Options: Bull Call Spread on U.S. Steel

By Jud Pyle, CFA, chief investment strategist for the Options News Network

Investors are beginning to take a more bullish stance on United States Steel (X Quote).

Looking at the July 33 calls, around 7,300 contracts traded at roughly $2.40 per contract with the stock trading at $30.52. Heading into today's trading, open interest at this strike stood at just 800 contracts. In addition, more than 12,000 July 40 calls have traded today, crossing the tape at roughly 75 cents per share. There were about 20,000 July 40 calls already open earlier today. This is a bullish call spread that can illustrate how one could try to take advantage of potential upside in X.

At 11 a.m. EDT Tuesday, one investor bought 7,000 July 33-40 call spreads for $1.45. That means the customer bought the 33 calls and sold the further out-of-the-money 40 calls, paying $1.45 (net) for the transaction. The investor will be profitable at July expiration if United States Steel shares finish above $34.45 (the strike of the long call plus the premium paid).

X reached a 52-week low on March 2, when the shares dipped to $16.88. Since then, the shares have nearly doubled in value. X shares closed at $29.94, up $1.41, or 4.94% on the day. X shares rallied today, along with other U.S. steel makers AK Steel Holding (AKS Quote) and Nucor (NUE Quote), thanks in large part to analyst predictions that demand for steel will rise soon, as steel makers continue to report slight increases in weekly production.

Bullishness in United States Steel suggests investors could be betting that X shares will be advancing farther off the lows the company saw in March. We didn't see significant X volumes today compared to normal daily volume of around 36,000, but at least one investor is striking while the steel is hot.

Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.