If you have followed some of my past articles, you will know that I started selling weekly 16 strike puts on Petrobras (NYSE:PBR) in early February because the stock price was ridiculously cheap. I believed that all the bad news about the Brazilian government interference was priced in. Friday, February 8, 2013, the stock price closed at 16.18, so I kept the option premium as my profit on the options I sold that week. On Friday, February 15, 2013, I bought the options back for a few pennies when I saw we were going to close under 16 (15.96), still making about 30 cents of premium. However, the third week of February we dropped to the low 15s and I was exercised on the puts and was long shares at 16 dollars effective with the close on Friday, February 22, 2013. Subtracting my option premium I was net long PBR around 15.65. If you followed the stock price you know PBR continued dropping into the mid 14s with a March 5, 2013 close of 14.49. It was apparent the stock did not want to go any lower for now.
Due to a news announcement, the bearish picture in PBR has now all changed. After the close on March 5, 2013, we learned PBR would be able to raise diesel prices 5% in 2013, and the stock popped higher for the past two days. Today, March 7, 2013, we hit a high of 18.05, closing the gap left back on February 4, 2013 just prior to earnings. Rallying $3.56 in just 2 days is pretty remarkable and now the large gap left under 16 should provide significant support for traders to buy against. I am now bullish this stock for a move back to 19.50 and feel that we should not trade under 16 for several weeks. I expect an uptrend to develop, that should last at least 4 to 6, maybe 8 weeks, which for a day trader like myself, is like an eternity. This stock should be a great stock to scalp for 10 to 20 cent moves during the day for the immediate future.
Disclosure: I am long PBR.