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Expect Transocean (NYSE:RIG) to Keep Going Down

by | published April 30th, 2010

Here’s a quick profit opportunity for today…

The oil spill in the Gulf of Mexico involves three companies directly accessible to individual investors: Transocean Ltd. (NYSE:RIG), the operator of the sunken rig; BP (NYSE:BP), the owner; and Anadarko Petroleum Corp. (NYSE:APC), a minority partner in the drilling venture.

All three will experience further downside pressure. But RIG is most directly feeling the impact.

The company is about to announce Q1 results (May 6th), but is currently down 10% in the spill aftermath. The signal here is the spread between May and June put and call options.

Overall, current crude oil market call options are exceeding put options by more than 2 to 1. The May and June option spread implies volatility at 59, against a 26-week average of 35. The RIG May out-of-the-money $80 calls have a volatility of 55. And the May $60 put out-of-the-money volatility is 68.

The volatility here implies that while crude prices will be going up, RIG’s stock has considerable downside pressure.

I put current projected resistance at $72.75 and support at $68.25. So adjust puts and calls accordingly.

Kent

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