Steel stocks are percolating on Friday morning, and it’s about time. United States Steel Corporation (NYSE:X) and AK Steel Holding Corporation (NYSE:AKS) have had a terrible year thus far and were in desperate need of some loving. X stock and AKS are both up just shy of 5%.
Entering today’s trading session, U.S. Steel was down 36% year-to-date. The lion’s share of the losses came after its late-April earnings announcement, which demolished the hopes and dreams of shareholders hoping steel stocks were making a comeback.
X stock fell 27% on that one day alone. Cries of “abandon ship” echoed through the Street for hours. And then, when all the shaky-legged sailors were finally gone, U.S. Steel bottomed.
Since then, however, the stock has carved out a nice little rounded bottom pattern. Its short-term downtrend has now been neutralized and today’s pop is carrying it into overhead resistance. A prior pivot high rests near $22.50 as well as the 50-day moving average.
If you’re seeking more confirmation that a true bottom has formed, I suggest waiting to see if X can climb above this resistance level.
Steel Yourself With This Trade on X Stock
Implied volatility has been climbing steadily alongside the stock. Couple that with U.S. Steel’s low stock price and we have quite the attractive naked put opportunity here.
If you’re willing to wager the stock remains above $19.50 for the next 28 days, sell the July $19.50 put for 50 cents.
You will pocket the potential reward of 50 cents if the stock sits above $19.50 at expiration. By selling the put, you are obligating yourself to buy shares of stock at an effective purchase price of $19 ($19.50 – $0.50). If you’re a willing buyer at that price, then ride to expiration and allow assignment if X sits below $19.50.
Otherwise, you can close the trade if the stock falls below the put strike.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.