AK Steel Stock May Be Flashing 'Buy'

Options traders could buy AK Steel (AKS) calls at a bargain

Apr 4, 2017 at 1:43 PM
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Since notching a five-year high of $11.39 in early December, the shares of AK Steel Holding Corporation (NYSE:AKS) have given up roughly 36%. However, the stock's pullback could be a buying opportunity, if past is prologue, with AKS recently sending up a pair of historically bullish signals. Today, AKS stock is 2.1% higher at $7.25, with steel and construction stocks on the move in the wake of encouraging infrastructure plans from President Donald Trump.

'Buy' Signals for AK Steel Stock

The first "buy" signal for AKS is the stock's test of its 200-day moving average. After the past three tests of this trendline, the shares of AKS were higher 100% of the time, looking one month out. What's more, the security averaged a one-month gain of 25.18% after these signals, according to Schaeffer's Senior Quantitative Analyst Rocky White. Second, AKS recently breached its lower Bollinger Band, which has been one of the best "buy" signals during the past year, per data from White.

AKS stock chart today


Wall Street Skeptical of AKS Stock

Should AKS bounce off its 200-day moving average yet again, quite a few skeptics could be taken aback. Short interest represents nearly 15% of AKS' total available float, and 80% of analysts following AKS maintain "hold" or worse opinions. Meanwhile, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.65 is higher than 86% of all other readings from the past year. In other words, while near-term calls still outnumber puts on an absolute basis, traders have rarely been more put-heavy on AKS. Another 25.18% rally on the charts could trigger a short squeeze, a round of upgrades, or an exodus of option bears -- all potential catalysts higher for AKS.

AK Steel Options Are a Bargain

Those looking to bet on short-term gains for AK Steel Holding Corporation (NYSE:AKS) stock can get short-term calls at a bargain, too. The stock's Schaeffer's Volatility Index (SVI) of 50% is just 3 percentage points from an annual low, pointing to attractive short-term options premiums right now. Plus, the stock's Schaeffer's Volatility Scorecard (SVS) sits at a lofty 96, indicating AKS shares have exceeded options traders' volatility expectations over the past year.

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