Transocean (RIG) - Stock and Volatility Implode, But Order Flow Bets Huge to Upside in Short-term

RIG is trading $47.31 up 0.7% with IV30™ up small. The Symbol Summary is included below.


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Transocean Ltd. (Transocean) is an international provider of offshore contract drilling services for oil and gas wells. The Company operates in two segments: contract drilling services and drilling management services.

This is a stock, volatility and order flow note -- all three of which are noteworthy phenomena.

Let's start with the Charts Tab (two-years) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

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On the stock side we can see the price has gone from $39.14 to now $47.31 over two-years, or about a 20% appreciation.  But oh my how the chart has had its bumps.  I have highlighted the five large stock moves up over the last two-years, each of which was followed by a large stock move down.

Looking to the most recent move (the far right of the chart), we can see RIG went from $44.38 on 10-9-2013 to $55.37 on 11-11-2013 or a 25% pop in less than a month.  The stock now however is trading at $47.31, so almost all of that gain has been lost, again in about a month.

So, we see crazy stock moves, but the implied volatility would tell you a totally different story. Let's turn to the IV30™ chart in isolation, below.

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What we see here is rather than a steady state of risk reflected by the option market (or even increasing risk), a declining risk.  In fact, a hugely declining risk where the IV30™ has dipped from ~50% to now below 23%.  Huh?...

There's more to the volatility story, but this part makes sense. The Skew Tab snap (below) illustrates the vols by strike by month.

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We can see that RIG sewis parabolic, that is, it reflects both upside and downside risk equally.  This skew shape makes sense given the stock's movement over the last two-years, but is certainly not "normal" skew.

To read more about skew, what is and why it exists you can click the title below:
Understanding Option Skew -- What it is and Why it Exists.

Finally, the Options Tab is included below.

Provided by Livevol

Here's where the order flow part if the note comes in.  Check out the open interest (OI) in the Jan 52.5 calls.  It stands at 36,211.  As far as I can tell, that's larger than any strike and any option (call or put) in the entire option chain.  And ore interesting... those calls look like long interest.  This could very well be a bet that RIG follows its same pattern after a drop, which is a rather significant pop in the relatively short-term.  We'll see...

This is a great one to watch...

This is trade analysis, not a recommendation.

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