Options Alert: Mega Call Spreads Target Historic Level in Brazilian Energy Stock


For the second session in a row, options traders targeted a key level in South American oil driller Petrobras.

Check out this large bullish call spread Monday in Rio De Janeiro-based PBR:

  • A block of 40,000 January 14 calls was purchased for $0.50.
  • An equal number of January 17 calls was sold for $0.21.

Calls fix the price where investors can buy a security. Traders can also sell them to collect premium. A vertical spread combines the two, using the credit to reduce the overall cost. That, in turn can result in greater leverage if the stock rallies.

Yesterday’s trade, for example, cost $0.29 and could increase by 934 percent if PBR climbs 42 percent by expiration early next year.

The transaction follows a similar bullish spread on Friday. That transaction included the purchase of 59,000 November 14 calls for $0.42 and the sale of 59,000 November 17s for $0.07. It had a net cost of $0.35, with the potential for a 757 percent return.

Petrobras (PBR), weekly chart, showing $17 level.

It could be noteworthy that both strategies would achieve maximum profits at $17. That’s near several weekly highs in 2018 and 2019, which could make some chart watchers view it as potentially key resistance. (They’ll also expire worthless if PBR stays under $14.)

The stock rose 6.27 percent to $12.37 yesterday, but has lost almost one-quarter of its value since late May. The company, part owned by the Brazilian government, recently faced political uncertainty as President Jair Bolsonaro removed its former CEO. But with Caio Mario Paes de Andrade officially elected a month ago, investors could have more confidence in the company.

They may also view it as a value play because TradeStation data shows PBR trading for about 5 times earnings. That’s less than one-third the multiples for Exxon Mobil (XOM) and Chevron (CVX).

Overall options volume in PBR was 4 times greater than the monthly average, according to TradeStation data. Calls accounted for a bullish 83 percent of the total.

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