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Recent Rally Has United States Steel Corporation Bears on Edge

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United States Steel Corporation option players showed a rare display of attention toward long calls yesterday

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United States Steel Corporation (NYSE:X) has been on quite a tear recently, with the stock up around 10% over the past three months to trade at $19.81. Per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), option players on Thursday showed signs of capitulating to this positive price action. Throughout the course of the session, in fact, speculators bought to open 1,983 calls on X, compared to 907 puts, resulting in a single-day ISE/CBOE/PHLX call/put volume ratio of 2.19.

However, similar to sector peer AK Steel Holding Corporation (NYSE:AKS), the growing disposition in X's options pits has tended toward the bearish side of the aisle. At the ISE, CBOE, and PHLX, traders have bought to open 49,309 puts throughout the past 10 sessions, versus 23,984 calls. What's more, the resultant put/call volume ratio of 2.06 (which stood at 0.36 just two weeks ago) ranks in the highest percentile reading of its annual range, meaning long puts have been initiated over calls at an annual-high clip.

The withstanding skepticism toward X is seen outside of the options arena, as well. Short interest rose 8.1% during the last two reporting periods, and now accounts for more than 29% of the stock's available float. Given that X is staring at a 16.9% year-to-date deficit, option players' attention toward long calls on Thursday may simply represent short sellers picking up hedges amid the equity's recent rally.

Now appears to be an opportune time to acquire some options-related insurance on the cheap, as Schaeffer's Volatility Index (SVI) for X is docked at 37% -- in the 25th percentile of its annual range. Simply put, premium on the security's short-term options is relatively inexpensive at the moment.

If Thursday's call buyers were indeed short sellers in disguise, they won't be too disappointed that the stock is down 1.8% this morning -- testing newfound support atop its 200-day moving average -- after Cowen & Co. cut its price target for X by $1 to $17.50. However, thanks to the upward momentum X has exhibited of late, the stock's Relative Strength Index (RSI) of 71 suggests that a near-term pullback may have been in the cards.

This article by Karee Venema was originally published on Schaeffer's Investment Research.

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No positions in stocks mentioned.
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