more on tma

looks like i was incorrect in writing about tma's demise. it looks like this just-completed offering will keep them in business, albeit at tremendous dilution to existing shareholders; hence, the stock at about 1.25.

today was interesting in that tma's options filled up the most-active list, as traders scramble to both protect themselves if the company goes bankrupt and speculate that the lender will survive and ultimately see its share price recoup recent losses.

the option action reflects the head scratching over how tma - considered a conservative firm that did not engage in questionable subprime loans, loose lending standards or involved in exotic derivative products - became collateral damage of the credit crunch and pushed the firm to the brink of bankruptcy.

yesterday the firm raised some $1.5 billion, and the stock is around $1.25 a share. bsc guys shouldn't be smirking or feeling ripped-off for the $2 and now $10 bid...

but tma's future is still questionable, and the company faces a thicket of obstacles to regroup and regain investor confidence. and this is reflected in today's option activity.

the most active strike is the july $2.50 put, which has traded over 70,000 contracts. but much of that volume appears to be selling short. yes, i know that for every sale there is a buyer, but i'm asking who is initiating the transaction on the belief that tma will be above $2.50 come the july expiration.

those puts are currently trading around $2, so it's a decent trade, in that one can earn, or lose, $2 on a $1.50 price move over the next four months. on a percentage basis, it offers a very attractive return on investment, while limiting losses to $2.00. yes, that would be a 100% loss.

some people are looking for huge percentage gains by purchasing calls. the july $2.50 call has traded over 30,000 contracts thus far. priced at a mere dime, this appears to a very cheap way to take a flier that tma will survive, maybe raise some more money, and see the stock double if this liquidity freeze continues to thaw by summer.

others are taking a longer-term view going out to the january 2009 calls and paying a whole 20 cents for the $2.50 calls. i think paying that extra dime for an additional eight months makes sense. you can buy a large number of contracts, and assuming tma does survive and the stock starts to rise, one can begin peeling off parts of the position to take partial profits over the longer term. who's to say tma doesn't achieve a bsc-type valuation of $10 share, which would give it market capitalization of about $1 billion?

disclosure: none, but seriously looking at 1/09 calls or 1/10 calls at various strikes