Bets against OGX Petroleo & Gas Participacoes SA, the oil producer controlled by billionaire Eike Batista, soared to a record after Brazil’s stock exchange increased the limit on the contracts.
The number of short-interest contracts on the company’s shares rose to 422.1 million yesterday, the highest level since Bloomberg started compiling the data in 2010. The ratio of borrowed shares, an indication of short selling, was 33.5 percent of the shares available for trading, the highest among members of the Ibovespa benchmark gauge after Eletropaulo Metropolitana Eletricidade de Sao Paulo SA. That compares with 19 percent on April 9 and 11 percent on Jan. 2.
BM&FBovespa SA, the operator of Brazil’s exchange, said in a statement that it raised the short-interest limit on the stock to 45 percent from 30 percent effective yesterday. In a short sale, traders sell borrowed stock, anticipating the price will drop so they can profit by buying back shares at a lower price.
“This brings more volatility to the stock; it’s a cascade effect,” Sandro Fernandes, a trader at Corval Corretora de Valores SA, said in a telephone interview from Belo Horizonte, Brazil. “The bigger the percentage limit, the more speculators will want it.”
OGX has tumbled 88 percent in the past 12 months as production setbacks spurred concern that Batista’s businesses are losing access to financing.
Shares of the Rio de Janeiro-based company slumped 6.3 percent to 1.65 reais at the close of trading in Sao Paulo, contributing the most to the benchmark Ibovespa’s 0.6 percent decline. The stock’s 90-day volatility increased to 102.7, the highest level since 2009, as traders awaited the company’s first-quarter results after the close of trading.
“The market already expects results not to be strong,” Ari Santos, an equity trading manager in Sao Paulo at H. Commcor, said in a telephone interview. “It’s a very volatile stock and very liquid. There’s a lot of speculation with it. You’re going to get to a point where you don’t have stocks to loan. I don’t think the exchange will increase the limit again.”
OGX’s press office declined to comment on the short contracts on the stock in an e-mailed response to questions today.
Batista’s units have the “necessary funding established for the coming years,” EBX Group Co., his holding company, said in a statement March 18. Five days later, Batista said in posts on his Twitter account that short sellers betting on declines in the stock would be “caught with their pants down.”