The Steel Stock With Cheap Options

U.S. Steel stock could be at risk of more losses, should traders continue to short the shares

Aug 7, 2017 at 3:02 PM
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United States Steel Corporation (NYSE:X) has been wallowing on the charts since the stock topped out at an annual high of $41.83 in late February, down 42.5%. While X shares are up 2.8% today at $24.17 following an overnight surge in China's iron ore prices, they're running into trouble in the $24.50 region -- which roughly coincides with the equity's late-April bear gap highs. Just above here is X stock's descending 100-day moving average, which contained rally attempts in late March and late July.

x stock daily chart august 7

Despite X's longer-term technical troubles, options traders have been quick to initiate long calls relative to long puts of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 64,502 calls in the last 10 days, compared to 24,408 puts. The resultant call/put volume ratio of 2.59 ranks in the 83rd annual percentile.

Drilling down, the August 24 call has seen the largest rise in open interest over this time frame, with more than 11,391 contracts added. Trade-Alert indicates the bulk of this activity occurred on Friday, July 28, when one options trader rolled her long August 27 calls down to the 24 strike, effectively lowering her bullish expectations for X shares.

Outside of the options pits, short sellers have been ramping up their bearish exposure to U.S. Steel shares. Since bottoming at a nearly six-year low in early May, short interest has surged 66.4% to 31.63 million shares. Continued selling pressure from this group of bearish bettors could amplify X's technical woes.

Regardless of whether you're bullish or bearish, X stock's options are attractive at the moment. While its Schaeffer's Volatility Index (SVI) of 45% ranks in 5th annual percentile, its 30-day at-the-money implied volatility of 44.7% is perched south of 99% of all comparable readings taken in the past year. In other words, low volatility expectations are being priced into U.S. Steel's short-term options -- -- a potential boon to premium buyers and straddle traders.
 

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