ArcelorMittal Bears: Minimize Your Risk And Maximize Your Potential Gains

| About: ArcelorMittal (MT)

There are many individuals who feel that the steel sector is going to remain in the doldrums for quite sometime. Even countries like China, which experienced strong levels of growth, are witnessing a noticeable drop in economic growth. Some experts feel that China could be in for a hard landing. If your outlook on the steel sector is bearish, then consider implementing this strategy to leverage your position. Do not put this strategy to use just because it looks like enticing. We are providing you with a strategy to leverage your position only if you are bearish on this stock. If you are not bearish on this stock, then you would be better of looking for other plays.

Suggested strategy for ArcelorMittal (MT):

This strategy has two parts to it. The 1st part entails selling a call. The 2nd step is to purchase puts with the proceeds from step 1.

Part 1

The stock has traded to the $16 ranges twice in the past 30 days and each time it has failed to hold onto its gains. Consider waiting for a test of $16.00-$16.50 ranges before putting this strategy into play. The Jan 2013 17 calls are trading in the $1.03-$1.10 ranges. If the stock trades to the suggested ranges these call should trade in the $1.50-$1.80 ranges. We will assume that the calls can be sold for $1.60. For each contract sold, $160 will be deposited into your account.

Part 2

The Jan 2013 12 puts are trading in the $1.08-$1.12 ranges. If the stock trades to the suggested ranges these puts should trade in the $0.65-$0.75 ranges. For this example we will assume that we can purchase these puts for $0.75 or better. The proceeds from selling the call will be used to fund this purchase. One will roughly be able to purchase 2 puts for every call sold.


You have the chance to leverage your position for little to no cost. In addition, you do not have to short the stock to begin with. If the stock trades above the strike price, you sold the calls at, then you will have the chance of opening up a short position at a much better price. In this case depending on the number of puts you purchased your entry price will range from 17.10 (if you purchased two puts) to 17.85 (if you purchased only one put).


You could be pushed into holding a short position if the stock trades above the strike price you sold the calls at. Therefore, you should only implement this strategy if you are bearish on the stock. If you are bearish on the stock, this strategy provides you with a chance of shorting the stock at a better price. If you have a change of heart and feel the stock could trade higher, you can roll the call. Buy back the old call and sell new calls that are out of the money.

Company: ArcelorMittal

Basic overview

  1. Free cash flow yield = 8.9%
  2. Relative Strength 52 weeks = 17
  3. Dividend 5-year Growth = -12.59
  4. Cash Flow 5 -year Average = 9.31
  5. Long term debt to equity = 0.44
  6. Beta = 2.56
  7. Levered Free Cash Flow = $1.00 Billion
  8. Quarterly revenue growth =2.3%
  9. Short ratio = 2.8%
  10. Quarterly earnings growth = -99%
  11. Sales vs 1 year ago = 20.4%
  12. EPS 5 year growth rate = -36.7%


  1. Net Income ($mil) 12/2011 = 2259
  2. Net Income ($mil) 12/2010 = 3005
  3. Net Income ($mil) 12/2009 = 75
  4. EBITDA ($mil) 12/2011 = 9294
  5. EBITDA ($mil) 12/2010 = 7829
  6. EBITDA ($mil) 12/2009 = 1020
  7. Net Income Reported Quarterly ($mil) = -1000
  8. Cash Flow ($/share) 12/2011 = 5.04
  9. Cash Flow ($/share) 12/2010 = 4.64
  10. Cash Flow ($/share) 12/2009 = 4.88
  11. Sales ($mil) 12/2011 = 93973
  12. Sales ($mil) 12/2010 = 78025
  13. Sales ($mil) 12/2009 = 65110
  14. Annual EPS before NRI 12/2009 = 1.5
  15. Annual EPS before NRI 12/2010 = 1.68
  16. Annual EPS before NRI 12/2011 = 1.8

Dividend history

  1. Dividend Yield = 4.4
  2. Dividend Yield 5 Year Average = 2.70
  3. Dividend 5 year Growth = - 6.97

Dividend sustainability

  1. Payout Ratio = 1.25
  2. Payout Ratio 5 Year Average = 0.25


  1. Next 3-5 Year Estimate EPS Growth rate = 21.29
  2. ROE 5 Year Average = 11.19
  3. Current Ratio = 1.60
  4. Current Ratio 5 Year Average = 1.39
  5. Quick Ratio = 0.50
  6. Cash Ratio = 0.31
  7. Interest Coverage = 1.7
  8. Long term debt to equity = 0.44


Do not put this strategy to use if you are not bearish on the stock as there is a chance that you could be forced to short the stock if the stock trades above the strike price you sold the calls at. Investors looking for other ideas might find this article to be of interest. Cummins: 10% On Top Of The Dividend, Or Get In At $81


It is imperative that you do your due diligence and then determine if the above strategy meets with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: EPS and Price Vs industry charts obtained from A major portion of the historical/research data used in this article was obtained from Options tables sourced from

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Tagged: , , Steel & Iron, Luxembourg, Options
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