Chipping Away at Domtar

| About: Domtar Corporation (UFS)

By David Russell

Domtar (NYSE:UFS) hit a new 52-week high Friday, and the bears are positioning for a reversal lower in the Canadian wood-products company.

optionMONSTER's Depth Charge tracking system detected the purchase of about 6,000 April 55 puts for $0.75 against open interest of just 314 contracts. The trade accounted for more than two-thirds of total options volume in the stock.
UFS Chart

UFS rose 1.54% to $64.05 and is up 27% in the last month. The debt-laden company has been cleaning up its balance sheet and working down inventories while benefitting from improved prices. Management provided an upbeat outlook the last time earnings were released on Feb. 4.

Like many leveraged companies that traded at distressed levels a year ago, UFS has been surging higher and is up more than 800% since March 2009.

Despite the gains, the shares are now approaching a potentially important price area where they collapsed in mid-September 2008. Some bears may expect UFS to encounter resistance at this level and position for a correction.

The shares need to fall more than 15% for the puts to turn a profit.

Overall in Friday's session, puts outnumbered calls by more than 5 to 1, reflecting the bearish sentiment.

Disclosure: No positions

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