AK Steel Holding Corporation (AKS) Earnings Explosion Fails to Deter Option Bears

Traders are buying to open AK Steel Holding Corporation (AKS) put options, despite the steel stock's earnings-induced rally

by Alex Eppstein

Published on Oct 25, 2016 at 12:08 PM
Updated on Jun 24, 2020 at 10:16 AM

AK Steel Holding Corporation (NYSE:AKS) is going wild today, after the mining firm reported better-than-expected third-quarter earnings -- part of a bullish trend for steel stocks. At last check, the shares were flirting with a 9% gain at $5.66. At the same time, AKS options are being exchanged at 13 times the usual intraday rate, and in the 99th percentile of their annual range.

However, it appears that some traders are anticipating a short-term pullback. Specifically, the weekly 10/28 5.50-strike put has seen roughly 15,000 contracts cross the tape -- more than any other AKS option. Based on the data, it seems safe to assume speculators are buying the puts to open, expecting the steel stock will slide back below $5.50 by Friday's close, when the weekly series expires.

This isn't anything new for AK Steel. Relatively speaking, the pace of put buying has picked up of late, per International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) numbers. Specifically, AKS sports a 10-day put/call volume ratio of 0.77, in the bearishly skewed 88th annual percentile.

Ths pessimism is shared elsewhere on the Street. For instance, nearly 29% of the stock's float is sold short, equating to one week's worth of pent-up buying power, at AKS' average trading rate. What's more, despite the shares bouncing sharply off their 200-day moving average in September -- a time frame in which they've rocketed roughly 46% -- the brokerage crowd is decisively bearish. Ten of 11 analysts consider the stock a "hold" or worse.

From a contrarian perspective, this bodes very well for AK Steel Holding Corporation (NYSE:AKS). Should the steel stock keep storming higher, a capitulation among option bears, short sellers, and/or skeptical analysts could add fuel to the fire.

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