Shares of oil giant Petroleo Brasileiro (PBR) are up 36 percent in the past year thanks to strong energy prices. One trader sees the possibility of a pullback in the coming weeks.
That’s based on the October 21st $14 put option. With 53 days until expiration, 150,545 contracts traded compared to a prior open interest of 4,570, for a 34-fold rise in volume on the trade. The buyer of the puts paid $1.16.
The stock recently traded for about $14.60, so shares would need to fall about $0.60, or just under 5 percent, for the option to move in-the-money. Shares have been prone to some sharp pullbacks throughout the year already, and shares have a 52-week low of $9.20.
Action to take: Any short-term move in shares will be based on a move in oil prices.
The commodity has been trading off its recent highs, and a slowing global outlook suggests prices will continue to trend lower. Investors may want to stay away from shares at their current valuation.
For traders, the puts are an inexpensive way to bet on a lower price in the coming months, which could occur for a number of reasons, including a market selloff.
The trade can potentially deliver mid-to-high double-digit returns in the coming weeks. Traders may want to close out well before expiration to avoid the declining time value of the option.
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.