Tariff Buzz Sends Call Buyers to Steel Stocks STLD and X

Near-term call options have been popular on both STLD and X

Feb 26, 2018 at 2:09 PM
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Steel stocks have been enjoying tailwinds as the Trump administration mulls placing tariffs on imported steel, with Bloomberg reporting the president is considering the stiffest tax possible. This has meant big gains for Steel Dynamics, Inc. (NASDAQ:STLD) and United States Steel Corporation (NYSE:X), and the price action has not been missed on options traders, as volume has stayed very hot in recent weeks.

Call Traders Take Aim at Steel Stocks

For instance, both STLD and X stocks landed on Schaeffer's Senior Quantitative Analyst Rocky White's list of the 20 S&P MidCap 400 Index (MID) stocks that saw the heaviest option volume over the past 10 days. Names in yellow, such as U.S. Steel, are new to the list since the last time the study was run. As you can see, both securities saw call volume easily outpace put volume.

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Recent Options Activity On STLD and X

Looking closer at Steel Dynamics, the May 49 and 55 calls saw the largest increases in open interest by far during the past 10 days, likely due to spread activity. Next up is the front-month March 50 call, and data from the major options exchanges shows mostly buy-to-open activity here. In other words, speculators expect STLD shares to top $50 in the coming weeks.

This wouldn't be uncharted territory for the equity, which topped out at $50.70 on Feb. 20. Overall, it has added over 40% over the past six months, and was last seen trading at $48.32.

For United States Steel, the April 45 strike saw the biggest increase in open interest of all calls during the past two weeks. Close behind were the March 45 and 46 calls. Buy-to-open activity has been detected at all these strikes, so there's hope X shares push higher in the near term.

At last check the equity was trading up 2.1% at $44.43. Since July, U.S. Steel stock has seen strong support from its rising 100-day moving average, including a major bounce earlier this month. X sports a six-month gain of 75.6%.


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