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Options Update: Domtar Corp. (UFS) & Toyota Motors Corp. ADR (TM)

UFS – Domtar Corp. 
Paper products manufacturer, Domtar Corp., appeared on our ‘hot by options volume’ market scanner today after one investor initiated a ratio-bearish risk reversal in the February contract. Shares moved 1.30% lower during the session to stand at $49.86 as of 3:30 pm (EDT). The reversal player sold 6,000 out-of-the-money call options at the February $55 strike for a premium of $0.80 apiece in order to offset the cost of purchasing 3,000 puts at the February $45 strike for a premium of $1.15 each.

The investor banks a net credit of $0.45 per contract on the spread, which he keeps if UFS shares trade below $55.00 through expiration day. Additional downside profits amass if shares decline through the $45.00-level. The 9,000 contracts utilized in the bearish transaction comprise roughly 57% of the total existing open interest on Domtar Corp. of 15,793 contracts.

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TM – Toyota Motors Corp. ADR
“How many Toyota cars did you say would be recalled?” That may well have been the tone of the question springing to the front of option traders’ minds earlier today as shares were dropping  like a stone towards $79.50 (down 8.4%) and sharply off last week’s high at $92.00. The recall of 8.2 million units in the U.S. and Canada and the closure of production plants effective next week after the recall of global top-sellers Camry and Corolla, raise the question of whether Toyota’s ascent to the top of the global totem pole hasn’t come at the sacrifice of quality.

Typically sleepy implied volatility on its options roared into action today from 27% to 35% as investors wondered where the move might stop. Of course it doesn’t take a genius to work out where today’s options volume is to be found. During the course of the morning put buyers paid increasing premiums for February expiration puts at the $75 strike where prices rose from as little as 70 cents this morning to 1.45 recently. The pattern was similar at the $80 strike put where more than 3,000 contracts suffocated prevailing open interest of less than one-third of that, as premiums nearly doubled from $1.70 to as high as $3.30 throughout the day.

 
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