One particular trade is in the November 2017 bond of the state-owned oil company, which faces the possibility of sanctions.
Some hedge funds are taking big bets on Venezuelan debt ahead of a controversial national vote on Sunday that has sparked severe unrest in that country.
The vote is for a special constitutional assembly that could rewrite the constitution despite widespread condemnation and the threat of more sanctions by the U.S. and other nations, particularly against Venezuela's state-owned oil company known as Petróleos de Venezuela, S.A., or PDVSA.
One particular trade concerns a PDVSA bond that has a $1.8 billion principal payment due in November. This bond traded Friday at 76.5 cents, deeply distressed and down from 83 cents just one month ago as the threat of sanctions weighs on it.
There are strong rumors that President Nicolas Maduro has reached a deal with Venezuela's government opposition that would stop the vote this Sunday. Hedge-fund traders are betting that if the rumors are true, they will get a windfall on their holding of this PDVSA bond.
If Sunday's vote is called off, the bond could rise dramatically on Monday, reflecting the market's view that the oil company would be able to make the November payment. And those who bought the bond on Friday at 76.5 cents and held it to November, if the principal payment is made, could recover 100 cents, a 30.7 percent return.
But if the rumors aren't true, and Sunday's vote is held, traders think it means more sanctions from the United States, and possibly the EU, and a likely default of the PDVSA bond by the Venezuelan government.
In that case, the recovery value on the bond in a restructuring is somewhere between 30 and 60 cents, based on the varied opinions of funds and restructuring experts.
The outlines of a deal, according to the speculation circulating in the emerging-market trading community, are as follows:
Maduro agrees not to hold the vote on Sunday, agrees to hold long-delayed regional elections in December and a presidential election in late 2018. The government would also allow a humanitarian aid channel opened. Thus far that has been prohibited because the government denies there is a crisis in the country.
In exchange for that, the opposition stops the unrest on the streets, and eventually allows safe passage out of the country for Maduro. It is unclear whether the opposition is united on this and will actually go along with it.
Sunday's vote for the new assembly would supersede the current parliament, which is controlled by Maduro's opposition. That has been criticized by leaders throughout the Americas as anti-democratic. Violent protests have rocked Venezuela, with nearly 100 deaths so far.
The United States imposed sanctions on 13 former and current Venezuelan officials earlier this week, promising more if Maduro goes through with the vote.
One of the most severe sanctions being floated is a ban on the import of Venezuelan oil, or a tax so heavy it wouldn't make sense to buy it. Oil makes up 95 percent of Venezuela's exports, and its sale provides the U.S. dollars Venezuela would need to pay the PDVSA bond due in November.
An even tougher option is what's known as the "Iran or Cuba" option or the "nuclear" option: prohibit the Venezuelan government from transacting in U.S. dollars, which would prevent it from selling oil in large parts of the world.