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May 28, 2013  Tue 3:47 AM CT

RIG: SEE CHART GET CHAIN FIND STRATEGIES
Transocean has been trapped in a range all year, but one trader is betting that the stock will go higher.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 5,000 June 50 calls for $1.97 and the sale of an equal number of June 55 calls for $0.27. Volume was below open interest in the 55s, so there are two possible explanations for the trade.

One is that the had investor previously owned those contracts and is rolling a long-call position to the lower strike, reflecting the drop in the oil-servicing stock. The adjustment cost $1.70 and keeps the calls in a close correlation to the stock price because it increased their delta. (See our Education section)

Alternatively, both halves of the trade may have been done to open new positions. In that case, it is a bullish call spread, also done for a cost of $1.70. The position controls the $5 spread between the two strike prices, translating into a profit of 194 percent on a move to $55.

RIG finished Friday up 0.19 percent to $52.06 and has been snaking in a range for months. Total option volume was more than twice the daily average, with calls outnumbering puts by 8 to 1.
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Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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