Pre-Earnings Options Bears Blast United States Steel Corporation (X)

United States Steel Corporation (X) will report earnings after next Tuesday's close

Jan 22, 2015 at 11:53 AM
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United States Steel Corporation (NYSE:X) said it would be passing out more pink slips due to declining demand for oil pipes, adding to the layoffs the company announced earlier this month. At last check, the stock was down 1.3% at $21.77 in the wake of the news, and options traders are calling for more downside.

Taking a quick step back, puts are trading at 1.2 times what's typically seen at this point in the day. Most active is X's February 20 put, and it appears some of the activity is of the buy-to-open kind. By initiating the long puts, speculators expect X to be sitting south of the round-number $20 mark by the close on Friday, Feb. 20 -- a time frame that encompasses next Tuesday night's fourth-quarter earnings report.

With earnings on the horizon, these put buyers were willing to pay up for their bearish bets. Not only does the stock's Schaeffer's Volatility Index (SVI) of 54% rank higher than 66% of similar readings taken in the past year, but its 30-day at-the-money implied volatility of 55.8% sits in the 95th percentile of its annual range. In other words, premium on X's front-month options is pricing in relatively high volatility expectations.

On the charts, X has been in a steady downtrend since hitting a three-year high of $46.55 in mid-September, and has shed more than half of its value. More recently, the equity has been pressured lower by its 10-day moving average. However, United States Steel Corporation (NYSE:X) has a history of post-earnings upside, and over the past eight quarters, has averaged a gain of 3% in the session subsequent to reporting.

Daily Chart of X Since September 2014 With 10-Day Moving Average
 

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