U.S. Steel ( X) shares have been on a wild ride over the past nine months, falling from a late-June peak of $186.93 to a low of $16.88 on March 2.

In the past six weeks or so, the stock has been fighting back, up about 60% from its lows to crack the $27 level. (In today's action, X is down more than 9%).

Needless to say, the steel producer's stock is volatile, and things aren't terribly likely to settle down in the next few weeks, with earnings due on April 28. Analysts have projected a loss of $1.69 per share, down from a year-ago per-share profit of $1.77 (talk about volatile!)

Some options traders are looking to take advantage of continued volatility in X shares, as they are scooping up the May 25/35 strangle by buying the 25 puts and the 35 calls, both of which are out of the money. The 25-strike put is, however, closer to the money, with a higher delta, indicating that this investor may have more of a downside/bearish bias. About 6,000 contracts have traded at each strike so far today.

With volatility popping slightly higher from Friday's level, this straddle traded for, on average, about $2.35 for the spread, keeping risk relatively low (the combined premium, plus commissions). Return is potentially high if X either spikes higher or plunges lower after it reports earnings next Tuesday.

The risk to buying this or other strangles is that the stock could fail to deliver a dramatic move around earnings (or before May expiration), resulting in a worthless expiration for both sides of the strangle. Additionally, a deflation in implied volatility could negatively impact the trade.

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.
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."