U.S. Steel Stock, Options Trade Up on Takeover Talk
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Shares of U.S. Steel Corp (X.N) rose more than 6 percent and options trading exploded on Wednesday on market talk that the steelmaker was a takeover target.
"Unconfirmed rumors that ArcelorMittal may be interested in buying U.S. Steel at $80 per share sparked an all-out options feeding frenzy on the steel producer," said Caitlin Duffy, equity options analyst at Interactive Brokers Group.
TD Ameritrade chief derivatives strategist Joe Kinahan said that although the potential suitor, ArcelorMittal, declined to comment, "the street still believes that U.S. Steel is an attractive candidate."
In Brussels, a spokesman for Europe-based ArcelorMittal (ISPA.AS) (MT.N), the world's largest steelmaker, said it did not comment on market rumors. But the company has said publicly that its acquisition and merger focus is on mining companies.
A spokesman for U.S, Steel in Pittsburgh also declined comment on the speculation.
One steel industry analyst poured cold water on the notion, saying it made little sense. "There would be a 1 percent chance that Mittal would bid for U.S. Steel and a 0 percent chance that it would succeed," said Michelle Applebaum of Steel Market Intelligence in Chicago.
She said such a deal would require U.S. Steel's domestic flat-rolled business to be divested entirely because of antitrust issues.
Also, U.S. Steel is the only steel company with United Steelworkers (USW) union workers that remains American domiciled and American-owned, and the USW relies on the company's support on trade and other political issues.
"The USW has a blocking vote in any acquisition. The contract becomes null and void in a takeover. So there is no way that the USW would allow Mittal or any other global company to take over U.S. Steel," Applebaum said.
In afternoon trading on the New York Stock Exchange, U.S. Steel's stock was up $2.95, or 6.23 percent, at $50.27.
The churning of the rumor mill increased demand for the steelmaker's options as investors traded more than three calls for each single put by early afternoon, Duffy said.
An equity call option conveys the right to purchase shares at a fixed price up to a certain date while a put option grants the right to sell shares at a preset price any time until expiration.
By 2:17 p.m. eastern time, investors had exchanged about 245,000 contracts on U.S. steel, led by 192,000 calls crossing the tape, or 5.8 times the combined average daily volume, according to options analytics firm Trade Alert.
Traders positioning for U.S. Steel's shares to continue higher ahead of Friday's expiration picked up blocks of August $50, $55 and $60 strike calls, Duffy said.
Kinahan noted the call interest was not only in U.S. Steel's August options, which expire on Friday after the close, but in the September $50, $51 and $52 call strikes, which were also very active. "This would suggest that the rumor may stick around for awhile and has some credibility with the Street."
News Source:Options Trade Up on Takeover Talk
"Unconfirmed rumors that ArcelorMittal may be interested in buying U.S. Steel at $80 per share sparked an all-out options feeding frenzy on the steel producer," said Caitlin Duffy, equity options analyst at Interactive Brokers Group.
TD Ameritrade chief derivatives strategist Joe Kinahan said that although the potential suitor, ArcelorMittal, declined to comment, "the street still believes that U.S. Steel is an attractive candidate."
In Brussels, a spokesman for Europe-based ArcelorMittal (ISPA.AS) (MT.N), the world's largest steelmaker, said it did not comment on market rumors. But the company has said publicly that its acquisition and merger focus is on mining companies.
A spokesman for U.S, Steel in Pittsburgh also declined comment on the speculation.
One steel industry analyst poured cold water on the notion, saying it made little sense. "There would be a 1 percent chance that Mittal would bid for U.S. Steel and a 0 percent chance that it would succeed," said Michelle Applebaum of Steel Market Intelligence in Chicago.
She said such a deal would require U.S. Steel's domestic flat-rolled business to be divested entirely because of antitrust issues.
Also, U.S. Steel is the only steel company with United Steelworkers (USW) union workers that remains American domiciled and American-owned, and the USW relies on the company's support on trade and other political issues.
"The USW has a blocking vote in any acquisition. The contract becomes null and void in a takeover. So there is no way that the USW would allow Mittal or any other global company to take over U.S. Steel," Applebaum said.
In afternoon trading on the New York Stock Exchange, U.S. Steel's stock was up $2.95, or 6.23 percent, at $50.27.
The churning of the rumor mill increased demand for the steelmaker's options as investors traded more than three calls for each single put by early afternoon, Duffy said.
An equity call option conveys the right to purchase shares at a fixed price up to a certain date while a put option grants the right to sell shares at a preset price any time until expiration.
By 2:17 p.m. eastern time, investors had exchanged about 245,000 contracts on U.S. steel, led by 192,000 calls crossing the tape, or 5.8 times the combined average daily volume, according to options analytics firm Trade Alert.
Traders positioning for U.S. Steel's shares to continue higher ahead of Friday's expiration picked up blocks of August $50, $55 and $60 strike calls, Duffy said.
Kinahan noted the call interest was not only in U.S. Steel's August options, which expire on Friday after the close, but in the September $50, $51 and $52 call strikes, which were also very active. "This would suggest that the rumor may stick around for awhile and has some credibility with the Street."
News Source:Options Trade Up on Takeover Talk
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