One investor is going against the herd by getting long Brazilian
lender Banco Bradesco.
BBD has been staggering in a range since the spring, falling from
$18 to below $14. Yesterday it closed in the midpoint at $16 even,
down 2.14 percent on the session.
The option trade consisted of selling 1,500 December 14 puts for
$0.30 and buying 3,000 December 18 calls for $0.21. Volume exceeded
open interest at both strikes, indicating that new money was put to
locks in the price where the investor can buy BBD while selling
puts generated income to finance partially the calls.
also requires him or her on the hook to buy the stock for $14 if it
closes below that price on expiration, so the trader is
double-leveraged to the upside. (See our
Implied volatility was 52 percent in the puts versus 34 percent in
the calls, indicating that the market sees much more downside risk
than upside potential in the name. Yesterday's strategy took the
other side of that perception, using the fear to pay for a long
The trader now stands to generate major leverage on a push to the
upside because he or she owns as many calls as the number of puts
sold. The transaction pushed total option volume in BBD to almost
triple the normal amount, according to our data systems.
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