Domtar is back to a key level from 2011, and one trader is
positioning for a selloff.
optionMONSTER's Depth Charge tracking system detected a large
complex strategy in the Canadian paper company, with blocks 1,500
contracts each trading in the July 90 puts, the July 80 puts and
the July 105 calls. The 80s and 105s were sold for $2.55 and $2.50,
respectively, while the 90s were bought for $6.05.
Our systems also detected similar-sized blocks in the April 75
puts, the April 85 puts and the April 105 calls. The trades were
the mirror images of each other, and volume was below open interest
in April. That indicates an existing position was rolled forward by
The strategy is bearish and combines elements of a
vertical put spread
. It essentially leaves the trader short stock if UFS pushes above
$105, so was probably the work of an investor who owns shares and
wouldn't mind being forced to sell if they climb that high. (See
UFS fell 1.1 percent to $92.97 yesterday but is up 26 percent in
the last three months. It's now back to the same price area where
it consolidated in June and July 2011, which could lead some chart
watchers to expect resistance around this level.
It also peaked around $105 a few months earlier, so it makes sense
that traders would be selling calls at the 105 strike as well.
UFS normally trades just 165 contracts in a session, but
yesterday's bearish trades pushed its volume to more than 58 times
that amount, according to the Depth Charge.