Petroleo Brasileiro Petrobras Bears See More Trouble Ahead

Petroleo Brasileiro Petrobras SA's (ADR) (PBR) May 5 put is popular today

Mar 27, 2015 at 2:09 PM
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Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) is down 0.4% at $5.77 this afternoon, as crude oil retreats amid easing tensions in the Middle East. Options traders are responding in kind, with puts trading at 1.2 times the expected intraday rate, and outpacing calls by a more than 2-to-1 margin.

Most active is PBR's May 5 put, where 9,511 contracts have crossed the tape. It appears some of these positions are being bought to open for a volume-weighted average price (VWAP) of $0.30, making at-expiration breakeven for the put buyers $4.70 (strike less VWAP) -- a new 11-year low for PBR. Should the shares be sitting north of the strike at the close on Friday, May 15 -- when back-month options expire -- the most the speculators stand to lose is 100% of the premium paid.

Today's accelerated put activity is nothing new for the stock. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), PBR's 50-day put/call volume ratio of 0.58 ranks in the 89th annual percentile. Just two weeks ago, in fact, traders were rolling the dice on the stock to hit even lower lows over the next several weeks.

What's more, that same day, PBR bottomed at an 11-year low of $4.90. Longer term, the shares have surrendered 72% since hitting an annual high of $20.94 in early September, amid increasing pressure from their 40-day moving average. Off the charts, Petroleo Brasileiro Petrobras SA (NYSE:PBR) announced it has nominated Vale SA (NYSE:VALE) CEO Murilo Ferreira to head its board. Additionally, the company has cut off payments to Brazil engineering firm Galvao Engenharia -- which has filed for bankruptcy protection -- amid its ongoing corruption scandal.

Daily Chart of PBR Since September 2014 With 40-Day Moving Average
 

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