RIG/Tshroy - I love them down here, have to stop myself from turning it into a massive position (just in case I'm wrong). Frankly, had I not been burned by GTAQ last year, I would be very heavy on RIG, as I think it's ridiculously cheap here.
With RIG, the 2017 $8 puts can be sold for $1.70 for net $6.30 if put to you (62% off the current price). That's a great stand-alone or you can pare it with the 2017 $10/15 bull call spread at $2.50 and that's net 0.80 on the $5 spread and your worst case is owning 1x of RIG at net $8.80 (about half off).
On the other hand, they pay a $3 dividend and just paid the 0.75 quarterly on 11/20 and gave no indication they'd be cutting it. That means you can sell those same puts for $1.70, buy the stock for $16.25 and sell the 2017 $10 calls for $7.75 and that nets you in for $6.80/7.40 so your worst case here is 2x at $7.40 BUT, you collect $3 a year in dividends which drives your net down to 0.80/4.40.
If this one works out and you end up with the stock at 0.80, those $3 dividends will give you an ANNUAL 375% return on your capital outlay!
That's what I call a TOP TRADE IDEA!
Reminder:
- Transocean (RIG +0.2%) is the top investment pick at Zephirin Group, which cites its expectations for the offshore drilling services company to consistently continue to deliver much stronger free cash flow than competitors such as Sell-rated Seadrill (SDRL +1.7%) and Diamond Offshore (DO -0.8%).
- The firm says it is "an incredible slight" for Moody’s to consider a downgrade of RIG debt now or through 2017, as "the backlog that is due in 2015 is ~$5.8B and $13.4B thereafter, which in our opinion fully covered the company’s debt payment."
