NEW DIRECTIONAL CALL PLAYS

Petroleo Brasileiro - PBR - close 35.59 change +0.88 stop 33.70

Target(s): 37.40, 38.65
Key Support/Resistance Areas: 39.00, 37.50, 36.60, 34.00
Time Frame: 1 to 2 weeks

Company Description:
Petroleo Brasileiro S.A. (Petrobras) is an integrated oil and gas company. The Company operates in five segments: exploration and production; refining, transportation and marketing; distribution; gas and power, and international. The exploration and production segment includes oil and gas exploration, development and production in Brazil. The refining, transportation and marketing segment includes downstream activities in Brazil, including refining, logistics, transportation, oil products and crude oil exports and imports, petrochemicals and fertilizers. The distribution segment includes distribution of oil products through the BR retail network in Brazil. The gas and power segment includes gas transportation and distribution, electric power generation using natural gas and renewable energy sources. The international segment includes exploration and production, refining, transportation and marketing, distribution and gas and power operations outside of Brazil.

Why We Like it:
PBR announced a secondary offering announced on 9/2 and it has reportedly grown into the largest ever offering in the capital markets at $80 billion. Short interest has grown in the stock ahead of the offering as some traders think there will not be enough demand to buy the securities. However, reports continue to trickle in that indicate institutional demand is alive and well and the offering is more than 2x oversubscribed. This could create a short squeeze in the stock and I suggest we buy calls at current levels to take advantage of it. Conservative traders may want to wait for a breakout above today's high of $36.60 which will also break the primary downtrend line. Our stop will be below the recent swing low and the upward trend line that began on 8/25.

Suggested Position: Buy November $37.00 CALL, current ask $1.56

Annotated chart:

Entry on September XX
Earnings 11/11/2010 (unconfirmed)
Average Daily Volume: 13 million
Listed on September 23, 2010