The $3 million bet on a bounce for Brazil

Brazil’s markets have been badly beaten this year, with the tracking ETF EWZ down more than 30 percent year to date. But one trader is betting $3 million that Brazilian stocks could continue their gains in a recent rally.

The country’s economy has suffered from political turmoil, the commodities crush and a plunging currency this year. However, recently things have been looking up. The Brazilian real has gained 3.6 percent against the U.S. dollar in December, and EWZ has rallied more than 6 percent.

On Tuesday one trader bought 67,500 of the June EWZ 23/25 call spreads for $0.42 each for a total cost of $2.8 million. This is a bet that EWZ goes as high as $25 by June expiration. So far, the trade seems to be working in the trader’s favor. EWZ jumped 3 percent on Wednesday morning to trade at $24.

According to CNBC contributor Mike Khouw, the trade seems to be coming from a large institution adding on to an existing bullish position.

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“Somebody who already made some bullish bets decided to commit more capital and is rolling down that higher strike,” Khouw said Tuesday on CNBC’s “Fast Money.” “They’re obviously betting that EWZ is going to have some kind of a rebound here.”

However, one trader says big changes are needed in order to see a real turnaround for Brazil.

“I think [Brazil has] a lot of bad news, ultimately we need to see change with Dilma [Rousseff],” Brazil’s controversial president currently facing impeachment, Tim Seymour said Tuesday on “Fast Money.” “I’m not sure it’s going to happen overnight but look what’s happened in Argentina, look what’s happened in Venezuela. People are impugning that upon Brazil, it’s an interesting time.”
[“source -cncb”]