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Move Fast on an X Options Trade Ahead of Earnings

Earnings season is at its height this week


United States Steel (X) is my favorite of the bunch for an earnings trade, as X shares usually make large price movements following its announcements.

The company is expected to report a loss of $0.29 a share on revenue of $4.2 billion. However, the range is exceptionally wide, as the 17 suit-and-ties that follow X stock have estimates ranging from a loss of $0.66 a share to a profit of $0.41 a share.

X beat Wall Street’s numbers for the past four quarters and has turned a profit for two quarters straight.

The X August 28 calls (X140816C00028000) could be used for a bullish run at $30, but they expire in less than three weeks. The X September 30 calls (X140920C00030000) would give the trade more time to play out and are the “cheaper” options, but they are further out of the money.

On the flip side, bearish traders could consider the X August 27 puts (X140816P00027000) for an earnings miss or lowered guidance, or the X September 26 puts (X140920P00026000).

Given the risk/reward for each, I would swing the bat on the X September 30 calls (X140920C00030000), but earnings trades are tricky. This one is exceptionally risky given the $1.07 profit/loss spread for expected earnings.

While I’m not quite ready to pull the trigger and have X on deck for now, I wanted to show traders some of the processes that go into planning an earnings trade.

Earnings trades are fun to play, but I try to limit my exposure to them, as I rely more on chart work, fundamentals and overall market conditions. However, at times, earnings will affect other trades within the same sector or the overall market in general and may come into play depending on the time frame of the trade.

As far as the market, the bulls are trying to follow through on Monday’s rebound off of the lows, but I wouldn’t be surprised to see another flat finish ahead of Wednesday’s Fed statements.

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