Wednesday Options Brief: RIG, COH, RDC & BID

Includes: BID, RDC, RIG, TPR
by: Interactive Brokers

Transocean, Ltd. (NYSE:RIG) Shares of the international provider of offshore contract drilling services for oil and gas wells are trending higher this afternoon, keeping up with rallies enjoyed by a number of other industry players today. Transocean’s shares increased as much as 5.3% during the session to secure an intraday high of $53.71. The rally attracted options players to rig up near-term and longer-term bullish positions in order to prepare for shares to extend gains going forward. Investors eyeing upside potential through expiration day this morning picked up at least 1,000 calls at the September $55 strike at an average premium of $1.15 apiece. Traders long the calls make money if RIG’s shares rally another 4.5% over today’s high of $53.71 to trade above the average breakeven price of $56.16 by expiration day. Optimism spread to the January 2011 $60 strike where bulls bought roughly 1,500 calls for an average premium of $3.35 a-pop. Investors holding these contracts start to amass profits if Transocean’s shares surge 17.95% to surpass the average breakeven point to the upside at $63.35. Finally, uber-bulls scooped up another 1,800 calls at the higher January 2011 $70 strike by shelling out an average premium of $1.26 each. Traders stand ready to profit should RIG’s shares jump 32.675% to trade above $71.26 by expiration day in January.

Coach, Inc. (COH)The retailer of high-end handbags and accessories realized a more than 5.05% increase in the price of its shares today to pin down an intraday high of $37.66. Despite the substantial rally in Coach’s shares options traders are purchasing put options on the stock. Put buying has been a popular trading strategy as of late and has occurred repeatedly in recent weeks. It looks like the majority of today’s options action on Coach is the work of longer-term pessimists wary of the potential for shares to reverse course ahead of February expiration. Put players picked up roughly 5,300 puts at the February 2011 $37 strike for premium of $4.00 each. Investors buying these contracts may be building up downside protection on a long position in the underlying stock. In this scenario, protection kicks in if Coach’s shares slip beneath the effective breakeven price of $33.00 ahead of expiration day in February. Alternatively, the put purchasers could be initiating outright bearish bets because they expect the handbag maker’s shares to trade at a significantly lower price in the next six months. Investors buying puts outright stand ready to make money if shares of the underlying plunge 12.4% lower to trade below $33.00 by expiration.

Rowan Companies, Inc. (NYSE:RDC)The provider of international and domestic contract drilling services attracted near-term bullish options investors this morning with the value of its shares rallying as much as 9.2% to an intraday high of $28.17. Shares in Rowan and other offshore drilling stocks are up sharply along with a 3% up-tick in oil and a 4.4% increase in the Offshore Drilling Stocks Index following the release of better-than-expected U.S. manufacturing data for the month of August. Bullish players honed in on September $28 strike calls, purchasing approximately 2,100 contracts for an average premium of $0.79 a-pop. Investors long the calls are poised to profit should Rowan’s shares exceed $28.79 ahead of expiration day this month. Shares may have also been helped higher this morning by news RDC signed a 3-year contract with Saudi Arabia’s state-owned national oil company, Saudi Aramco, for two rigs.

Sotheby’s Holdings, Inc. (NYSE:BID) Shares of the auctioneer of authenticated fine art, antiques, decorative art, jewelry and collectibles shot up 7.05% in the first half of the session to touch an intraday high of $28.49. Investors expecting the price of the underlying stock to continue to appreciate through October expiration initiated bullish positions on the stock today. Plain-vanilla call buying took place at the October $30 strike where approximately 1,700 calls were picked up at an average premium of $1.35 apiece. Traders holding these contracts make money if the auctioneer’s shares rally another 10% to surpass the average breakeven price of $31.35 by expiration day in October.