Petrobras puts and calls in play as shares drop after Q4 earnings

Today’s tickers: PBR, PLX & XLF

PBR - Petrobras SA – Options on Petrobras are more active than usual this morning, with shares in the state-run Brazilian oil producer down more than 7.0% on the day to stand at a new 52-week low of $16.74 as of 10:45 a.m. ET. The stock dropped after the company reported fourth-quarter EBITDA that declined in the period, missing analyst expectations, and said it will lower dividend payments to shareholders. Trading traffic in PBR options is mixed, as some traders position for shares to weaken further, while others bet on a near-term rebound in the price of the underlying. Fresh interest in weekly puts is greatest at the Feb. 08 ’13 $16.5 strike where upwards of 4,100 lots have changed hands against one contract in open interest. Time and sales data suggests most of the puts were purchased at an average premium of $0.22 apiece, thus positioning buyers to profit at expiration this week should PBR’s shares settle below the average breakeven price of $16.28. The Feb. 08 ’13 $17 strike puts are also in play, with around 2,000 in-the-money puts purchased in the early going for an average premium of $0.45 each. Meanwhile, weekly call buyers snapping up Feb. 08 ’13 $17 and $17.5 strike calls at average premiums of $0.15 and $0.05 each, respectively, may profit at expiration in the event that Petrobras shares rebound by the end of the week. Similar strategies appear to be in play across the Feb. 15 ’13 expiration call and put options, as well as in the March expiry options contracts. Traders bracing for shares to move sharply lower paid an average premium of $0.09 per contract to buy around 380 of the Mar. $14 strike puts. These contracts make money if shares in the oil producer plunge 17% from the current price of $16.74 to trade south of $13.91 by March expiration.

PLX - Protalix Biotherapeutics, Inc. – Upside calls on biopharmaceutical company, Protalix Biotherapeutics, are changing hands this morning, with shares in the name up better than 21% on the day at $6.49 as of 12:35 p.m. ET. The stock is soaring on reports the company has hired Citigroup to help explore strategic options. Traders positioning for shares to extend gains picked up a few hundred call options at the Feb. $6.0 and $7.0 strikes at average premiums of $0.53 and $0.22 apiece, respectively. Traders long the calls may profit if shares continue to climb during the next eight trading sessions remaining to February expiration. Interestingly, some traders appear to have purchased bullish options on Protalix yesterday afternoon. These well-timed trades have in some cases jumped substantially in value overnight. It looks like traders picked up around 130 of the Mar. $5.0 strike calls yesterday for an average premium of $0.64 each, and bought around 250 of the Mar. $6.0 strike calls on Monday at an average premium of $0.18 each. Today, premium on the $5.0 strike calls has more than doubled to $1.50 each, while the $6.0 strike calls have increased five-fold in value to $0.90 as of 12:50 p.m. in New York trading.

XLF - Financial Select Sector ETF – A sizable put spread initiated on the XLF this morning looks for shares in the ETF to pull back during the next few months. Shares in the Financial Select Sector SPDR ETF, up 7.0% year-to-date and more than 20% since this time last year, trade 0.90% higher on the session at $17.57 as of 11:30 a.m. in New York. One large options market participant may benefit from limited declines in financial stocks by April expiration. The strategist appears to have purchased a 96,000-lot April $16/$17 put spread for a net premium of $0.215 each. The trade makes money if shares in the XLF decline 4.5% from the current price of $17.57 to breach the breakeven point at $16.785, with maximum potential profits of $0.785 available on the spread given a 9.0% dip in shares to $16.00 by April expiration. Shares in the XLF last traded below $16.00 on December 14th.