Unusually high out-of-the-money (OTM) put option volume in the small-cap, profitable water engineering company Tetra Tek, Inc. (TTEK), may signal investor bullishness. As a result, TTEK stock may have good upside.
TTEK is trading at $33.66 at midday on Sept. 29, and it's off its recent peak of $36.72 on Sept. 15 and $37.00 on Aug. 21.
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TTEK stock - last 3 months - Barchart - Sept. 29, 2026 Unusual Put Option Volume
This huge put option volume is at $25.00. That's over 25.7% below today's price. This is seen in today's Barchart Unusual Stock Options Activity Report.
It shows that over 4,700 put contracts have traded at that strike and expiry period. That's over 12.6x the normal outstanding contracts.
TTEK puts expiring March 19, 2027 - Barchart Unusual Stock Options Activity Report - Sept. 29, 2026 Moreover, these puts expire on March 19, 2027, 171 days away. That's over 5 months away (almost 6 months).
So, all in all, this is a very unusual trade on a small-cap stock, with a market cap of just $8.61 billion.
Not Overvalued
Moreover, the water engineering company is not only profitable, but it is also buying back shares. Analysts expect Tetra Tek to produce $1.58 in earnings per share (EPS) this year, up from $1.56 last year. And next year, they forecast $1.74.
As a result, it's not overvalued. If it were, one might expect bearish investors to have initiated this huge put option volume. TTEK trades on a forward price/earnings (P/E) ratio of 21.3x, and 19.3x for 2026 and 2027, respectively.
That's below its historical average. For example, Seeking Alpha reports that the 5-year forward P/E ratio has been 31x, although Morningstar says it's been 25x. The average of these two is 28x, which is still 33% higher than the 21x for 2026.
Moreover, analysts have higher average price targets(PTs): $40.33 (Yahoo! Finance) and $40.14 (Barchart). These are 20% higher PTs.
In other words, TTEK stock may be too cheap. That could explain why the short-put yield for these options is high.
High Short-Put Yield and Expected Returns
Sellers of these March 19, 2027, put options collected a 75-cent premium for every contract they shorted to the buyers.
That works out to an expected yield of 3.0% (i.e., $0.75/$25.00), or $75 for $2,500 in collateral posted. This is for 5.6 months, so it works out to 0.5357% per month. That also represents an annualized expected return of 6.428%.
In other words, this might be one way for existing shareholders to enhance their dividend yield. Right now, TTEK stock has an annual dividend yield of less than 1% (i.e., 0.83%).
Existing investors, willing to buy more shares at $25.00 by shorting these puts, collect $1.50 annually if they do this trade twice a year.
That equals another 4.456% as a dividend yield (i.e., $1.50/$33.66).
Moreover, even if their account is assigned to buy shares at $25.00 (if TTEK drops to this point), the breakeven point is $24.25 ($25.00 - $0.75). So, their expected return (ER)is high:
$40.33 PT / $24.25 = +66.3% upside
The bottom line is TTEK looks too cheap, and one simple way to play is to sell short out-of-the-money (OTM) long-dated put options.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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