Bulls Target Steel Giant with Leveraged Trade: Options Recap

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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.

ArcelorMittal (MT) chart, with historic options volumes.
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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.