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AK Steel Holding Corporation (AKS) Insiders And Call Options Bullish

 December 03, 2012 03:50 PM
 


(By Rich Bieglmeier) Insiders are buying at AK Steel Holding Corporation (AKS). Since November 22, 2012 five executives and directors bought 129,000 shares for a total of $666,862.  In 2011, three of the same charters bought the stock in the neighborhood of $8 and then sold in January 2012 from $9.29 - $9.41. A 16% profit in six months ain't that bad!

CEO James L. Wainscott and David C. Horn, Exec. VP, Gen. Counsel are two of the roundtrip buyers in 2011 that are back for a second bite. iStock likes to see day-to-day executive manager buying at the same time, especially when they have a track record of getting the timing right.

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Based on historical valuations, the quintet could see similar returns in the next few months. AKS currently trades with an 18.6% discount to its five-year average price-to-book (P/B) ratio of 2.751. The steel & iron company's price-to-sales (P/S) ratio of 0.07 is one fifth the five-year average of 0.347 and at a five-year low. However, AKS's trailing-twelve-month P/E is through the roof.  AK Steel's forward P/E of 22.91 is much lower than the current 172.62 but still higher than usual.

Shares took a beating in the middle of November after a secondary offering of sell 22 million shares for $4 each. The offering drove the stock to a nine-year low of $3.42. The sell-off dropped the stock price below a triple bottom at $4.60ish. With a little bit of love from Wall Street following the series of insider buys, we can see shares moving back to the $4.60 range, which is a 17% move higher from AKS price as we type.

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In our opinion, a blurb of good news is all it would take for the stock to make such a move. Nearly one out of every three shares of AKS's float (stock available for trading) are sold short. According to Schaeffer's Investment Research, it appears many options players anticipate some positive price movement from the steel stock.

Schaeffer's says, "Options traders on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have bought to open 3,376 calls during the past five sessions, compared to only 100 puts. In other words, speculators have snapped up 33.76 times more calls than puts over the course of the last week."

A quick review of the options tables shows January as the month with the most open interest for calls. However, December appears to have more interest in the strike prices closer to AKS' current price. Clearly, options speculators expect something to happen within by January's 2013 expiration date of the 13th.

The January 2013, $3.50 call options trading for $0.60, of which $0.40 is "in-the-money" seems like a reasonable risk to iStock.

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