IB Options Brief: Transocean Ltd. (RIG) & Sprint Nextel Corp. (S)
Options Strategists Rig Up Bearish Plays On Transocean
RIG ñ Transocean Ltd.
Activity in near-term put options on the provider of offshore drilling services suggests some investors expect shares in Transocean to head further South in the next few weeks. RIGís shares are currently down 2.00% to stand at $78.67 in early-afternoon trade. The stock is down 8.5% off its 11-month high of $85.98 set on March 3, 2011.
Investors piled into put options in the front month, scooping up the contracts at deep out-of-the-money strike prices as low as the April $65 strike. Bearish players purchased around 1,400 of the April $80 strike put options at an average premium of $3.11 each. Put buying spread to the lower April $75 strike, the most heavily trafficked strike thus far in the session, to secure 2,800 puts for an average premium of $1.26 a-pop.
More than 4,000 puts changed hands at the April $70 strike on paltry previously existing open interest of just 162 contracts. It looks like the majority of the contracts were purchased at an average premium of $0.41 each. Finally, two-way traffic drove volume at the April $65 strike price up to 2,860 contracts this afternoon. Overall options volume on RIG has topped 33,000 contracts as of 1:35pm on the final trading day of the week.
S ñ Sprint Nextel Corp.
A massive stock and options combination play on Sprint Nextel Corp. today appears to be the work of an investor looking for shares in the communications company to shift higher ahead of May expiration. Shares in Sprint are continuing to improve today, up 2.2% at $4.66 as of 12:35pm in New York.
The stock took a beating earlier this week after AT&T announced plans to merge with T-Mobile, but has since been on the mend. We observed a number of bullish options plays on Sprint this week, and today seems to be no exception.
It looks like one strategist purchased 50,000 in-the-money calls at the May $4.5 strike for a premium of $0.37 apiece, and sold 2,850,000 shares of the underlying at $4.56 each, on a 0.57 delta. The delta-neutral transaction bolsters what is likely this traderís bet on continued bullish movement in the price of Sprintís shares ahead of May expiration.
The sale of the stock protects him to the downside in the event of any unforeseen exogenous shock to the market that sends shares in the name sharply lower, while the massive long call position is beneficial in the event that shares rally higher. Sprintís shares were trading as high as $5.26 on March 18, 2011.
Note: The material presented in this commentary is provided forinformational purposes only and is based upon information that isconsidered to be reliable. However, neither Interactive Brokers LLC norits affiliates warrant its completeness, accuracy or adequacy and itshould not be relied upon as such. Neither IB nor its affiliates areresponsible for any errors or omissions or for results obtained from theuse of this information. Past performance is not necessarily indicativeof future results.
This material is not intended as an offer or solicitation for thepurchase or sale of any security or other financial instrument.Securities or other financial instruments mentioned in this material arenot suitable for all investors. Any opinions expressed herein are givenin good faith, are subject to change without notice, and are onlycorrect as of the stated date of their issue. The information containedherein does not constitute advice on the tax consequences of making anyparticular investment decision. This material does not take into accountyour particular investment objectives, financial situations or needsand is not intended as a recommendation to you of any particularsecurities, financial instruments or strategies. Before investing, youshould consider whether it is suitable for your particular circumstancesand, as necessary, seek professional advice.
View Andrew Wilkinson's post archive >