Is Elon Musk Eyeing an X Stock Purchase?
Aug 15, 2023
United States Steel Corp (X) Jumped from a closing print of $22.72 on Friday Aug. 11 to a new 2023 high of $32.52 on Monday Aug. 14—a 43%-plus increase.
The mega steel company is fielding unsolicited offers from multiple suitors, including Cleveland-Cliffs Inc (CLF) and Esmark Inc., and the rumor mill is buzzing with Elon Musk's potential interest in the deal.
The $7.8 billion offer from Esmark puts the share price at $35 in an all-cash deal, but the options market is still pricing in a bit of implied volatility around the deal going through:
When a deal is presented to the marketplace, we can tell a lot about the deal's price and probability of going through by checking out the options market activity. This is no different than the Microsoft (MSFT) & Activision Blizzard (ATVI) acquisition that caught the public eye earlier this year.
Looking at a long-term options contract, like the 521-day contract we're looking at here, we can clearly see where the market has zapped extrinsic value premium to imply a deal is likely.
Looking at the 23-22-20 strikes, there is a clear drop-off in activity reflected in the near-zero bid prices for these options. In any other stock, you can see plenty of extrinsic value premium reflecting real implied volatility for such a long-term cycle like this.
On the upside, the same can be said for the 37-40-42 strikes. There is a clear drop-off in extrinsic value premium there as well, implying that the deal wouldn't be higher than $37 if it goes through.
With all this information, we can deduce that the deal is likely to be around $35 per share if it goes through, and likely no higher than $37. If the deal does not go through, the market is pricing in a potential drop anywhere as low as $24-25. Of course, anything can happen with this deal, which is why there is still a premium across many strikes - if the deal was done, there would be little to no extrinsic value surrounding the stock price.
Mike Butler, tastylive director of market intelligence, has been in the markets and trading for a decade. He appears on Options Trading Concepts Live, airing Monday-Friday. @tradermikeyb
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