Investment Thesis: We’re doubling the insurance for our position in TransCanada Corp. (TSX: TRP, NYSE: TRP) because we don’t believe that the investment case has changed since we first initiated a long put position in July.

TransCanada has been on a tear over the past nine months, adding almost 50% from its December 2015 low, outperforming its main rival Enbridge by a considerable margin.

Some investor excitement was due to TransCanada’s all-cash US$13 billion takeover of Columbia Pipeline Group at a 32% premium over the then prevailing market price. Management believes the deal, which closed on July 1, will ultimately be accretive to TransCanada profits, but the net benefits will not be reflected in company profits anytime soon.

Although TransCanada is a top-quality operation, the stock is more than fully valued at current prices, with a 12-month forward enterprise value to EBITDA (earnings before interest, taxation, depreciation and amortization) ratio of 14 times, which is a premium to its North American peers.

Option Strategy: Buy to open a protective put option with a strike price of C$58 and expiration on Jan. 20, 2017, at or below C$130 per option (C$1.30 x 100).

This trade is primarily intended for TransCanada shareholders who wish to protect their holdings against downside risk, but can also be used for a speculative trading strategy.

For those who hold TransCanada’s U.S. listing, the most similar U.S. put option on TRP is the US$45 strike with expiration on Jan. 20, 2017.