Tuesday, October 11, 2011

Trade Idea: Petroleo Brasileiro ($PBR) - Bullish

*Options Activity

    • Chart at right shows last 10 days and the large call:put volume starting on 10/3 aligns with the chart and a bottom being put in
    • 10/10 - 41% of the options volume was seen as Bullish

*Chart Analysis

  • Currently trading at the top trend line of a falling wedge. A break above would put us out of this pattern. Notes are on chart detailing the volume & potential break of a double bottom. Investors Business Daily method wants a break 0.10 cents above the peak of the double bottom with volume 40% greater than average (50 sma).

*Fundamental Analysis
*courtesy of FINVIZ

  • Value traders can see why this stock has put in a potential bottom as the valuation is cheap & attractive, taking note to
    • Trailing/Forward P/E
    • PEG (Price to Earnings Growth)
    • Price to Sales
    • Price to Book

*Contributing Factors - why I chose $PBR over others

  • As mentioned above I collaborated the blog posts from @chessNwine & @ZorTrades.  The post from @chessNwine alerted me to the stock so I looked at others in the industry and related industry.  
  • I then went to WhatsTrading.com and searched the industry to see what stocks were showing large options volume being bought on the Ask.
    • Filtered these down to see what had a large bias towards Bullish sentiment vs Neutral or Bearish
  • I then remembered the article from @ZorTrades.  While the time frames or exact criteria may not line up I wanted to look for a stock that has not participated in this rally as much as the others.  Going back to the 9/19 close I was looking for one that needed to "catch up".
* Summary

  • PBR fit my criteria as it was beaten down, lagging the industry.  Fundamentally was a value and technically was due for some basing followed by breakout or breakout in itself.  Also the options activity showed that big buyers were interested.  While there were others that look appealing and would watch as they displayed some of the same criteria ($COP, $APA, $PXP), I chose to go with $PBR.

*Option Strategies

  • Long November 22-26-27 Call Butterfly @ 1.80 (requires $286.00)
    • Like this for max gain around 26, which is a resistance level
      • This is where the January calls were sold
    • Small exposure to Theta & Vega 
    • Above 27 resistance point returns +40%

  • Long November/October 23-25 Call Diagonal @ 1.60
    • More of a short-term play concentrating on a pin to 25 resistance at October expiration for a +55% return
    • Could roll this one if still bullish after October Expiration

  • Long January 2012 25 Call @1.50
    • More of a long term outlook as this is the same expiration month that the trader sold 7000 26 calls
    • Greatest delta exposure with the less max loss


  1. I think if the Brazilian government doesn't steal all profits this is a tremendous deal. I am looking at furthering my long calls for 2013 or 2014 when they are expected to have increased their output by 50% to what they do now.

  2. Yes political news was something that I did not take into account for this analysis but your opinion definitely supports the bullish stance. Thanks.