Petroleo Brasileiro S.A. - Petrobras (PBR)

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Petrobras Trading Strategy As Brazil Candidates Fire Darts

http://blogs.barrons.com/emergingmarketsdaily/2014/10/17/petrobras-trading-strategy-as-brazil-candidates-fire-darts/?mod=yahoobarrons&ru=yahoo

By Dimitra DeFotis

(l. to r.) Reuters, Associated PressPresidential candidate Aecio Neves, left, and Pres. Dilma Rousseff.
Brazil’s president emerged the winner as candidates deconstructed each others’ characters in the latest televised debate on Thursday.

President Dilma Rousseff has a slight edge after the debate, concludes Mario Marconini at Teneo Intelligence. The character defamation is designed to prompt voters to switch allegiance and otherwise sway undecided voters. The aleged bribery scandal at Petrobras (PBR) reared its head again in the debate. Marconini writes:


“The mutual allegations and denials essentially neutralize one another, causing the odds to be in favor of the candidate with the better showing in the more enduring poll numbers. … First and foremost among these is the approval rating of the president, which continues to be high despite the renewed impetus of the Neves candidacy and the continuous flow of Petrobras news about wrongdoing involving Rousseff’s party, the PT. Latest polls released on 15 October confirmed a technical tie between the two candidates (Neves with 51%, Rousseff with 49% of valid votes) but Rousseff’s government approval rating increased to 40% from 39% while Neves’ rejection rating jumped from 34% to 38% in the space of a week. The third TV debate will take place on Sunday, 19 October. The last TV debate will be two days before the elections on 24 October.”

Shares of Petrobras are up 3% today. The iShares MSCI Brazil Capped ETF(EWZ) is up 2.7%.

Marconini writes:


“The debate, held yesterday 16 October, covered some of the same ground as the first debate but also added new accusations, such as nepotism on the part of the president, new revelations involving the PSDB in the Petrobras case, and even Neves declining a breath test while driving with an expired license in Rio in 2011.”

Eurasia Group also thinks Rousseff can win, with odds of victory at about 60%.

Here are insights on Petrobras options trading, from Interactive Brokers, with the election mind:


Given “a strong performance overnight by Senator Aecio Neves in a televised presidential debate … should he win the election, investors are banking on the prospect of less intervention in state-run companies. Investors paid 29-cents for the call spread using contracts with 20.0 and 22.0 strike prices, buying the lower and selling the higher contracts. While the necessary move required to turn the trade profitable at expiration is large, investors are likely looking for exposure to just some of the move, which could raise the net premium on the trade allowing them to make still decent profits. And the trade plan is not necessarily outlandish even given the relatively short time frame. Not only have shares in Petrobras been buffeted by the wild ride for global stocks this week, but [shares] have also suffered at the hands of a substantial decline in crude oil prices. Investors are predicting that its shares may perform a re-run of the three-week move from mid-August that last lifted its fortunes to a little under $21.00.”