Turn United States Steel Corporation (X) Stock Into Cash

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Metal stocks are on the move higher. And United States Steel (NYSE:X) is leading the charge. In fact, X stock recently popped to a three-month high after posting better-than-expected earnings. And, fortunately for spectators, shares are pulling back to a lower-risk entry point.

Beat the Bell

The fresh strength in the metals and mining space is breathing new life into the inflation trade that had done so well following President Trump’s victory last November.

We can use the SPDR S&P Metals and Mining ETF (NYSEARCA:XME) to chronicle the action before jumping into the trade on X stock.

The Metal Stocks Map

Let’s begin with the weekly chart of XME. 2016 was a banner year for the beleagured fund working wonders on improving its technical posture. What interests me most is its final run that encompassed the post-election pop and finally petered out at $35.

XME chart
Click to Enlarge
Source: OptionsAnalytix

The four-month pull back striking from February to June of this year took the wind out of XME’s sails for a spell, but not permanently. Remember, garden variety retracements fall between a third to two-thirds of the prior advance before rebounding. In “Fib-speak,” we say the typical stock pulls back between 38.2% to 61.8% of its previous upswing before buyers finally step-up to halt the decline.

When a stock retreats more than 61.8% the integrity (or strength) of the uptrend comes into question. What’s interesting about the drop in XME this year is it formed an almost perfect pullback to the 61.8% retracement. The fact that buyers stepped up before the fund fell any further helps reinforce a bullish outlook for metal stocks.

X Marks the Spot

One of the most attractive constituents of XME is U.S. Steel.

X shares suffered a major blow last quarter after serving up an earnings report that fell well short of expectations. The post-election rally that carried X as high as $41.83 was built on big-league optimism for the industry. And, as is usually the case, earnings reports are where reality strikes. In the case of last quarters earnings (released in April), reality wasn’t near as rosy as expected.

But now that an entire quarter has passed, things are different.

For starters, United States Steel Corporation was sitting at a much lower price heading into this week’s report ($24 instead of $31). And it recently completed a three-month bottoming pattern so the posture of its price chart has improved quite a bit.

Now, X stock sits above rising 20-day and 50-day moving averages. Traders rewarded the stock for a solid earnings report this week. The price jump was sufficient in dragging the RSI indicator back into overbought territory for the first time in 2017. That should bode well for buyers moving forward.

X stock chart
Click to Enlarge
Source: OptionsAnalytix

Another variable aiding a bullish view is the lack of overhead resistance. Last quarter’s monster post-earnings gap left quite the price void. A run toward the 200-day moving average ($28.50) is entirely doable over the coming weeks.

The profit-taking striking stocks yesterday is providing a nice buy-the-dip setup for X shares. While the stock may drop for another day or two, the time to pounce is nigh.

Turn X Stock Into Cash

The low price tag of U.S. Steel makes it a prime candidate for put selling. The cost is minimal, which makes the potential return on investment mighty attractive. What’s more, because United States Steel is a volatile stock its options have fat premiums.

Sell the Sep $22 put for 63 cents or better. Consider this a bet that the stock sits above $22 at expiration. If it does, you’ll capture the 63 cent profit ($63 per contract).

By selling the put you obligate yourself to buy the stock at a cost basis of $21.37 if the put sits in-the-money at expiration. If that doesn’t sound like a good deal to you then simply close the trade if X falls below $22.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.

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Article printed from InvestorPlace Media, https://investorplace.com/2017/07/turn-united-states-steel-corporation-x-stock-into-cash/.

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