U.S. Steel Stock Upgraded Despite Peaking Steel Prices

X options traders continue to prefer calls

by Patrick Martin

Published on Apr 3, 2018 at 10:01 AM
Updated on Apr 3, 2018 at 10:12 AM

United States Steel Corporation (NYSE:X) stock is up 4.7% to trade at $35.83, thanks to an upgrade to "buy" from "neutral" at Citigroup. The analyst in coverage says the equity is at a good value following a recent pullback, adding they're expecting higher lows for steel prices going forward even though U.S. flat rolled steel prices are seemingly peaking. The brokerage firm also issued a price-target hike to $46 from $43, a 28.4% premium from the stock's current perch. 

This price action puts U.S. Steel stock back above its year-to-date breakeven point. After touching a six-year high of $47.64 on March 1, X stock posted its worst month since April 2017. However, the pullback has been contained by the shares' 120-day moving average. In other news, the company just reached a $900,000 settlement over a chromium spill at its Indiana plant.

Despite the upbeat analyst attention today, others remain skeptical. Of the 13 brokerages covering the equity, 46% rate it a tepid "hold." This indicates there is still plenty of room aboard the bullish bandwagon.

In the options pits, call buying continues to be popular. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) confirms a substantial call bias, with long calls more than doubling puts in the past 10 days.

Digging deeper, the May 43 call saw to the biggest increase in open interest during this time frame. Most of the activity here has been of the buy-to-open kind, according to data from the major options exchanges, indicating options traders are banking on a renewed rally from the steel stock in the coming weeks. It's getting pricey to buy premium, however, according to the 30-day at-the-money implied volatility of 62.5%, which ranks in the 90th annual percentile.

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