NEW YORK, Oct 27 (Reuters) - Traders who had placed bullish bets on some of Brazil’s biggest companies ahead of the country’s presidential elections hastened to cut losses on Monday, a day after leftist Dilma Rousseff won a second term.
President Dilma Rousseff’s narrow re-election victory over pro-business rival Aecio Neves on Sunday sent the U.S.-listed shares of Brazilian companies sharply lower on Monday as investors remained skeptical about her ability to turn around a troubled economy.
Activity in the options market showed investors were rushing to protect against further losses and cut bullish bets.
The iShares MSCI Brazil index fund fell about 6 percent to $39.94, bringing the past month’s losses to 16 percent.
U.S.-listed shares of Petroleo Brasileiro, or Petrobras, fell 15 percent to $11, with more than 100 million shares traded, making it the most active stock on major U.S. exchanges Monday. Banco Santander was the second most active, falling 3 percent, with 77 million shares traded.
“The late election expectation on Friday were pretty convincing that Rousseff was going to win so I was a little surprised that we sold off as hard as we did,” said Adam Perlaky, chief strategist at New York-based broker New Albion Partners LLC.
Polls late last week showed Rousseff with a lead of several points over Neves, though Brazilian companies’ U.S. shares rallied on Friday, the last day of trading before the election.
Options on the Brazil index fund and the oil company were among the most actively traded names in the U.S. market on Monday, according to Livevol Inc data.
“Option traders have been active at the market open, dumping bullish plays and positioning for a dour economic outlook,” Andrew Wilkinson, chief market analyst at Interactive Brokers LLC, said in a note.
EWZ call options that were deep out of the money, with strike prices far above the current share price, were among the most actively traded options on the ETF. This was a tell-tale sign that former bulls were throwing in the towel, said Wilkinson.
EWZ calls at the $50 strike price and expiring on Jan. 17 and Nov. 22 were the most active, and traded 30,144 and 19,914 times respectively, according to Thomson Reuters data.
The $50 strike calls expiring in January were trading at 6 cents, down 81 cents and those expiring in November were at 3 cents, down 70 cents, according to Thomson Reuters data.
Several U.S.-listed shares were among the most actively traded stocks on Monday, including Vale SA, and Itau Unibanco.
EWZ 3-month premiums are trading at the lowest levels since mid-June, and one-year option implied volatility has fallen to levels last seen in early September, BGC Partners Inc equity derivatives strategist Jared Woodard said in a note.
With the uncertainty of the presidential election out of the way the CBOE Brazil ETF Volatility Index fell 48 percent to 30.20 on Monday. (Reporting by Saqib Iqbal Ahmed; Editing by Richard Chang)