- Schnitzer Steel (NASDAQ:SCHN) +1.6% pre-market after providing above-consensusguidance for Q4, seeing adjusted EPS from continuing operations of $1.75-$1.83, well ahead of $1.57 analyst consensus estimate.
- Schnitzer says market conditions for recycled metals are strong, with average ferrous selling prices reaching their highest level since 2008 and nonferrous market selling prices trading at or near multi-year highs.
- Despite the impact of the fire at the company's steel mill in May, Schnitzer says it delivered its best FQ4 operating performance since 2011, with adjusted EBITDA expected at $78M-$81M.
- Schnitzer expects Q4 ferrous and non-ferrous sales volumes to increase 9% and 3% respectively, even though volumes were hurt by the delayed arrival of a ship and tight container availability.
- The company expects to generate $139M in operating cash flow in the quarter, reducing debt to $75M, its lowest level since 2005.
So SCHN is doing well (this is why we read the news) so maybe a good time for X or MT? We played both of them last year and cashed out winners and now they've pulled back.
X is down to $6Bn at $22 and they expect to make $3.5Bn this year so I'd say that's a good one. Last year they lost $1.2Bn but this makes up for it and infrastructure should be good for them.
We certainly don't mind owning them for net $16 (25% off) so, for the LTP, let's:
- Sell 15 X 2024 $23 puts for $7.60 ($11,400)
- Buy 30 X 2024 $15 calls for $10 ($30,000)
- Sell 30 X 2024 $27 calls for $5.75 ($17,250)
That's net $1,350 on the $36,000 spread that's $21,000 in the money to start. The put sale is aggressive but it's still a great spread if you sell less puts or lower puts as the upside potential on this is $34,650 (2,566%) – so plenty of room to play with.
Since we now have X again, let's just sell puts on MT for the LTP:
Sell 10 MT 2024 $30 puts for $7.50 ($7,500)
Our worst-case scenario here is owning 1,000 shares for net $22.50 (26% off) and MT is at $32Bn making $13Bn this year after losing $733M last year. They should be consistently good for $3Bn+ so no worries owning them at $30, let alone $22.50.
