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Markets

Is it time to buy Brazilian banks?

For the second session in a row yesterday, traders were active in Brazilian banks.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 4,000 December 17 calls in Banco Bradesco for $1.12. Buyers returned to the March 17s later in the afternoon, snapping up 2,000 contracts for $1.38. Volume was more than twice the previous open interest at each strike, which indicates new money was put to work.

These long calls lock in the price where investors can buy shares in the South American lender, allowing them to profit from a rally. They also carry less risk than owning stock because the most that can be lost is the cost of the option if shares drop. (See our Education section)

BBD rose 3.51 percent to $16.81. It jumped along with other Brazilian stocks after polls suggested that incumbent President Dilma Rousseff is losing support with elections looming Oct. 5.

On Monday, buyers targeted the December 19 calls in rival lender Itau Unibanco for $0.25. Those same contracts traded for as much as $0.40 yesterday. Both BBD and ITUB had been rallying and hit multi-year highs earlier in the month before pulling back last week.

Also on Tuesday, 2,000 December 16 puts were sold in BBD for $0.74. The investor will keep that premium as profit if shares remain above the strike through expiration.

Total option volume was 9 times greater than average in the name.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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