Wall St is betting that a takeover is potentially in order for U.S. Steel (X). Heavy option activity in strikes far as far out as $70 means that there's a cheap way to take part in this bet that a takeover could happen.
How can we do this CHEAP? I have two interesting scenerios (based on the Sept Calls):
(1) Purchase a call outright Out-of-the-money (OTM). I particularly like the $60 strike currently trading $0.23. If one was to purchase 10 contracts, it would cost them $230 (plus commissions). If the buyout was to occur around $70/share, which is reasonable assumption, you would stand to profit $10,000 (give or take depending on your commission structure with your broker). However, if you were to purchase 1,000 shares (the equivalent of 10 contracts), your cost would be $$48,000! This is why people use options :)
(2) We can make this trade even cheaper by selling calls at a higher strike (same number of contracts, in this case 10, based on the hypothetical trade listed above) and creating a spread. The $70 strike looks particularly interesting since there's a $0.12 premium associated with it. Therefore, if you were to sell the $70 call against it, we could get a credit of $0.12 meaning our total trade would cost us just $0.11 !!!!! Not bad at all. A $110 cost would result in potentially a $10k profit (not taking into account commissions) based on 10 contracts.
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