AK Steel Holding Corporation (AKS) New High Stokes Bullish Options Betting

A sector-wide rally helped send AK Steel Holding Corporation (NYSE:AKS) to a new annual high, with call buyers betting on even more upside

Karee Venema
Nov 22, 2016 at 11:13 AM
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Steel stocks are soaring today, with AK Steel Holding Corporation (NYSE:AKS) notching a new two-year high of $8.71 amid the sector tailwinds. At last check, AKS stock was up 6.8% to trade at $8.58, sparking a round of bullish betting in its options pits. By the numbers, around 39,000 calls have traded -- five times what's typically seen at this point in the day -- compared to just 7,042 puts. What's more, both total options volume and call volume are running in the 99th percentile of their respective annual intraday ranges.

Drilling down on specific strikes, AKS' March 8 call is most active thus far, with more than 14,100 contracts traded. It's possible new positions are being purchased here, as well as at the stock's January 2017 7-strike and weekly 12/9 9.50-strike calls. If this is the case, the goal of the call buyers is for the steel stock to extend today's rally through the respective expiration dates. In terms of the weekly 12/9 9.50-strike call, the equity has not explored the north side of $9.50 since September 2014.

More broadly, today's accelerated call volume runs counter to what's been seen at the major options exchanges of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day put/call volume ratio of 0.72 ranks in the elevated 86th annual percentile, meaning long puts have been initiated relative to calls at a faster-than-usual clip. Given AKS' impressive technical showing, some of this activity -- particularly at out-of-the-money strikes -- could be a result of shareholders protecting paper profits against any unexpected downside.

Regardless, now appears to be a prime time for premium buyers to target the steel stock. Specifically, AKS' 30-day at-the-money implied volatility of 66% ranks in the 11th annual percentile, while its Schaeffer's Volatility Index (SVI) of 60% is at an annual low. Summing it all up, the stock's near-term options are pricing in relatively low volatility expectations at the moment.

Additionally, AKS sports a lofty Schaeffer's Volatility Scorecard (SVS) reading of 89. What this suggests is that the options market has historically underpriced the stock's ability to make a big move on the chart over the past 12 months -- a potential boon to those purchasing premium on AKS.

As suggested above, the stock has put in a standout performance on the charts over the past 12 months -- with the shares nearly doubling in value over that time frame. Nevertheless, nearly 64% of analysts maintain a "hold" or worse rating on AK Steel Holding Corporation (NYSE:AKS), while almost 27% of the equity's total float is sold short. Should the shares continue their climb up the charts, a fresh round of bullish brokerage notes and/or a capitulation from some of the weaker bearish hands could translate into additional gains for AKS.

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