Bull looks for reversal in U.S. Steel


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One investor is looking for a bounce from U.S. Steel, whose shares have been falling for years.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 4,500 July 18 calls for $1.29 and the sale of 9,000 July 23 calls for $0.17. Volume was more than 7 times open interest at each strike, clearly indicating that this is new positioning.

The strategy is known as a ratio spread because twice as many contracts are sold as the number bought. That allows the investor to lower the cost of the purchase, thereby increasing leverage, but it also results in a large short position if the steel maker rallies too far.

Yesterday's trade cost $0.95 to open and will earn a maximum profit of 426 percent on a move to $23 on expiration. The investor may also own the stock and could be using the ratio spread as a "repair" strategy, potentially providing big leverage on a limited move while committing the trader to exit over $23. (See our Education section for other ideas on how to manage trades.)

X fell 0.63 percent to $17.55 in the session. It's down 40 percent in the last year, while the S&P 500 has rallied 11 percent over the same period. The industry has struggled amid relatively weak demand from emerging markets such as China.

Total option volume was more than twice the daily in X yesterday.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing , Options

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