Mechel is involved in four business segments which include mining, steel, ferroalloy and power. The Company unites producers of coal, iron ore concentrate, nickel, steel, ferrochrome, ferrosilicon, rolled products, hardware, heat and electric power.
Stocks of the Company (Mechel OAO) are traded in the U.S. under the Symbol MTL and in Russia under the Symbol MTLR.
MTLR is currently trading at 39.10 RUB on the MICEX --> = 1.11 USD/Share
MTL is currently trading at 2.01 USD/Share in the U.S.
U.S. traded Shares of Mechel are Trading at a premium of approximately 81.08%.
The premium is not caused by a lower liquidity on the Russian Market. In fact, MTLR volume over the past 30 days has bee 5.53m shares as opposed to a MTL average volume of only 1.932m shares.
One was to profit, would be to short MTL and buy MTRL. However, this is not my favorite play here! If you want to play the possible Coal recovery story without incurring substantial risk, I would go for the following play:
1. Long MTLR
2. Long Puts on MTL with a Price Strike of USD 2 and a January 2016 expiration date.
You pay USD 1.11 to go long MTLR ... + ... USD 0.80 to go long the PUT ------> Total Cost = USD 1.91
This strategy costs less than directly buying MTL .... and offers you a 100% capital protections (+ a 5% gain) ... in the case Mechel were to go Bankrupt before 2016.
Only risks you would still be exposed are... FX ... and ... the scenario under which Prices of MTL commons were not to converge
Disclosure: I am long MTL.
Additional disclosure: MTL, MTLR, Puts