Bulls Target Steel Giant with Leveraged Trade: Options Recap

Liquid Molten Steel Industry

One big investor is apparently feeling bullish as the world’s top steelmaker moves higher.

ArcelorMittal (MT) had its busiest session in over a year on Wednesday. Here’s a breakdown of the large, leveraged strategy that accounted for more of the activity:

  • A block of 10,000 September 32 calls were bought for $1.15
  • A block of 10,000 September 36 calls were sold for $0.22.
  • A block of 10,000 September 28 puts were sold for $0.66.
  • That translates into a cost of $0.27.

The position combines a vertical call spread with short puts, ideally trying to leverage a move to $36. If MT reaches that price they’ll collect $4 per share, a potential return of more than 1,300 percent. But they also face significant downside risk if the stock breaks below $28. (See our Knowledge Center.)

The trader may have chosen the $28 level because it’s near the company’s low for the year and some pivots in 2017. That could make him or her think it will become support.

MT rose 2.18 percent to $30.97 yesterday. The European metals giant has drifted lower this year despite issuing strong quarterly results on May 11. Its next set of numbers is due August 1.

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