TIE Options Predict Move Higher

Titanium Metals Corporation (TIE) shares closed sharply higher Monday, but it was the options market that saw the action. Call options on the titanium producer saw some 80,000 contracts trade hands, which is more than 13x the average trading volume of 6,188 contracts. Traders bought up more than 63,000 October $12.50 calls, which are now trading at $1.65 per contract. The move suggests that traders believe TIE shares will surpass $14.15 per share - or 9.5% - during the next month and a half.

The bet on Titanium Metals bet is considered somewhat bullish given that the stock is down more than 50% in 2008. During its most recent quarter, the firm reported a drop in profits on lower sales, hurt by declining prices, decreased sales volumes for melted products and increased cost related to raw materials. To make matters worse, many of the company’s long-term contracts keeping raw material costs down will expire in the future and may reduce earnings.

Titanium Metals’ low price and multiple has many speculating that a buyout may be in the cards. Monday’s $10.3 million call option added to the fire and prompted trading in the underlying shares to jump in both price and volume. More than 8.6 million shares traded hands, compared to an average daily volume of 3.6 million shares, while the price jumped some 6% throughout the day. Notably, the buy in the October expiration suggests that a deal - if it exists - may not take place in September.

Titanium Metals is a producer of titanium melted and mill products. The company has titanium production facilities in both the United States and Europe that are vertically integrated. Its products include titanium sponge, melted products, and mill products. Its products are used in a variety of places, but most notably in airplanes. Recently, prices for the commodity have begun to slow amid reduced demand and increased supply.

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