Can anyone explain the abstract of the following article?
Why do they have to sell put option?
Thanks in advance.
Wednesday September 3 2:49 PM EDT
Brazil stocks rise after Telebras options sale
SAO PAULO, Sept 3 (Reuter) - Brazilian stocks were up 1.34 percent by midafternoon Wednesday, as market
players reacted favorably to the government's sale of Telebras (TEL_P.SA) put options at a 5.1 percent premium,
brokers and traders said.
``Demand was good. The price was higher than the market expected,'' said Vital Menezes, head of sales and trading
at Deutsche Morgan Grenfell in Brazil.
Sao Paulo's Bovespa index (.BVSP) of 51 top shares, which shaved some early gains before the National
Development Bank's (BNDES) options auction, was 148 points higher at 11,211 points by 1457 local time/1357
EDT/1757 GMT.
Turnover reached 607 million reais ($556 million) an hour and a half after the bank's investment arm offered the 2.5
billion put options on the Rio de Janeiro bourse.
In 20 minutes of bidding, the minimum price of 7.80 reais per 1,000-share lot rose to 8.20 reais. The option, with a
strike price of 132 reais, expires February 18.
On Tuesday, speculation on the outcome of the auction drove Telebras preferred up by 12.2 percent to 138 reais on
the Sao Paulo bourse, Brazil's leading stock market.
On Wednesday, the share price was frozen at 138 reais at the time of the auction. It dipped shortly after bidding
ended, then surged 0.70 percent to 138.70 reais.
Its American Depositary Receipt (ADR) (TBR - news) was up four at 128-3/8 in New York.
Brokers said demand was strong for the put options on the market's benchmark stock but not so robust as to signal
widespread unease about the state of Brazilian bolsas.
One trader said those who bought the put options were most likely foreigners looking to hedge positions to shield
themselves from future volatility.
``The brokers who did the biggest bidding have a lot of foreign customers,'' John Carioba of local Indusval
brokerage said.
According to bolsa officials, local brokerage Agenda bought 570 million put options, followed Brascan brokerage
with 520 million and Garantia with 432 million options, bourse officials said.
Apart from Telebras, other shares were showing strong gains by midafternoon, as the market followed up on
Tuesday's 9.43 percent rise in the Bovespa, erasing two days of steep losses that came amid Asian market turmoil.
The rise among local blue chips on Wednesday was led by preferred B shares of the federal power holding company
Eletrobras (ELE_PB.SA), which was 4.62 percent higher at 543 reais. |
