Brazilian markets are running higher, and yesterday an investor placed a big vote of confidence in the nation’s most important stock.
A large put sale occurred in Petrobras (PBR) minutes after the opening bell. The transaction was unusually bullish, looking for the energy giant to push higher through the end of the summer.
The trade involved the sale of over 11,000 September 17 puts for $1.13. Overall volume in the strike was more than 14 times previous open interest, which indicates a new position was initiated.
Put selling is a neutral-to-bullish strategy that generates income from a stock closing above a certain level. Thursday’s trade was atypical because the $17 price in question was higher than PBR’s price at the time. That suggests the investor expects not just stabilization, but also a move higher. See our Knowledge Center.
PBR rose 2.52 percent to $16.69 yesterday, its highest close since April. It’s been trapped in its current range for more than a year.
Two potentially positive things may be happening at the same time for the company. First, Brazil’s new pro-business government is finally getting traction on a major pension overhaul that could help restore investor confidence in the country. Second, oil has clawed its way back above $60 as inventories wane.
Here’s a little more detail on the options transaction. Notice that the puts sold have -0.51 delta. That means they’ll lose $0.51 for every $1 that PBR climbs. Given the investor sold the contracts, he or she would make that money if the shares rise.
In fact, the strategy doesn’t even need a rally to turn a profit. Because they collected $1.13 of premium, the trader will enjoy a positive return as long as the stock closes above $15.87 on September 20. They face the risk of significant losses below that price.
In conclusion, Brazil’s most actively traded stock has drifted aimlessly for a while. But now someone’s placing a big wager on a move to the upside.