Big Money’s Buying Into This Energy Name

Hey Traders,

If you joined us for yesterday’s Capitol Gains live trading event, you probably recall one specific energy company that Andrew and Frank and having quite a bit of luck trading right now …

Of course, they’re not the only ones.

On Monday, this energy stock got hit with some mega Big Money buying …

Here’s what happened.

Blue Ribbon Energy

Petroleo Brasileiro (Ticker: PBR), more commonly known as Petrobras, is a state-owned Brazilian petrol company with assets in 16 countries around the world.

As you can see from PBR’s one-year daily chart, the shares have been relatively stable as of late, for the most pat sidewinding within the $10 range over the last few months.

Interestingly, both PBR’s 10-day and 20-day historical volatility are higher than its 30-day implied volatility, suggesting that options traders are pricing in lower movement expectations than what PBR has actually been producing.

And to add to the intrigue, PBR’s 30-day implied volatility is currently near an annual low …

… Even with PBR slated to release earnings this Thursday.

Looking at the last three earnings reports, PBR typically sees at least a small IV spike ahead of its report, so to have the IV sitting so low so close to earnings is a bit of an anomaly.

Which might help partially explain why PBR got absolutely HAMMERED by Big Money traders on Monday.

Spending Big Money On PBR

Now, optimal options pricing may have played a part in this Big Money attention, but what probably drew the most attention were comments from controversial Brazilian President Jair Bolsonaro, where he indicated that the government may be looking to privatize PBR, which is currently state-owned.

You can see on Monday the shares gapped higher to start the day, and continued to climb, though they retreated just a bit on Tuesday.

Of course, these comments come as Bolsonaro is embroiled with accusations of human rights violations and nepotism, and may even be looking at an ousting …

We’re also looking at a potential global energy crisis, with demand outpacing production, and green initiatives requiring dirty energy to be put into place.

In other words, it’s the perfect storm for a Brazilian energy stock …

And Big Money wasn’t shy about hopping aboard.

We saw HUGE trading on the PBR 11-strike calls — specifically, the October 29 term, which happens to expire one day after PBR reports earnings.

The largest trades to cross the tape were one block of 37,500 contracts of the October 29 11-strike call purchased for $0.18 — or a $675,000 total outlay.

Just 45 minutes later, another block of 27,500 of the same October 11-strike call contracts were purchased for $0.17 — another $467,500 outlay.

Is this a case of Big Money following Big Money, or one institutional investor doubling down?

There was also a trade of 25,000 contracts of the November 5 11-strike calls purchased for $0.22 ($550,000 total).

Now, it is interesting to notice that all of these trades were made between 10:45 a.m. ET and 12:15 a.m. ET.

Look at this intraday graph of PBR:

Chart courtesy Stockcharts

All of these bets were placed with PBR trading around $10.40 …

And by the end of the day, PBR had already risen to $10.71.

I’m telling you … Big Money knows things!

Of course, Big Money isn’t the only one who has been making some smart moves on PBR.

Our very own Andrew Giovinazzi and Frank Gregory opened a trade on the Brazilian petrol stock last week, and it’s working out quite nicely …

They opened a strangle with the December 11-strike calls and 9-strike puts.

So far, they’ve closed out of 60% of their put position for a +100% gain …

And if Big Money’s big interest is right, those December-dated 11-strike calls should play out quite nicely …

There’s something to be said for trading even ahead of Big Money, if you can manage it!

You can find out more about what else they’re watching right here.

Your Only Option,

Mark Sebastian

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