Filed under: Major movement, Bad news, Industry, U.S. Steel (X), Options, Technical Analysis, Economic data, Commodities
United States Steel Corp. (NYSE: X) stock is trading lower with other steelmakers this morning after the Commerce Department reported that inflation-adjusted consumer spending was unchanged in January. This has investors worried that a consumer pullback could weaken the economy further, cutting demand for steel. If you think this stock won’t be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on X.
After hitting a one-year high of $127.26 in June, the stock hit a one-year low of $74.41 in August. This morning, X opened at $113.50. So far this day the stock has hit a low of $108.76 and a high of $113.75. As of 11:20, X is trading at $109.21, down $5.79 (-5.0%). The chart for X looks neutral and improving, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would think about an April bear-call credit spread above the $140 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we’ll make a 4.2% return in two months as long as X is below $140 at April expiration. US Steel would have to rise by more than 27% before we would begin to lose money.
X hasn’t been above $130 at all in the past year and has shown resistance around $121 recently. This trade could be risky if the economy picks up and demand for steel rises, but even if that happens, this position could be protected by resistance X might find between $120 and $130, where the stock has topped out twice in the past year.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in X.
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