Friday, February 4, 2011

Petroleo Brasileiro (PBR) - Depressed Earnings Vol and Order Flow

PBR is trading $37.92, down 1.4% with IV30™ up 0.4%. The LIVEVOL™ Pro Summary is below.


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Petroleo Brasileiro S.A. (Petrobras) is an integrated oil and gas company. The Company operates in five segments: exploration and production; refining, transportation and marketing; distribution; gas and power, and international.

Having said that, when I hear the name called out on the floor, I think of peanut butter. Mmm, peanut butter... I'm just sayin'...

The company has traded over 59,000 contracts on total daily average option volume of 53,764. A large trade crossed the tape that Darren Story of Student Options alerted me to:
"PBR cust bought the apr 36/34 ps to sell the apr 41c collected .20 2500x"

In English, someone bought the Apr 34/36 put spread and sold the Apr 41 calls to fund it, collected $0.20 in total and did it 2,500 times. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that all the legs traded smaller than OI.

The actual prices that went up were:
Apr 34 put sold @ $0.62
Apr 36 put bought for $1.20
Apr 41 call sold @ $0.78
I've included the PnL chart on Apr expo for this trade below.

The Skew Tab snap (below) illustrates the vols by strike by month.

Don't let your eyes deceive you, the vol difference between Feb (no earnings release) and Mar (with an earnings release) is just 1 point. Hmm...

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

On the last two earnings cycles PBR has dropped pretty hard, but it was a few days after the release. This is another bet on that type of move. Also, we can see the IV30™ is actually depressed relative to the realized short-term and long-term vols. So, this is a bet on another earnings move and it gets to purchase cheapish vol to the downside and funds that with a call sale. Tricky...

Possible Trades to Analyze
1. Sell Feb and buy the depressed earnings vol in March
Sell the Feb 36/40 strangle
Buy the Mar 36/40 strangle

2. Just bet to the downside (like the order flow)
Do the Feb/Mar 37 put spread

3. A touch riskier:
Do #2, but also sell the Mar 33 puts @ $0.20. Note, this is naked downside until Feb expo.

This is trade analysis, not a recommendation.

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