Shares of oil and gas giant Petroleo Brasileiro (PBR) are up 38 percent in the past year thanks to strong global energy prices. One trader sees a decline in the coming weeks.
That’s based on the September 30 $12.50 puts. With 18 days until expiration, 29,427 contracts traded compared to a prior open interest of 199, for a staggering 148-fold rise in volume on the trade. The buyer of the puts paid $0.29.
Shares recently traded just over $13.50, so they would need to drop $1.00, or about 8 percent, for the option to move in-the-money. The strike price also leaves shares well off their 52-week low of $9.20 per share.
Oil prices have been in a downswing in recent weeks, on fears of a slowing global economy. The price drop has even continued as OPEC has announced production cuts, which would usually lead to a rise in oil.
Action to take: After a quick move higher from the $11 range in prior weeks, a pullback to the $12 range looks reasonable. Interested investors may want to wait for a drop to the low $12 range before they consider picking up shares.
For traders, the put options are inexpensive, although they don’t have much time to play out. Traders can likely nab a quick mid-double-digit return on the puts in the coming days.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.