Transocean Option Volume
Transocean’s (RIG) stock option volume was off-the-chart yesterday. Transocean is in the offshore oil and gas service business. Transocean operates deepwater rigs for drilling oil and gas wells.
Transocean is the big dog in its market segment and its competitors include Noble (NE), Diamond Offshore (DO), Nabors International (NBR) and Pride International (PDE).
Share Repurchase
A majority of yesterday’s stock option volume is most likely related to Transocean’s recent announcement that the company’s board of directors approved a significant stock repurchase and is also seeking to provide a dividend on the order of $3 per share. The dividend will require shareholder approval.
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The share repurchase, potential dividend and attractive P/E (Price-to-Earnings) ratio should act to provide support for the company’s stock price.
Stock Price
Transocean’s stock price has been in a trading range from $80 to $95 over the last several months and is currently near the lower end of the trading range and also near its lower Bollinger Band. The company’s stock price is well off of its two-year high around $160.
Transocean’s revenue and earnings have held up fairly well considering the current economic environment, but a large reason for this is Transocean’s benefiting from lucrative contracts negotiated prior to the economic malaise. On a postive note, Transocean has been awarded contracts for ultra-deepwater drilling over the last several months.
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Covered Call
With Transocean’s share repurchase, a recovering global economy and its strong competitive position, the company looks attractive. A covered call investing position looks attractive and writing a covered calls position for the March 85 call option has a potential return of 3.5%. A profit/loss graph for this position is shown below:
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To enter the covered call investing position an investor would purchase the stocks in multiples of 100 shares for their trading portfolio and sell one call option for each 100 shares of stock purchased for their personal stock portfolio.
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[tags] DO, Diamond Offshore Drilling Inc., NBR, Nabors Indus. Inc., NE, Noble Drilling Corp., PDE, Pride Intl. Inc., RIG, Transocean Offshore Inc. [/tags]