Options Trading News

February 26, 2014  Wed 11:24 AM CT

A large trader is combining stock and options to create a volatility play in Petrobras.

The strategy involved 8,300 October 11 puts that were bought in one print for $1.29 on a wide bid/ask spread today, according to optionMONSTER's Depth Charge tracking system. This is clearly a new position, as the strike's previous open interest was a mere 21 contracts.

Less than a minute later, the biggest block of PBR stock traded with 365,200 shares going for $11.17. The combined trading creates a delta-neutral position that is focused on changes in volatility, not on the direction of the stock's price. Some traders choose to target volatility because they believe that it is easier to predict, especially around quarterly results. (See our Education section)

PBR is down another 1.68 percent to $11.14 this afternoon, a day after trading as high as $11.84 when earnings were released. The Brazilian energy giant was up at $18 in November but hit a 52-week low of $10.63 in the first week of the month.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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