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US Steel Skeptics Won't Back Down


Put buyers continue to target US Steel as resistance looms large.

Puts are the options of choice on United States Steel Corporation (NYSE:X), according to volume data from the major exchanges. During the past 10 sessions, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 1.11 puts for every call on the steel stock. This ratio arrives in the 87th percentile of its annual range, as traders have purchased puts over calls on US Steel at a faster pace just 13% of the time during the last year.

In fact, on Thursday alone, options players on the ISE, CBOE, and PHLX, bought to open 10,563 puts and 1,712 calls on US Steel, netting the shares a single-day put/call volume ratio of 6.17. Upon closer inspection, most of the day's activity took place at the November 24 put, which is soon to assume front-month status.

Specifically, 12,993 puts traded at this strike, with 63% crossing at the ask price -- confirming a bias toward buyer-driven volume. The November 24 put added 9,953 contracts to open interest overnight, and now carries a total of 10,103 contracts in residence. Based on the option's volume-weighted average price (VWAP) of $1.94, Thursday's put buyers will begin to profit if US Steel falls below breakeven at $22.06 (strike price less net debit) by the time November expiration rolls around.

It's hard to blame speculators for adopting such a bearish attitude toward US Steel, as the commodity concern has shed nearly 14% of its value so far this year. Currently, the shares are pinned just below long-term resistance at their 10-month moving average.

Looking ahead, US Steel is due to report its third-quarter earnings on Tuesday, October 30. Analysts are looking for a profit of $.01 per share, down sharply from last year's earnings of $.72 per share. US Steel has surpassed Wall Street's bottom-line expectations in three of its last four quarterly reports.

This article by Elizabeth Harrow was originally published on Schaeffer's Investment Research.

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