How Traders Tripled Their Money on U.S. Steel Calls

This well-timed call trade on U.S. Steel doubled in just a few days

by Patrick Martin

Published on Mar 1, 2018 at 2:33 PM
Updated on Mar 1, 2018 at 2:33 PM

Subscribers to Schaeffer's Weekly Options Trader service recently scored a 225% profit with United States Steel Corporation (NYSE:X) weekly 2/23 34.50-strike calls. We're going to take a look back to see why we were initially bullish on X when we recommended the call, and how the options trade unfolded.

We entered our bullish X position on Feb. 13, just after the shares notched a close back above their 2017 year-to-date breakeven level of $35.19 following a brief foray below it earlier that month. X had also met up with its 80-day moving average, and pullbacks to this trendline had marked good buying opportunities in the past.

X was simultaneously trading above heavy put open interest at a number of out-of-the-money February strikes. Specifically, X's Schaeffer's put/call open interest ratio (SOIR) stood at 1.07, which indicated put open interest outweighed call open interest among contracts expiring within three months. This raised the odds of the stock finding options-related support as the hedges related to these out-of-the-money puts were unwound.

Lastly, short sellers had been in covering mode, with short interest falling 63% since mid-September. However, shorted shares still represented a healthy 8.4% of X's total available float, implying a great deal of pent-up buying pressure remained.  

As expected, U.S. Steel stock bounced off its 80-day moving average in the days after we entered the call trade, while short interest continued to fall as shorts threw in the towel. A favorable fundamental backdrop also supported the bullish case, as traders priced in expectations for the Trump administration to roll out steel tariffs and quotas in accordance with Commerce Department recommendations.

We closed half of the U.S. Steel call position back on Feb. 16, just a few days after entry, to lock in a rapid-fire 100% profit. We subsequently closed the final half on Feb. 23 for a bottom-line profit of 225%, allowing options traders to more than triple their money.

Postmortem X


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