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Vote of confidence in Banco Itau

Banco Itau Holding Financeira has been lagging along with most other emerging-market stocks, but one investor thinks a big drop is unlikely for the Brazilian lender.

optionMONSTER's tracking systems detected the sale of 5,000 January 2013 20 puts for $3.10 against no existing open interest. The trade pushed total options volume in the name to 6 times greater than average.

ITUB is down 2.26 percent to $22.68 in afternoon trading. The stock hit an all-time high of $26.30 early last month but has lost 14 percent of its value since then.

Traders often sell puts when they don't know what else to do. The strategy lets them collect premium from the time value in the contracts without needing to spend anything. (See our Education section)

Such trades often appear on names with good fundamentals that investors are willing to own on a steeper pullback. We saw similar activity across the entire market in late August before the indexes started rallying. One such trade was done on another Brazilian name, steelmaker Companhia Siderurgica Nacional, earlier today.

In the case of ITUB, the stock would have to drop 25 percent over the next 25 months for the put seller to lose money.

Given the strength of economic growth and credit expansion in Brazil, the investor probably thinks it has limited downside and after the recent pullback. It also seems to be finding support around the same $22.70 level where it peaked in April and early August, which could give them confidence to sell the puts.

(Chart courtesy of tradeMONSTER)

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

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


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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