Skepticism Picks Up as Transocean Prepares for Earnings

The energy name will report third-quarter earnings after next Monday's close

It's been a relatively quiet stretch for Transocean LTD (NYSE:RIG), per the stock's 30-day historical volatility of 50.3%, which registers in the tame 35th annual percentile. However, that could all change after the offshore drilling contractor steps in the earnings confessional after the market closes this Monday, Oct. 28, with RIG options pricing in a bigger-than-usual reaction for the oil stock.

Specifically, Trade-Alert currently puts the implied earnings deviation for RIG at 9.1%, wider than the 5.3% next-day move the shares have averaged over the past two years. Just two of those last eight earnings reactions have been big enough to meet or exceed what the options market is expecting this time around -- an 11.4% pop in July, and a 10.7% plunge in April.

Options traders appear to be betting on a post-earnings move to the downside. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), RIG's 10-day put/call volume ratio of 0.64 ranks in the 90th annual percentile, meaning puts have been bought to open relative to calls at a quicker-than-usual clip.

Echoing this is Transocean's Schaeffer's put/call open interest ratio (SOIR) of 1.49, which sits above 93% of all comparable readings taken over the last year. In other words, speculators are more put-skewed than usual among options set to expire in three months or less.

There's plenty of skepticism to be found outside of the options pits, too. While six of 11 analysts maintain a "hold" or "strong sell" rating on RIG stock, a healthy 11% of the equity's available float is controlled by short sellers.

Looking at the energy stock's technical backdrop, though, it's no surprise to see so much pessimism priced in. Transocean shares have been trending lower over the last 12 months, down 58.2%. Plus, the security's rebound attempt off its mid-August record low of $3.76 was quickly halted by its 120-day moving average, while RIG's 40-day trendline has more recently emerged as a stiff ceiling. Today, the equity is up 1.7% to trade at $4.70.