OPTIONS REPORT: Ensco Sees Elevated Activity

23rd Jun 2010 20:45

By Donna Kardos Yesalavich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Option activity was elevated in Ensco PLC (ESV) Wednesday, with traders taking on modestly bullish positions in the offshore driller despite a drop in its shares and across the drilling sector amid the uncertainty of the Obama administration's deepwater drilling moratorium. Investors gravitated toward September calls that convey the right to buy Ensco's American depositary shares for $40, paying $2.85 for positions that make money if the stock rises above $42.85 before Sept. 17. There was also increased activity in September calls that provide the right to buy Ensco's American depositary shares for $50, which are priced at 40 cents and turn a profit if the stock rises above $50.40. Ensco's American depositary shares were down 3.2% recently at $38.41. The options activity in the September calls appeared to involve a trader buying the $40 calls and selling the $50 calls, said Michael Khouw, director of equity derivatives at Cantor Fitzgerald. "It's bullish with a view that you want to own the $40 strike and you're mitigating the expense of it by selling the $50s against it," Khouw said. "I would call it a bullish trade but it's a hedged bullish trade." The action came despite Johnson Rice cutting its investment rating on Ensco's shares to equal weight from overweight, citing the U.S. government's deepwater drilling moratorium among other things that could lead to lower earnings. The downgrade follows a cut to Ensco's investment rating from J.P. Morgan earlier this month. Wednesday, U.S. Interior Secretary Ken Salazar, who had imposed a six-month ban on deepwater drilling in the U.S. in response to a vast BP PLC (BP) oil spill, told lawmakers Wednesday that he would take a look at issuing a new, scaled-back moratorium in the "weeks and months ahead." His comments came one day after a federal judge in New Orleans struck down the six-month deepwater-drilling ban, saying the Obama administration's policy went too far and was damaging the economy. The ruling threw the Obama administration policy into disarray. White House spokesman Robert Gibbs said the administration would "immediately appeal." As investors anticipated a legal wrangling between the industry and the White House, shares of most drillers have fallen in recent days. Ensco is now off 5.6% for the week. Among other affected drillers, Noble fell 2.4% Wednesday, while Pride International dropped 2.8% and Diamond Offshore Drilling decreased 0.6%. However, none of those stocks had options activity as pronounced and bullish as that in Ensco Wednesday. -By Donna Kardos Yesalavich, Dow Jones Newswires; 212-416-2188; [email protected] (END) Dow Jones Newswires June 23, 2010 15:45 ET (19:45 GMT)