A little bird told me the short position likely won't see material reduction until the share price surpasses $5.45 per share. So I nodded, and thanked the little bird for the tip.
Meeting up with the raccoon later that morning for an early lunch, I asked him what he thought.
Mr. Raccoon thinks many shorts are just hedging their tMed investment, capturing the distribution. At $5.45, the hedge begins to break down, and it deforms into a defacto ratio hedge as the common share price climbs ever higher. At prices climbing north of $5.45, a short position loses money faster than it's offset by the long tMed position. We finished our lunch, and I thanked the raccoon for his thoughts.
After work that day, trading emails with Mr. Frog on the subject of TC and it's short interest, Mr. Frog reminded me that the short interest in TC exploded by over 12 million shares in early May 2012, which coincided with the issuance of the tMeds, and has remained elevated ever since.
So what does this discussion with animals tell us.
Most of the short interest is being used to hedge a dividend capture strategy involving the tMeds, and doesn't necessarily represent a bearish inclination to the stock.
If the short interest exploded in May of '12, then those shares are basically even right now. Don't know why they didn't cover when the price dropped to 2.50, unless they were hoping for further declines. Something seems strange, however - with this large put buy hoping for a $2.00 price plus a slight increase in the # of shorts. Are they waiting for some bad news before they make their run to cover and make $$ on the puts. Bad news could be in the form of prices of moly and copper dropping further in response to lagging economic growth or something prevents MM from opening on schedule. Other thoughts? I still think a floor has been put under copper prices @ 3.20 due to the supply disruptions and reasonable demand.