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Transocean Ltd. (NYSE: RIG - option chain) stock is falling today after the company reported a second-quarter profit this morning of $806 million, or $2.49 per share. Excluding one-time items, Transocean earned $2.79 per share on revenue of $2.88 billion, missing analysts' projections of $3.03 per share on revenue of $2.94 billion. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on RIG.
This morning, RIG opened at $77.96. So far today the stock has hit a low of $76.90 and a high of $78.91. As of 11:15, RIG is trading at $77.20, down $3.13 (-3.9%). The chart for RIG looks bullish and S&P gives RIG a positive 5 STARS (out of 5) strong buy ranking.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $90 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in seven weeks as long as RIG is below $90 at September expiration. Transocean would have to rise by more than 16% before we would start to lose money.
RIG hasn't been above $90 since October and shown resistance around $83 recently.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in RIG.
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