A couple of weeks ago I started to notice something suspicious for Transocean (RIG) in terms of spikes in certain options volume as well as spikes in volume in its bond pricing along with its bond swaps (Put Options for Bonds). As the weeks go by my suspicion came to fruition so I'd like to take this opportunity to share my observations with everyone and at the same time show a good example of a breakdown of how a typical hedge fund employs their shorting strategy against a traditional company, in this case Transocean (RIG).

I will do my best to dumb everything down since I know some of our audience are still eating crayons and sniffing glue.

**The Hedge Fund Play:**

In the middle of 2020, when oil was still trading relatively low, I noticed a large rise in volume of a series of Transocean Debt (Bonds) and also a spike in the volume of bond swaps which I assume was used by hedge funds to hedge their bets. At the same time, I noticed a steady and large rise in shorted Transocean stock, which means a hedge fund or hedge funds were hoping the company would go into bankruptcy like almost all of Transocean's peers in the industry. I know it was hedge funds because most institutional investment funds are not allowed to short due to how they are regulated.

Based on the volume movement and price action of trading of Transocean debt and its swaps, it looks like a hedge fund was primarily concentrated in a strategy of bankruptcy restructure arbitrage which means if Transocean does go into bankruptcy they can make more money in the bankruptcy restructure since Transocean's secondary offerings were at the time, traded well under their true book value (Sort of like Gordon Gekko with Blue Star Airlines in the movie Wallstreet). The problem with this was Transocean's extremely competent management choosing to put up a fight.

To take advantage of market conditions, Transocean hires Lazard Freres & Co. to help them restructure a good amount of their debt without going into bankruptcy which they did. As a result, a Hedge Fund called White Box Advisors (WBA) revealed itself and rallied a couple of other bond holders and took Transocean to court claiming that Transocean technically went into default when it proceeded with the debt restructure. Lazard backed up Transocean to reassure that Transocean did not go into default and everything Transocean did was legal and well within the requirements for its shareholders.

I was actually able to go over court transcripts and from the looks of it, it was primarily Transocean's lawyers arguing and going into details in court. WBA's lawyers were relatively quiet in comparison and from the outside, it is just too obvious that they didn't really have a real case. So this just looks like it was put on just for a show for the investors.

Over the next few months, numerous short ladder attacks were conducted on Transocean stock back up by coordinated continuous random spike in numerous bear articles focusing on the lawsuit and repetitive same bear information from a number of freelance writers primarily on Seeking Alpha and others doing everything they can to drive the price of Transocean's stocks down.

Keep in mind that whoever bought those bond swaps earlier essentially bought put options on Transocean's bonds. Most Bond prices do correlate well to the direction of its stock's prices, so whoever owned them was winning on the front of bearish investor sentiment with the lowest being October. Finally, market forces prevailed overlooking the BS and in December, the court officially ruled against WBA and then threw the case out of court. Astonishly the bearish articles on Seeking Alpha and other sites just suddenly disappeared as well which looked like the shorters exited their bear positions and stopped paying for the bear promotions.

In the months that followed, Transocean stock has consistently been going up just following its natural course since the company is doing so well and the price of oil has been going up as well. What a way to end 2020 and start 2021.

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[RIG](https://preview.redd.it/eghbkjl3nzp61.png?width=1000&format=png&auto=webp&s=e84565866abc86314337836e1206d4000161a934)

**Industry and Company Background:**

Without going into too much detail on who Transocean is and how they do business since most of that you can find that yourself on Google, but the abstract is Transocean is in the business of providing offshore oil drilling services for oil companies. Like most energy companies, they got hit pretty hard during the pandemic with oil falling to new lows due to Covid-19 lockdown measures and general overall fall in demand.

As a result, almost all of Transocean's direct competitors have filed for bankruptcy so Transocean remains the 800 pound gorilla with currently the largest, newest, and most efficient fleet to service the offshore oil drilling industry. But unlike their competitors, Transocean's territory exposure is global so they are not concentrated on only one geographic location (eg. Gulf coast) and most importantly RIG has a $7.8 Billion work backlog with a 75% penalty for any cancellations (none of their competitors are in the same position). What this means is that RIG has currently more work then they can handle if any of their oil clients were to cancel their contract, the client would have to pay Transocean the cash penalty of 75% of the project's value to Transocean. This is why even with very little new contracts in middle 2020, the company still had a steady revenue stream until more new contracts showed up and were added into their backlog later in the year.

Of course in early 2021 the demand for oil accelerated and Transocean is winning more new contracts around the world. Some analysts argue that some of the new contract day rates were lower as compared to before but if you look more closely at the trend of their day rates of the contracts, they are consistently rising over the past few months. So they probably gave some discounts in the initial recovery to build up their contract momentum which is expected and seems to be working.

With the up-trending price recovery of oil for the past months due to Biden's tough stance on American oil companies affecting supply, OPEC+ continuing tightening of supply, and a continuous rise in demand for oil due to economies reopening around the world results in continuous price increases with many high profile analysts even expecting $100 a barrel by the end of the year.

Out of that rise, offshore oil is still heavily demanded by oil companies. The reason for this is that offshore oil is extremely predictable as compared to other drilling methods when it comes to how much oil is in the well, the price to pull it out, and volumes on how much the company can consistently pull out. Like every major corporation, large oil corporations have to diversify their oil portfolios so that is why there will always be new contracts for offshore drilling of oil.

Compared to shale fracking which is what most oil companies employ in the US, offshore oil is significantly cheaper and less volatile in cost and is less affected by regulations since there are offshore wells around the world with the most increase in South America and Norway in the past couple of months. The biggest problem with offshore oil drilling is that offshore wells take years to develop, this is why oil companies were still signing new contracts with Transocean in 2020 when oil prices were relatively low since they know it would pay off in the long run and who knows what the price of oil will be when the well is operational in 1-3 years.

From a fundamental standpoint, Transocean is in a good position. It has enough cash to last years on top of their loan revolvers which they have not tapped. As per Yahoo finance, RIG's Book Value per share is $18.58 per share, well above the current stock price. Competitively, they are also in a great position as some of their competitors coming out of bankruptcy have low cash balances and lack of loan revolvers available to expand or develop their fleets.

The biggest problem with the competitors coming out of bankruptcy which Transocean highlighted in one of their recent earnings calls is that it scares the clients, since the clients will be signing contracts that would last years, they would prefer to work with companies that offer more reliability and stability, and as mentioned Transocean is the only one. RIG's management is second to none, they kept their shareholders' interests a priority and even refused to do a reverse split when their stock was under $1 and consistently focused on reducing their debt levels and to take advantage of market opportunities. New contracts are consistently flowing in, business is getting better and that is why RIG has been gradually going back up over the past couple of months and supported as well by the continuous rise of oil.

**Recently - New Play:**

A couple of weeks ago ago, I started to notice a steady climb in shorted shares and also spikes in volume of bond swaps as per my Bloomberg terminal. There were also large spikes of large batches of Put options contracts purchased at mid day (They didn't even try to hide it). At first I thought it was because of the price of oil going back down due to lockdown measures which part of it was but after building several models analyzing and comparing past oil price decline, the results didn't match up. When oil pricing started to go back last week due to the Suez Canal being blocked, it confirmed my theory as there was a rise in bear positions but it wasn't primarily because of the fall in oil prices.

My research did conclude that someone big was starting to short the stock again. And then late last week, I discovered that White Box Advisors just refiled their suit against Transocean again in Appeals Court claiming this time that the Judge who ruled against them "used a legal standard that wasn't applicable." Some legal and industry analysts have already examined the appeal and agree the appeal is BS. Could it be a coincidence that spiking short positions on Transocean and WBA's involvement conveniently looked like the appeal was announced after a hedge fund secured those bear positions and it worked because when the news came out Transocean stock started to go down again. What a play.

The goal of this post is to create awareness and showcase the manipulation by hedge funds. Time and time again hedge funds have employed the same strategies to try to beat good companies down for their own profit and there is no indication that their practice is pulling back. If the hedge fund who shorted Transocean is the same one from back in 2020 and attempts to use the same strategy to try to push Transocean stock down, we should start to see an uprising in bear articles against Transocean soon especially highlighting the appeal and different bear articles especially from Seeking Alpha repeating the same bear content from different third-tier writers since this as we know is in the hedgies arsenal even against GME and AMC stock.

This time around it is going to be harder for that hedge fund to do it on RIG for the simple fact that oil prices will start to go up since economies are opening around that world and systematic risk is now playing against them. Only time will tell what happens next, all I know is I can't wait to see the next official Short interest report for Transocean and perhaps a good bullish opportunity is in sights.

Edit 1: Grammar and Spelling fix