Is the bottom in for Thomson Creek?

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Someone apparently thinks that Thomson Creek Metals is finally bottoming out.

optionMONSTER's trade scanners detected the sale of 41,682 March 5 puts on Friday, most of which priced for $1.45. Volume was more than 2,000 times the previous open interest in the strike, indicating that a new trade was initiated.

The investor is now obligated to buy shares in the Canadian metals company for $5 if they drop below that level by expiration. While put selling is common, it's unusual to see transactions with in-the-money strike prices. (See our Education section)

TC fell 0.53 percent to $3.78 on Friday. The stock is up more than 30 percent in the last month but remains well below its peaks around $14 from early 2011.

The short puts will behave similarly to owning the stock, so there are two potential explanations for the option activity. One is that a short seller has ridden the stock lower for years and now wishes to hedge against further upside.

The other possibility is that the trader might like the stock and is using the short puts as an alternative to buying shares. That would allow the investor to ride a move up to $5 and still have some cushion to the downside.

Either way, writing those puts locked in a $3.55 purchase price in the shares through mid-March.

Total option volume was 43 times greater than average in the name. TC trades for about half book value, with short interest accounting for 16 percent of its float.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: TC

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