Options: Petroleo Brasileiro, Freeport Hot

A positive PPI report is giving some investors a reason to be bullish on commodity plays.
Publish date:

By Jud Pyle, CFA, chief investment strategist for the Options News Network

Before the market opened this morning, the PPI data were announced. The headline number came out at positive 0.8% month on month change, vs. an expectation of positive 0.3%.

This data could be viewed as a bullish sign on Wall Street because it is the first time since last July that the number has been better than analyst expectations. In addition to that, it is the first time since July that the number was positive.

You don't need to read this column to learn about that. But what I want to draw your attention to is bullish option activity that occurred in stocks that have base material exposure.

Image placeholder title

Looking at

Petroleo Brasileiro

(PBR) - Get Report

we see that over 19,000 of the March 30 calls have traded in the first four hours of trading today according to the Sidewinder report at www.ONN.tv . Open interest in those calls was 19,610 as of last night's close.

What is interesting about this volume however is that it is predominantly on the buy side, and much of the volume occurred first thing after the open. Within the first 12 minutes of trading this morning, more than 10,000 of the calls had changed hands.

The bullish case for PBR has been that the company has decent exposure to any snap back in the price of oil. Analysts argue that extensive pre-salt exploration efforts have left this Brazilian-based integrated oil company with one of the more ample reserve supplies among the major oil producers. The shares have rallied from below $20 in November to over $27 today, but the stock is still well off its highs of over $70 this summer. The call-buyer could be betting on a continued snap back in the shares.

In other options activity, we see that


(FCX) - Get Report

has volume of over 14,000 in the Feb 30 calls, and over 10,000 in the March 30 calls. A good portion of this volume is a call spread, where the investor is selling the Feb 30 calls, to buy the March 30 calls. The Feb 30 calls for example are actually down on the day, despite the fact that the stock is up over 70 cents to $29.17 at the time of this writing. The calls closed last night at 30 cents, and are now down to 21 cents. The March 30 calls on the other hand closed at 2.10 last night and are above 2.20 now.

FCX and PBR are involved in very different businesses obviously. One is mostly metals, and the other is mostly oil. But they share one very important thing in common, and that is that both of their primary products are commodities, and that has tied the fates of so many stocks since the peaks reached last summer. Today's PPI report is giving at least some investors cause to place some bullish option trades that bet on a continued rebound in these shares.

Finally today, I would like to close with a clarification.

In my piece yesterday


Agnico-Eagle Mines

(AEM) - Get Report

, I pointed out that 16,000 of tje Jan 2010-2011 40 put spreads had traded. I would like to point out that that figure was as of the time that I wrote the article, which was prior to the close. In the last hour of trading, another 12,000 spreads had hit the tape, bringing the volume to over 28,000 on the day.

Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.

Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."