UPDATE 1-U.S. Steel stock, options trade up on takeover talk

* Market talk of ArcelorMittal interest

* Options volume is 5.8 times the norm late in the day

* Stock up 6 percent
(Adds trader, analyst comments; updates volumes, stock price)

By Steve James and Doris Frankel

NEW YORK/CHICAGO, Aug 18 (BestGrowthStock) – Shares of U.S. Steel
Corp (X.N: ) rose more than 6 percent and options trading
exploded on Wednesday on market talk that the steelmaker was a
takeover target.

“Unconfirmed rumors that ArcelorMittal may be interested in
buying U.S. Steel at $80 per share sparked an all-out options
feeding frenzy on the steel producer,” said Caitlin Duffy,
equity options analyst at Interactive Brokers Group.

TD Ameritrade chief derivatives strategist Joe Kinahan said
that although the potential suitor, ArcelorMittal, declined to
comment, “the street still believes that U.S. Steel is an
attractive candidate.”

In Brussels, a spokesman for Europe-based ArcelorMittal
(ISPA.AS: ) (MT.N: ), the world’s largest steelmaker, said it did
not comment on market rumors. But the company has said publicly
that its acquisition and merger focus is on mining companies.

A spokesman for U.S, Steel in Pittsburgh also declined
comment on the speculation.

One steel industry analyst poured cold water on the notion,
saying it made little sense. “There would be a 1 percent chance
that Mittal would bid for U.S. Steel and a 0 percent chance
that it would succeed,” said Michelle Applebaum of Steel Market
Intelligence in Chicago.

She said such a deal would require U.S. Steel’s domestic
flat-rolled business to be divested entirely because of
antitrust issues.

Also, U.S. Steel is the only steel company with United
Steelworkers (USW) union workers that remains American
domiciled and American-owned, and the USW relies on the
company’s support on trade and other political issues.

“The USW has a blocking vote in any acquisition. The
contract becomes null and void in a takeover. So there is no
way that the USW would allow Mittal or any other global company
to take over U.S. Steel,” Applebaum said.

In afternoon trading on the New York Stock Exchange, U.S.
Steel’s stock was up $2.95, or 6.23 percent, at $50.27.

The churning of the rumor mill increased demand for the
steelmaker’s options as investors traded more than three calls
for each single put by early afternoon, Duffy said.

An equity call option conveys the right to purchase shares
at a fixed price up to a certain date while a put option grants
the right to sell shares at a preset price any time until
expiration.

By 2:17 p.m. eastern time, investors had exchanged about
245,000 contracts on U.S. steel, led by 192,000 calls crossing
the tape, or 5.8 times the combined average daily volume,
according to options analytics firm Trade Alert.

Traders positioning for U.S. Steel’s shares to continue
higher ahead of Friday’s expiration picked up blocks of August
$50, $55 and $60 strike calls, Duffy said.

Kinahan noted the call interest was not only in U.S.
Steel’s August options, which expire on Friday after the close,
but in the September $50, $51 and $52 call strikes, which were
also very active. “This would suggest that the rumor may stick
around for awhile and has some credibility with the Street.”
(Reporting by Steve James in New York and Doris Frankel in
Chicago)

UPDATE 1-U.S. Steel stock, options trade up on takeover talk