Go Long United States Steel Corporation (X) Stock and the American Rally

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United States Steel Corporation (NYSE:X) has struggled through most of 2017. Since January, X stock has plunged 50% through mid-May and left a massive open gap following the most recent earnings action.

Go Long United States Steel Corporation (X) Stock and the American Rally

However, technically speaking U.S. Steel seems to have set an interim bottom. For the past few weeks, we’ve seen higher lows knocking on the $22 pivot level. If bulls can break it, they can potentially attempt to fill that giant gap above.

I am not one to chase ridiculous rally hope. I prefer to sell downside risk against overblown fears to generate income. Case in point: My recent X trade paid fast profits out of thin air. That wasn’t the only one — just a few weeks earlier, I shared another long trade on X stock that also delivered profits with no risk out of pocket.

Today, I want to reset things on a new time frame knowing I have profits in hand.

Fundamentally, the bullish thesis for U.S. Steel is little more than a Trump trade. The promise of infrastructure combined with a buy-and-use American resources are direct benefactors.

Even if follow-through might not be realistic to the extent of expectations, the simple promise of the idea buoys the stock price. It’s hard to short a stock that has a long-term thesis on its side.

Profitability is a bit of an issue, but right now, traders aren’t that picky. Especially because after such a big correction in price, most of the weak hands are likely already out of U.S. Steel.

How to Trade X Stock


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The thesis:
 U.S. Steel recently formed a base from which it can attempt to mount a rally. I want to add to my potential income by selling more downside risk to profit from it. I do this with profits already in hand.

The trade: Sell the X Aug $18 put naked and collect 90 cents per contract. Here, we have an 80% theoretical chance of retaining maximum gains. But if the price of shares falls below my strike, we will own the shares and suffer losses below $17.10.

I don’t like buying “hopium,” but one can add more bullish bias by buying upside exposure to capture the rally.

The twist (optional): Buy the X Jul $22/$23 debit call spread for 40 cents per contract. If price rallies past the spread, we stand to double our money. Any premium we collect from selling the puts would be pure profit as long as the price stays above $18 through August.

Selling options is risky business, so only risk what you’re willing to lose.

Learn how to generate income from options here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/go-long-united-states-steel-corporation-x-stock-and-the-american-rally/.

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