United States Steel Corporation (X) Options Price In Big Post-Earnings Move

United States Steel Corporation (X) will report earnings after the market closes tonight

Jan 31, 2017 at 11:58 AM
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United States Steel Corporation (NYSE:X) will report fourth-quarter earnings after the close tonight, and options traders are preparing for a big move on Wednesday. But bulls may be sweating already, as the stock is down 2.7% at $32.12 today, as concerns surrounding President Donald Trump's orders on the production of major oil pipelines weigh on the sector. Specifically, while Trump called for U.S.-made materials to be used for the Keystone XL and Dakota Access pipelines, analysts have noted that, among other issues, American steel producers could have trouble meeting strict requirements for the projects. Still, X stock is perched above a solid layer of support.

Thanks to a huge post-election rally in the steel sector, X has outperformed the broad S&P 500 Index (SPX) by more than 70 percentage points over the past three months. More recently, the shares have been pulling back since tapping a two-year high north of $39 in early December, and are now under pressure from the 20-day moving average. On the other hand, X has found a firm foothold in the $32 region, which corresponds to the stock's 2012 and early 2014 highs. Plus, the stock's 60-day moving average is currently located at $32 -- a trendline that ushered X lower through the latter half of 2015, but now appears to be serving as support.

X Daily Chart January 31

Despite an incredible 344% year-over-year lead for the stock, analysts are hesitant. Out of 13 firms providing coverage, nine rate X a "hold" or "strong sell." Elsewhere, short sellers have been throwing in the towel amid X's uptrend, with short interest down 68% year-over-year. What's more, it would take a little over one session to cover the 20.2 million X shares sold short, at the equity's average daily volume.

Turning to the options pits, speculators seem to be positioning for a post-earnings advance. Across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought calls at nearly double the rate of puts over the past two weeks. The resulting 10-day call/put volume ratio of 1.93 sits in the 95th percentile of its 52-week range, meaning long calls have been initiated relative to puts at a near-annual high rate. Short-term traders are unusually call-heavy, as well, per X's Schaeffer's put/call open interest ratio (SOIR) of 0.60 -- just 1 percentage point from a 12-month low.

Of course, history doesn't give us many clues about which direction X will move after earnings. Over the past eight quarters, the shares have gained in the session subsequent to reporting exactly 50% of the time. However, United States Steel Corporation (NYSE:X) does tend to make some hefty moves, averaging a 10% swing in either direction over the same period. Currently, the options market is pricing in a loftier 13.2% move for tomorrow's trading.

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