U.S. Steel Sees Bullish Action
CHICAGO (
) -- The S&P 500 Materials sector is down on the day, but still outperforming the broader market. Meanwhile
U.S. Steel
(X) - Get Report
is bucking the trend and actually currently up 30 cents to $63.55.
Bullish options action during afternoon trading suggests some investors might expect continued outperformance, and for the stock to rally throughout the later term.
X shares are currently just a couple dollars off from their 52-week high of $66.45, and it looks like some investors expect the stock to hit new highs sometime during the next seven months.
At 1:53 p.m. EST, more than 5,800 out-of-the-money October 75 calls changed hands for the ask price of $4.70 per contract versus current open interest of 765 contracts, indicating investors most likely traded these options to open. Investors who purchased these later-dated calls will make money if X shares climb higher than $79.70 at October options expiration; this represents 25% of upside.
Implied volatility of the October 75 calls is 45% compared to a 30-day historical volatility of 43%. These calls have gained 40 cents so far on the day. Given that these OTM options have increased by more than even the stock is a clear example that the buying action has pushed up the price and implied volatility of the calls.
X shares have not rallied higher than $75 since September 2008, and it looks like some investors expect volatility to kick in to boost the stock back up.
-- Written by Jud Pyle in Chicago
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."
