Offshore oil rig operator Transocean (RIG) is down 65% over the past year, given the high costs of operating offshore and a continued decline in energy prices. One trader sees further weakness into 2027.
That’s based on the January 2027 $2 puts. With 644 days until expiration, 14,184 contracts traded compared to prior open interest of 144, for a 99-fold rise in volume on the trade. The buyer of the puts paid $0.63 to make the bearish bet.
Transocean shares recently traded by about $2.40, so the stock would ed to decline by $0.40, or 17%, for the options to move in-the-money. Transocean recently hit a 52-week low of $1.97 before bouncing higher.
Although Transocean managed to increase revenues by 29% in the past year, the company reported a net loss of over $500 million, and currently sports a -14% profit margin.
Plus, Transocean has over $7 billion in debt backed by a market cap of less than $2 billion, making it highly leveraged here.
Action to take: Investors have better and less leveraged options in the energy sector right now, including plenty of companies with positive cash flow and hefty dividends. Transocean shares could rally in time, but conditions in the energy market are stacked against it.
For traders, the January 2027 $2 puts have plenty of time to play out, and may have some mid-double-digit upside in the coming months from the ongoing trend lower in Transocean shares.
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 company mentioned in this article.