Credit: Shutterstock photoTransocean has been skidding lower, and traders are bracing for further losses.
optionMONSTER's Depth Charge monitoring program detected the purchase of 5,000 January 35 puts for $1.27 and the sale of an equal number of January 30 puts for $0.27. Volume surpassed the previous open interest in each strike, which indicates that new money was put to work.
Owning puts lock in the price where a stock can be sold, while selling them obligates the investor to buy if a certain level is reached. Combining the two controls a directional move between two strikes--in this case, $35 and $30. (See our Education section for more on the strategy, known as a vertical spread .)
If the lower price is reached, the position will inflate to $5, a profit of 400 percent based on its $1 entry price. But if the stock falls below that level, the trader will be on the hook to buy shares .
RIG fell 0.13 percent to $38.67 yesterday and is down 22 percent of its value on the year so far. The provider of ocean-drilling services is now back near the same $38 level where it bounced at the start of 2012 and earlier this year. It's made lower highs during the intervening time, which could make some chart watchers expect a major drop if support is broken.
Overall option volume in the name was twice its daily average yesterday, with puts accounting for a bearish 70 percent of the total.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
