Use the pen tool to create an arc that serves as the path where the threading will pass through the button. Custom brush settings will fill this path. Create a brush made of a few dots, then modify the brush settings. Turn the spacing down to 1% for solid lines. Finally, stroke the arc shaped path with the brush and repeat as necessary. In a new layer, change the foreground color to grey and stroke the path once again. This creates two layers of thread. Repeat with an even lighter shade of grey, and add some shadowing under the stitching to complete the look.

Add a masked layer to the flattened thread and the shadow, then brush the mask so that it appears to continue into the button. Rotate the entire button and you're complete!