Citigroup Advises Selling ArcelorMittal Puts on Steel Outlook

By Gareth Gore

July 23 (Bloomberg) -- Citigroup Inc. advised clients to sell put options in ArcelorMittal on speculation steel prices will stay high, bolstering earnings at the world's biggest steelmaker and supporting its stock price.

The brokerage advised selling put options expiring in December at a strike price of 48 euros after the price paid for the contracts soared to a four-month high. Investors will profit as long as the shares remain above 44 euros each, assuming the contract is sold at 4 euros, it said.

ArcelorMittal shares have lost 22 percent in the past month, trading at 51.39 euros as of 12:24 p.m. today in Paris. ArcelorMittal is among the stocks that top Citigroup's list of equities expected to reverse declines.

``Bears could find a bit more negative newsflow over the summer period, as seasonal demand slows and price growth moderates, but earnings momentum continues to grow,'' analysts including Stuart MacDonnell wrote in a note dated July 21.

Steel prices aren't likely to experience ``a major correction'' over the coming months and will likely remain at around current levels, the note added.

ArcelorMittal has lower costs that most of its rivals and sells more than 80 percent of its products on a ``shorter-term'' basis, helping increase profit margins, the note said.

The benchmark north-European hot-rolled coil steel price index has rallied 48 percent in the last five months.

Put options give the buyer the right -- but not the obligation -- to sell shares at a pre-agreed price on a specific date. By selling a put, an investor is taking the bet the contracts won't be exercised, allowing him to keep as profit the price paid for the option.

For related news: Most-read derivatives news: {MNI DRV } Options news: {NI OPTIONS }

To contact the reporter on this story: Gareth Gore in Madrid ggore1@bloomberg.net