The share price of offshore driller Transocean (NYSE: RIG) has increased more than 21% to 10.68 in the past week. On the other hand, crude remained weak most of the time last week. The contradicting move is mainly because of the fourth-quarter results and activities in the equity/derivative market, which is discussed below.
The company declared its fiscal 2015 fourth-quarter results in the last week of February. The revenue for the quarter was $1.9 billion, down 17% from $2.2 billion recorded in the fourth quarter of fiscal 2014. The decline in the revenue was mainly due to rig cancellations and a decrease in the rig count (USA) to almost half of what it was a year ago. The fiscal 2015 fourth-quarter net income was $611 million, compared to a net loss of $739 million in the similar period of 2014. The adjusted earnings were 1.05 per share, which was above the analysts’ expectation of $0.65 per share.
On a y-o-y basis, in the fourth quarter of fiscal 2015, through various cost-cutting measures, the company decreased the operating and maintenance costs by 39%.
Furthermore, lower jack-up fleet usage and regular daily revenues from the deepwater and ultra-deepwater floater segments enable the company to negate the tough business scenario. The company’s order backlog has declined 31% from the prior year, but still stands comfortably at $15.5 billion as of February 2016.
Now coming to the actions in the equity and derivative markets, the short interest-to-equity float ratio of the stock is approximately 34%. The ratio measures the short positions in the counter relative to the outstanding number of shares of the company. The short positions have to be eventually closed by buying back the shares in the equity market. When short sellers buy back the shares, the price would generally move up. This is quite true when the shares turn bullish after the company reports better than expected results.
In the derivative market, 10,000 long calls with a strike price of 9 and expiring on April 22nd was bought in the NYSE last week. This implies that big market participants do not expect the price to fall below $9 in the weeks to come. Considering the fact that the company is scheduled to declare its second-quarter earnings on May 4th, 2016, it seems that the market is expecting another set of good results from the company. Thus, considering the above details, it can be understood that fundamentally, it is better to take a long position at this point in time.
Barring few occasions, technically, the stock remains range-bound between 8.50 and 9.80. The stock may rally in expectation of good results, as the chart and indicators reveal. The stock is only a notch below the 50-day moving average of 9.75. Furthermore, the upward inclination of the RSI shows that the uptrend would soon begin in the counter. The next major resistance is at 12.
Thus, considering the technical aspects, it would be better for a binary options trader to execute a one-touch call option contract with a strike price of $12. Considering the implied volatility, the contract should preferably carry an expiry period of one month.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
