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
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
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.
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