Options Traders Should Put These 2 Steel Stocks on the Watch List

Steel stocks have put in a tremendous performance on the charts over the past year

Mar 8, 2017 at 11:51 AM
facebook X logo linkedin

Steel stocks have put in a strong performance, as evidenced by the 61% year-over-year gain for shares of the SPDR S&P Metals and Mining ETF (XME). More recently, the exchange-traded fund (ETF) pulled back after hitting a two-year high of $35.21 on Feb. 13, but seems to have found a foothold in the $30.30-$30.50 region -- home to its mid-November highs and its 200-week moving average -- last seen trading at $30.37. The mining and metals ETF is heading into a bullish period, too, having averaged monthly gains of 3.3% and 5.8% in March and April, respectively, since its inception. That said, it could be a prime time to buy call options on AK Steel Holding Corporation (NYSE:AKS) and United States Steel Corporation (NYSE:X), with the steel stocks seemingly ready to capitalize on these seasonal tailwinds.

AK Steel Stock Surrounded By Skepticism

After soaring to a five-year high of $11.39 on Dec. 8, AKS pulled back dramatically. However, the shares remain up 109% year-over-year, and appear to have based in the $7.70 region, which corresponds to the stock's rising 120-day moving average. Should the shares bounce from here -- AKS was last seen down 0.8% at $7.71 -- an unwinding of skepticism could help buoy the stock.

In the options pits, for instance, AKS' 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.94 ranks 4 percentage points from a 52-week peak, meaning puts have been bought to open over calls at a near-annual-high clip. Plus, 80% of analysts maintain a "hold" or worse rating, leaving the door wide open for a round of upgrades.

It's an affordable time to purchase premium on AK Steel Holding Corporation's short-term options, too, considering its Schaeffer's Volatility Index (SVI) of 57% ranks in the 2nd annual percentile. Likewise, the security's Schaeffer's Volatility Scorecard (SVS) of 98 suggests the shares have tended to make bigger moves than what the options market has priced in over the last 12 months.

Short-Term Options are Reasonably Priced On U.S. Steel Shares

Options traders have already been buying to open calls over puts on X at a faster-than-usual clip in recent months, per the stock's 50-day call/put volume ratio of 1.40 at the ISE, CBOE, and PHLX -- in the 98th annual percentile. It's not hard to see why, either, considering the shares of X have nearly tripled over the past year to trade at $35.89, with a recent pullback from X's two-year high quickly contained at the 40-day moving average.

Plus, the stock's SVI of 53% is ranked lower than 94% of all comparable readings taken in the past year, indicating low volatility expectations are being priced into X's near-term options. Meanwhile, the equity's SVS is docked at a lofty 100, indicating United States Steel Corporation shares have tended to make bigger moves than what the options market has anticipated.

Don't miss Schaeffer's free weekly stock market forecast. Sign up now for Monday Morning Outlook.

Unlock Weekend Profits with Chris Prybal's Favorite Strategy Up +487.5% in 2024

With the markets going left, right, and sideways, you need to have a plan now more than ever. 

Expert Trader Chris Prybal is no stranger to volatility, and has mastered finding big stock rallies while other traders aren't looking over the weekend. Rallies that produced gains like +207% on RTX calls, +236% on MARA calls, and +238% on NET calls.

A few simple moves on Sunday at 7pm could be the “Secret Sauce” your portfolio needs to not just stay afloat, but make unprecedented gains in this turbulent market.

Don’t sit on the sidelines, beat the market with Chris Prybal's strategy. Join him now!




Rainmaker Ads CGI