Wall Street Continues Bearish Onslaught of Steel Stocks

Some put traders could be making out on the decline in the steel stocks

May 30, 2019 at 9:20 AM
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The shares of United States Steel Corporation (NYSE:X) have been getting crushed in recent months, and are now set to open at fresh three-year lows after Deutsche Bank weighed in on the broader steel sector. The analyst note released this morning cited changes in the space due to trade tensions and weak prices, and in response X was downgraded to "sell" from "hold," while its price target was slashed to $11 from $20.

Just yesterday, KeyBanc offered downbeat comments on the steel sector, and earlier this month UBS also said to sell U.S. Steel stock. Wednesday's close of $12.85 put the shares' year-to-date deficit at roughly 30%. Some options traders appear to be positioned to profit from more losses in the near term, with heavy open interest residing at the front-month June 13 put.

Deutsche's note also hit Steel Dynamics, Inc. (NASDAQ:STLD), downgrading the equity to "hold" from "buy" and dropping the firm's price target to $30 from $44 -- though this is still a premium to yesterday's closing price of $26.72. STLD hit a two-year low of $26.42 on Wednesday, and is set to close May with a nearly 16% loss.

Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) would suggest traders are profiting from the stock's decline. In the past 10 days alone, 5,683 puts have been bought to open, compared to just 222 calls, putting the two-week put/call volume ratio at 25.60 -- just 2 percentage points from an annual bearish extreme.

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