Shares of oil giant Petroleo Brasiliero (PBR) are up 48 percent in the past year thanks to strong energy prices. One trader sees a further rally in the coming weeks.
That’s based on the November 11 $17 calls. With 18 days until expiration, 19,365 contracts traded compared to a prior open interest of 218, for an 89-fold jump in volume on the trade. The buyer of the calls paid $0.66 to get in.
Shares recently traded near $15.50, so they’d need to rise about 10 percent, or $1.50, for the option to move in-the-money. That would also leave the stock setting a new 52-week high above its old one of $16.30.
The oil company has been performing well, with revenue up 54 percent in the past year, and earnings up 27 percent. Shares are also cheap, as the stock trades at 3 times current earnings, and 4 times forward earnings.
Action to take: Shares are certainly inexpensive enough to move higher. And the stock largely moves on the price action in the energy markets, which are likely to remain strong here. The company also pays out sizeable dividends, although on a somewhat irregular basis and subject to the relative value of the Brazilian real compared to the US dollar.
For traders, the calls are a solid play on higher energy prices in the coming weeks. If oil prices jump, these options should to. If not, however, these options could bleed out a bit quickly. So traders should look for a quick and modest gain here before moving on to the next trade.
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.