Sick And Sadistic Brazilian Strangler Strikes Again

Jun.28.12 | About: Petrobras - (PBR)

Serial underachiever Petrobras (NYSE:PBR) was trading down 1.98% in the pre-market on Thursday as it continued the amazing race to the bottom it started when fuel price increases underwhelmed investors.

This latest drubbing is coming on the heels of a 1.4% decline on Wednesday even as energy was up all across the board. PBR had the dubious distinction of being the only loser on our energy watchlist: (Source: Google Finance)

(click to enlarge)Click to enlarge

The Strangle

The $22 call we bought for the Brazilian Strangler trade will be even more out of the money now, but the intrinsic value of the $18 put will have grown: (Source: ETrade)

(click to enlarge)Click to enlarge

The call has a bid of $.65, we bought for $1.45. The put has a bid for $2.62, we bought for $1.46. So our cost basis is $2.91 ($1.45 + $1.46) and we have bids totaling $3.27, so the strangle is in the money.


Strangles are a risky way to play volatility. Petrobras had a big move and we are seeing the trade work out so far. If PBR continues to move down soon enough the call will be virtually worthless, but the put will more than make up for it. We will continue to monitor this trade and, as always, better sleep with the lights on.

Here are some other energy names for risk tolerant investors to consider for the strangle strategy: Arch Coal Inc (NYSE:ACI), Alpha Natural Resources, Inc. (NYSE:ANR), Apache Corporation (NYSE:APA), Baker Hughes Incorporated (NYSE:BHI), Peabody Energy Corporation (NYSE:BTU), Chesapeake Energy Corporation (NYSE:CHK), ConocoPhillips (NYSE:COP), Chevron Corporation (NYSE:CVX), Devon Energy Corporation (NYSE:DVN), Enbridge Energy Partners, L.P. (NYSE:EEP), EOG Resources, Inc. (NYSE:EOG), Halliburton Company (NYSE:HAL), Hess Corp. (NYSE:HES), Linn Energy, LLC (NASDAQ:LINE), Marathon Oil Corporation (NYSE:MRO), National-Oilwell Varco, Inc. (NYSE:NOV), Plains All American Pipeline, L.P. (NYSE:PAA), Petroleo Brasileiro SA (ADR), Penn West Petroleum Ltd (NYSE:USA) (NYSE:PWE), Royal Dutch Shell plc (ADR) (NYSE:RDS.A), Seadrill Ltd (NYSE:SDRL), Schlumberger Limited. (NYSE:SLB), Statoil ASA (ADR) (NYSE:), Suncor Energy Inc. (NYSE:SU), TOTAL S.A. (ADR) (NYSE:TOT), Valero Energy Corporation (NYSE:VLO), Exxon Mobil Corporation (NYSE:XOM)

Disclosure: I am long ACI.