Market Insights

Petrobras has been rallying, and options traders could be following the move.

Heavy call volumes were detected yesterday in the Brazilian oil driller. Two contracts were especially active:

• The January 22 calls traded early in the session for $1.40. Premiums rose as the stock climbed, reaching $1.53 by the afternoon. Volume exceeded 31,000 contracts, almost quadruple open interest at that strike. Most of the blocks priced closer to the ask price than the bid, which suggests they were bought.
• More than 25,000 June 20 calls changed hands as well. Premiums rose from $0.84 to $1.08. Turnover was more than 5 times open interest. Their pricing was also consistent with buying.

Calls fix the price where a security can be purchased. They can appreciate when shares climb, giving investors leverage compared with the underlying security. Calls can also expire worthless if the stock never reaches the strike price.

Petrobras (PBR), daily chart, with select patterns and indicators.

PBR rose 5.6 percent to $18.99, its highest closing price in more than 11 years. The stock is up 60 percent this year, following gains in the broader energy sector. Some investors have also identified PBR as a value stock because it trades at about 5 times earnings. The 8 percent dividend yield is also higher than most other large companies.

Wednesday’s call volume was the most in over a year and accounted for 78 percent of the total, according to TradeStation data. Total options activity was more than triple the daily average.

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