Russian steel company Severstal may be planning a series of transactions which would culminate in a bid for U.S. Steel, according to a report in a Russian newspaper. The report touched off a a huge rally in shares of X.
What really got the froth going was a non denial from a U.S. Steel spokesman: "We favor consolidation if it builds value for our shareholders, but we don't discuss any actions we may or may not be taking until the appropriate time." Of course, that comment was really a 'no comment'; but the lack of a categorical denial spurred shares to a gain of more than 9%.
The X rally was seventh heaven for holders of expiring November call options with strikes at 70 and below. The Nov70's opened worthless, but finished the day at 50-cents bid on open interest of over 17-thousand contracts -- a simply stunning resurrection from the dead for those options holders. Even November 65 call holders were saved from doom by today's rally.
I'm usually not one to chase takeover rumors, but this one intrigues me given the merger activity in the overall sector; that Severstal has been left at the altar and denied before; and what appeared to be heavy institutional participation today both in large underlying stock volume and options volume. Across the entire X call options chain, 85,000 traded today; that's 8-times the daily average.
Since this is all takeover speculation at this point, I've taken just a 1/4 position in the December 80 calls with the purchase of 40.
The play in the week ahead for X will be one of sector momentum amid consolidation in the sector. Will an X takeout by the Ruskies really happen? Wouldn't Congress and the Department of Justice love that! Time will tell.