On Friday, traders received a jolt in the early afternoon when a rumor went around that ATI was a buy-out candidate for US Steel (X). The stock, which gapped lower at open on a downgrade, moved from a $72.50 mark north towards $84.00 on the news with shorts fueling the rise on a squeeze.When the stock hit $82.00, I bought April puts. These kind of rumors have been circulating within the industry for years without merit and an ATI for X deal just doesn't make sense. It was like Ford buying Land Rover - they are just different animals. ATI focuses on specialty metals, while X focuses on commodity steel and I see very little synergy between the two.
For an ATI shareholder, the specialty metals play would be lost within X, thereby limiting the upside of an investment. ATI management is also outstanding and I would find it challenging to bring this management into a combined concern.
This put play (see ATI chart) is not without major risk. The deal may not happen, making my thesis right, but an unsolicited offer can still be offered by X, making this play very risky. I do not have serious money on this bet, but a cool-off of the rumor on Monday has allowed my ATI trade to find dry land.
I see this trade as a 2-3 day play on a rumor that seems unlikely.
I made no other trades on Friday or Monday. AAPL, however, could use a rest at this point and I would be careful adding anything at this point.
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