Put-Trading Action in Transocean (NYSE: RIG)

Oil from Deepwater Horizon The Deepwater Horizon continues to leak oil into the Gulf of Mexico, but the rightful owner of the sunken rig, Transocean RIG, which leased the vessel to BP plc BP, actually managed to book a $270 million profit from insurance claims after the disaster, according to Sunday’s New York Times.

RIG had the Deepwater Horizon insured for more than it was actually worth and according to Transocean, cleanup costs will not be their responsibility, but will rather be absorbed by BP along with Anadarko Petroleum and Mitsui, who are minor partners in the rig.

Crude prices were higher in intraday trading yesterday, and oil prices tend to be highly correlated to RIG stock. So why was BP virtually unchanged on the day and RIG traded 2.5% lower? The insurance data seemed like a big positive for RIG, but the stock slowly trended lower on Monday after hitting an intraday high of almost $70.00 out of the gate. RIG closed the session at $65.92.

In addition to the move lower in the stock, we also saw some options traders make what looked like bearish bets in the drilling giant. It is important to note that volume was fairly heavy in both the puts and the calls across several months Monday morning. Some of the trades we saw crossing the tape in RIG yesterday were the:

January 2012 35 puts – likely a buyer
August 70 puts – also likely a buyer
August 50/80 risk reversal – the investor appears to be buying the 50 put and selling the 80 call

This is just a small portion of the overall trades that took place on Monday. Volatility came in sharply, not only in RIG, but across the broad market. The CBOE Market Volatility Index (VIX) dropped almost 25% to the 31 vol level.

I thought the price action and the options trades were interesting given the seemingly positive news out on Transocean yesterday. Why was RIG down and BP flat? When you dig a bit deeper, the Wall Street Journal noted some spotty safety history at Transocean. Perhaps investors are concerned with the outcome of an investigation into the cause of the explosion and/or pending lawsuits. This is certainly a dicey situation for both companies and potential investors should exercise caution when looking to invest dollars into either company.

For its part, BP has indicated that the spill has cost them more than $350 million thus far.

Photo Credit: uscglantareapa

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