Titanium Metals (TIE) to be added to S&P 500

Titanium Metals Corp. (NYSE: TIE) shares are jumping today after Standard & Poor's announced that the stock will be added to the S&P 500, replacing Bausch & Lomb (NYSE: BOL). When stocks are added to these major indices, they often find a natural floor for a while due to the increased demand for that security by mutual funds and the like. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on TIE.

After hitting a one-year high of $39.80 in May, the stock slipped to a 52-week low of $25.75 in August. TIE opened this morning at $33.28. So far today the stock has hit a low of $32.56 and a high of $33.34. As of 11:10, TIE is trading at $32.71, up 99 cents(3.1%). The chart for TIE looks bullish with slight deterioration.

For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $25 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just 3 months as long as TIE is above $25 at January expiration. Titanium Metals would have to fall by more than 23% before we would start to lose money. Learn more about this type of trade here.

TIE hasn't been below $25 at all in the last year and has shown support recently above $31. This trade could be risky if the demand for titanium slows, but this position could be protected by the increased demand for the stock, as well as the current boom in the airplane manufacturing industry, which is a major buyer of titanium.

Brent Archer is an options analyst and writer at Investors Observer.