Shares of offshore oil and gas equipment company Transocean (RIG) are down about 30 percent in the past year, even as energy prices have been rising. One trader sees the potential for a further decline in shares in the next 11 months.
That’s based on the May 2023 $1.50 puts. With 308 days until expiration, 15,308 contracts traded compared to a prior open interest of 104, for a massive 147-fold rise in volume on the trade. The buyer of the puts paid $0.25 to make the trade.
With share around $2.70, the stock would need to lose $1.20, or over 40 percent, for the option to move in-the-money. The stock is already near a 52-week low of $2.63.
With oil producers wary of overproducing right now, and given the company’s extensive leverage, there’s a good argument for shares to head lower in the coming months.
Action to take: Investors in the energy space can fare better with an income-producing name like one of the major oil producers at this time. As long as oil producers are limiting production, demand for offshore facilities will remain limited.
For traders, the puts look like an inexpensive way to bet on a further decline in oil prices in the coming months. Add in the company’s high leverage, and the low cost of the option, and traders can likely earn high double-digit returns in the options and take profits well before they expire.
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.