Bullish bets on Brazilian companies as pro-business candidate makes runoff
By Saqib Iqbal Ahmed
NEW YORK (Reuters) - U.S. options market bulls rushed to some of the biggest Brazilian companies on Monday, a day after pro-business Brazilian presidential candidate Aecio Neves' surprisingly strong showing in the first-round election vote.
Brazilian financial markets rallied after the centrist senator's strong finish in Sunday's election, setting the stage for what is expected to be a tight runoff against leftist President Dilma Rousseff.
Neves will now face Rousseff in the second-round runoff on Oct. 26.
Of late, the ups and downs in the heavily traded Brazil iShares ETF, oil giant Petrobras, and other top Brazilian companies listed in the United States have been driven more by presidential polls than company fundamentals.
The iShares MSCI Brazil index fund EWZ.P, which lost 18 percent of its value in September, surged on the results and rose 6.3 percent to $46.13 on Monday.
U.S.-listed shares of big Brazilian companies also rose on Monday, led by oil company Petroleo Brasileiro, or Petrobras, (PETR4.SA: Cotización) (PBR.N: Cotización). Petrobras shares jumped 13 percent to $15.80 on Monday.
While options market activity in EWZ was mixed on Monday with calls outnumbering puts by a ratio of 1.1:1, some of the bigger Brazilian companies - long pressured by the prospect of leftist Rousseff winning another term - showed bullish bets.
Wide moves in the EWZ may be far from done, though. The cost of an EWZ straddle, a strategy in which an investor buys an at-the-money put option and a similar call option, rose in a bet on volatility. This suggests a further move of about 15 percent in either direction in the shares by the end of October. Continuación...