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U.S. Steel Swarmed by Short-Term Bears

Traders showed a healthy appetite for weekly puts on X

by 6/1/2012 11:22 AM
Stocks quoted in this article:

Short-term bears swarmed the shares of United States Steel Corporation (X - 19.27) on Thursday, with put volume accelerating to more than double the usual level. Approximately 48,000 puts crossed the tape, easily outstripping the roughly 25,000 calls that were traded. Speculators honed in on the steel stock's weekly 20-strike put, which expires after the close of trading today. This option traded volume of 12,866 contracts, with the majority changing hands near the ask price. Open interest at this strike jumped overnight by 5,457 contracts, suggesting that quite a few skeptics are betting on X to tumble its way through to the end of the week.

So far, that bearish forecast is coming to fruition. Along with the rest of the equities market, X tripped lower right out of the gate this morning. In fact, the shares are now at risk of staging their first weekly finish below $20 since March 20, 2009. Going forward, this formerly supportive round-number level could switch roles to act as resistance.

However, X's 5% slide today is a drop in the bucket for this long-term laggard. The shares have shed more than 54% of their value over the past 52 weeks, and they're down 23.3% year-to-date.

As a result of its dismal price action, X has become a favorite target of bears. During the past 50 sessions, the stock has racked up a put/call volume ratio of 0.87 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio registers in the 99th annual percentile, implying that options players have rarely purchased puts over calls at a faster pace during the last year.

Likewise, a hefty 27.3% of the security's float is dedicated to short interest. However, this is one data point that could work against the bears. With so much cash stacked up on the sidelines, X could enjoy a sharp snap-back rally in the event of any positive news, or a comeback in the broader market. With multiple layers of potential resistance looming overhead, though, any short-squeeze rally would likely be brief.

Weekly Chart of X since February 2011


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