$UFS calls print profits

Upside option traders’ calls are printing big profits in Domtar (UFS) today after the company’s earnings report.

On Jul. 16, Market Rebellion’s Unusual Activity scanners showed that 4,000 August $25 calls were bought for $0.63 to $0.73 with shares at $21.73. This was clearly a new position, as open interest in the strike was only 386 contracts before that session began.

Those calls traded for as much as $3.90 so far today, at least 5 times their purchase prices. The stock rose 31.29% in the same time frame, showing how options can far outperform their underlying shares.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

UFS was last up 22.61% at $27.55 today. The free-sheet paper producer reported on its Q2 earnings before the opening bell this morning, noting cost conservation initiatives.