearly 50 percent over the past year. However, one trader sees shares declining in the next 15 months.
That’s based on the July 2024 $7.00 puts. With 466 days until expiration, 5,326 contracts traded compared to a prior open interest of 133, for a 40-fold rise in volume on the trade. The buyer of the puts paid $2.05 to make the bearish bet.
Transocean shares recently traded just under $6.50, leaving this option already slightly in-the-money. At its 52-week low, shares traded at just $2.32. At that price, the $7 puts would be worth nearly $4.70.
While shares should generally move with the price of oil, the costs of offshore oil projects requires high sustained oil prices for Transocean shares to move higher. That may not happen, even with the recent announcement of production cuts from OPEC countries.
Action to take: Investors should avoid shares. Given the volatility in the energy space, it may be better to focus on a number of income-producing energy stocks instead of Transocean.
For traders, the July 2024 puts are an inexpensive bet on a big drop in oil prices in the next 15 months. That could be a worthwhile bet, and one that could play out in the span of a few months.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.