Neves Contends Drives Bullish Bets on Brazil Companies

U.S. options market bulls rushed to some of the biggest Brazilian companies on Monday, a day after pro-business Brazilian presidential candidate Aecio Neves' surprisingly strong showing in the first-round election vote.

Brazilian financial markets rallied after the centrist senator's strong finish in Sunday's election, setting the stage for what is expected to be a tight runoff against leftist President Dilma Rousseff.

Neves will now face Rousseff in the second-round runoff on Oct. 26.

Of late, the ups and downs in the heavily traded Brazil iShares ETF, oil giant Petrobras, and other top Brazilian companies listed in the United States have been driven more by presidential polls than company fundamentals.

The iShares MSCI Brazil index fund, which lost 18 percent of its value in September, surged on the results and rose 6.3 percent to $46.13 on Monday.

U.S.-listed shares of big Brazilian companies also rose on Monday, led by oil company Petroleo Brasileiro, or Petrobras, . Petrobras shares jumped 13 percent to $15.80 on Monday.

While options market activity in EWZ was mixed on Monday with calls outnumbering puts by a ratio of 1.1:1, some of the bigger Brazilian companies - long pressured by the prospect of leftist Rousseff winning another term - showed bullish bets.

Wide moves in the EWZ may be far from done, though. The cost of an EWZ straddle, a strategy in which an investor buys an at-the-money put option and a similar call option, rose in a bet on volatility. This suggests a further move of about 15 percent in either direction in the shares by the end of October.

Over 132,000 calls and 50,000 puts traded on Petrobras options so far, making it the second most heavily traded company in the options market on Monday, according to Trade Alert data.

Bullish options flow was also seen in iron ore miner Vale SA with calls outnumbering puts by a ratio of 1.6:1.

"Petrobras looks like there's some profit-taking in call options. Players had been positioning for a rebound and were rewarded today on the big move," said WhatsTrading.com options strategist Fred Ruffy.

The uncertainty around the outcome of the election has sent volatility soaring. The CBOE Brazil ETF volatility Index rose 15.3 percent on Monday to 113.32 percent, its highest level this year, according to Livevol Inc data.

The Petrobras straddle that expires on Oct. 31 is pricing a 24 percent move in the shares in either direction by that date, just after the election.

(Reporting by Saqib Iqbal Ahmed; Editing by Richard Chang)