Put volume is outpacing call volume by a margin of more than 2-to-1 in United States Steel Corporation's
(NYSE:X) options pits. The majority of the put activity is taking place at the January 2014 17-strike put, where nearly 7,100 contracts have traded. With 98% of the puts changing hands at the ask price and implied volatility slightly higher, it's likely the activity is of the buy-to-open sort -- a theory that data from the International Securities Exchange (ISE) corroborates.
Delving a little deeper, we see that most of the trading volume can be attributed to a single block of 5,812 contracts, which crossed the tape 15 minutes after the opening bell. The bearish speculator paid a $1.45 premium to enter his long position, making the breakeven point for the trade $15.55, or the strike price minus the initial net debit. If X shares sink beneath that mark by January expiration, the trader will profit with every step south the stock takes. However, if the equity finds a foothold above the strike, the most the big bear can lose is the premium paid.
Traders, especially in the short term, have been bearishly aligned toward US Steel. The stock's Schaeffer's put/call open interest ratio (SOIR) stands at 1.41, which means put open interest on options expiring in the next three months outstrips call open interest. What's more, the SOIR is just 4 percentage points from an annual acme, confirming the current bearish bias, relative to the past 52 weeks.
On top of that, X -- like sector peer AK Steel Holding Corporation
(NYSE:AKS) -- has received some downbeat brokerage attention
in recent weeks. At present, U.S. Steel features just three "buy" or better ratings, compared to 11 "hold" or worse evaluations.
Of course, none of this is unexpected, given United States Steel Corporation's year-to-date loss of nearly 21%. Recently, however, the metal producer has displayed some technical strength, outperforming the broader S&P 500 Index
(INDEXSP:.INX) by 5 percentage points through the last 20 sessions.
In other news, US Steel is preparing to report second-quarter earnings next Tuesday, prior to the opening bell. Analysts are calling for a per-share loss of $0.77.
This article by Alex Eppstein was originally published on Schaeffer's Investment Research.
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No positions in stocks mentioned.