Long Call Options for Petrobras (PBR) Reflects Enthusiasm for Hydrocarbons

With several macroeconomic headwinds pressuring the once-scorching hot hydrocarbon energy sector, many investors appear to be heading for the sidelines. Still, Brazil’s Petrobras (PBR) may be worth keeping on the radar. Although the underlying nation just came out of a bitter election cycle, a deluge of options traders recognizes the net positive implications of PBR stock.

Earlier this year, two factors cynically bolstered the fossil fuel industry: skyrocketing inflation and Russia’s brazen invasion of Ukraine and the belligerent nation’s subsequent blackmailing of key hydrocarbon supplies to Europe. While the latter has no direct impact on the U.S., the action reduced total globally accessible inventories, thus exacerbating already-existent inflation.

However, the Federal Reserve responded throughout this year with aggressive interest rate hikes. Not only that, recent comments by Fed officials suggest that the central bank remains resolutely committed to attacking inflation via effectively raising borrowing costs. Naturally, such a backdrop isn’t the most encouraging for commodities including energy resources.

For PBR stock specifically, the underlying Brazil market poses greater challenges. As stated earlier, the country just ended a tightly contested and contentious election cycle. In fact, according to the Associated Press, outgoing President Jair Bolsonaro is an admirer of former U.S. President Donald Trump. Moreover, Bolsonaro “has repeatedly questioned the reliability of the nation’s electronic voting system.”

Despite the obvious concerns about the electoral process – including fears about corruption and mismanagement – many analysts quietly find optimism in PBR stock. As The Brookings Institution stated, the incoming administration of winner Luiz Inácio “Lula” da Silva will likely refocus attention on “augmented social spending and empower state-run companies, like Petrobras, that were hollowed out during the Bolsonaro years.”

Certainly, options traders appear enthused as demonstrated by their recent actions.

PBR Stock a Major Highlight for Unusual Options Activity

Following the close of the Nov. 21 session, several top transactions related to PBR stock – all of them bullish call options – stood among the ranks of unusual options activity. Most of them represented standard long call options, providing the buyer the right but not the obligation to acquire the underlying security at the contracted strike price at some point in the future.

In particular, the $8 calls with an expiration date of Jan. 17, 2025 (or 787 days to expiration since the placement of the order) immediately stands out because it features the most time (within Barchart.com’s top 100 most unusual transactions list) until the contract becomes worthless.

Here, volume reached 17,401 contracts against an open interest reading of 983. The bid-ask spread as represented by the midpoint price ($2.52) came out to 5.95%. For the record, PBR stock closed at $11.40 for the Monday session.

At the moment, sentiment in the options arena stands just a bit into bearish territory. According to Barchart.com, the put/call open interest ratio is 0.74. Typically, the delineation between optimism and pessimism is 0.70, with figures above this level indicating that more traders are buying puts than calls.

As stated earlier, many traders moved to the sidelines regarding PBR stock. Three months ago, the consensus rating among analysts was “moderate buy,” based on one strong buy and two holds. In the current month, the consensus is “hold,” based on four holds.

Increased Mobility May Boost Petrobras

In the U.S., one of the cynical silver linings of the otherwise horrific COVID-19 crisis was the broader implementation of remote work policies. Suddenly, office workers could avoid the morning (and late-afternoon) commute, dramatically improving work-life balance. Not surprisingly, vehicle miles traveled still struggles against pre-pandemic norms.

However, this dynamic could change as a majority of companies disclosed intentions to return to normal working environments by 2023. Likely, a beneficiary of this dynamic would be the hydrocarbon sector.

Now, regarding PBR stock, the underlying Brazilian labor market has also embraced remote work, both before COVID and especially after. Nevertheless, as economic conditions change and more enterprises are forced to lay off their employees, the return-to-office debate has started to favor employers. With workers now losing their bargaining power, normalization trends could boost hydrocarbon demand.

Enticingly, most of the unusual options activity for PBR stock featured long-expiry wagers. With the fundamentals supporting the narrative, Petrobras may be a tempting idea for contrarians.

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