Bullish Move on Transocean

CHICAGO (TheStreet) -- Transocean(RIG Quote) is due to report earnings Wednesday ahead of the opening bell.

Analysts expect per-share results of $2.67, 29% lower than a year ago. The February 70 calls have been active today ahead of this report.

Volume on these in-the-money calls has reached nearly 16,000 contracts today. Given that open interest heading into Tuesday's session was 364, these were likely traded to open.

Two blocks, totaling 13,750 contracts, changed hands at 12:34 p.m. EDT, trading at an average price of $18.525. These traded near the ask price, suggesting they were initiated on the buy side. The calls are currently up $1.85 on the day with the stock trading up $1.24. Since options cannot have delta greater than 100, it is evident that call-buying activity is ramping up implied volatility, which is up to 50 for this call.

It's rather interesting that investors are buying these deep in-the-money calls ahead of tomorrow's earnings report. This could be a stock replacement strategy, where the investor is selling the shares outright, but buying the call in case there is further upside.

The maximum risk for a long call is the premium paid (in this example, $18.525 per contract, about $15.50 of which is intrinsic value). In some cases, this can be less of a risk than owning the stock outright.

-- Written by Jud Pyle in Chicago