Brazil Traders Just Made a Huge Bet in Currency Options Market


© Reuters. Brazil Traders Just Made a Huge Bet in Currency Options Market

(Bloomberg) — Brazil options traders seem to be gearing up for a sudden surge in currency volatility.

Investors bought $1.4 billion of contracts Tuesday that will pay off if the real swings significantly over the next week from its current price near 3.5 per dollar, already the lowest in 11 months. Trading volume was 25 times the average over the past two weeks, according to data from the exchange. Just seven trades were recorded, indicating the buyers were making large wagers.

While investor anxiety in Brazil has been focused on the October presidential elections, which some analysts fear could derail the painful overhauls needed to shore up the budget, the surge in options buying suggests the concern is more near term.

One possible worry is that upcoming testimony from Antonio Palocci, a finance minister under jailed former President Luiz Inacio Lula da Silva, will implicate new companies in the massive Carwash graft scandal that’s roiled Brazil over the past three years. Investors may also be concerned that a recent Supreme Court move will give Lula, who is currently in jail on corruption charges, a chance at getting out in time to seek another term in office.

“That would cause a market panic,” said James Gulbrandsen, a Rio de Janeiro-based money manager who helps oversee $3.5 billion at NHC Capital and has bought protection against a selloff in Brazilian equities. “I suspect larger players are hedging against that possibility.”

Brazilian investor anxiety, as measured by the real’s one-week implied volatility, hit the highest since early this year the day after the positioning change in call options with a 3.5 per dollar strike price that expire April 30. The real has dropped 10 percent since late January, the worst performance in the world after Russia’s ruble.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Comments

comments