United States Steel Corporation (X) is a producer and seller of steel mill products in North America and Europe. The company’s stock is currently trading around $25.50 in a 52 week range of $15.80-$26.29. The stock has been performing well this year but has lagged the overall market adding only 6.54% to share prices year to date. Despite the stocks relative under-performance to the broader market options traders have stepped in to make some very bullish bets on X through January. Earlier in today’s trading session a trader sold 21,000 of the Jan 26-23 put spreads for $1.22. This short in the money put spread is a bullish bet that exposes this trader to $3.74 million worth of risk. This block also represents volume 2 times greater than the average daily option volumes in X. Shares of X are also trading well on the chart. X is well above the Ichimoku Cloud and the future cloud is indicating there could be more upside in store for X. We believe that this unusual option activity and strong chart present us with an opportunity for a covered call trade in X.
Trade: Buying 100 shares of X at $25.50 for every Jan 26 Call sold at $1.40
Reward: $190 per 1 lot
Breakeven: $24.10
Should the stock close above 26 on January expiration this trade will net its maximum potential profit of $190 per 1 lot. This trade will also net some profit anywhere above $24.10. If the stock closes above $26.00 this trade will net an annualized return of 43.4%.
