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United States Steel Corporation (X) Option Traders Switch Gears

X speculators are showing an affinity for short-term call options

by 7/19/2013 2:49 PM
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Option traders may be changing their tune on United States Steel Corporation (NYSE:X). So far today, the commodity concern has seen roughly 20,000 calls cross the tape -- nearly double the norm. Meanwhile, fewer than 8,000 X puts have been exchanged.

Attracting notable attention has been the weekly 7/26 19-strike call, which has seen more than 3,350 contracts change hands on open interest of fewer than 900 contracts, pointing to an influx of new positions. Plus, more than two-thirds of the calls have traded on the ask side, hinting at buyer-driven volume.

By purchasing the calls at a volume-weighted average price (VWAP) of $0.17, the buyers will begin to make money if X topples $19.17 (strike price plus VWAP) within the next week, which represents the options' lifetime. From the equity's current perch at $18.10, it would take an advance of 5.9% in order to hit breakeven. Should the stock stay south of the strike through next week, the buyers' risk is capped at the initial premium paid for the calls.

Heading into X's turn in the earnings limelight later this month, demand for short-term options is on the rise. The security's Schaeffer's Volatility Index (SVI) has ascended to 45%, which stands higher than 57% of all other readings of the past year. In simpler terms, X's near-term options are relatively pricey at the moment.

As alluded to earlier, today's appetite for calls marks a change of pace for X. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 10-day put/call volume ratio of 1.59 -- just 5 percentage points from a 12-month high. In other words, option buyers have picked up X puts over calls at a near annual-high clip during the past couple of weeks.

In the same skeptical vein, short interest accounts for 31.9% of X's total available float, representing more than six sessions' worth of pent-up buying demand, at the stock's average daily trading volume.

From an historical standpoint, United States Steel Corporation (NYSE:X) has fared well in the earnings confessional. In fact, the company has bested the Street's per-share profit projections in three of the past four quarters. Furthermore, X averaged a gain of 5.6% in the week after its earnings releases. Should the firm once again surpass expectations, an unwinding of skepticism on Wall Street could add contrarian fuel to the fire.


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