United States Steel Corp. (X)
Update 5/1/2017: X gapped to the downside after earnings were published and continued to decline thereafter. I exited for a loss as options expiration approached.
Shares declined by 29.7% over six days, or a -1,748% annual rate. The options position produced a -47.4% loss on debit for a -2,993% annual rate.
X publishes earnings on Tuesday after the closing bell.
I shall use the series of weekly options that trade for the last time 10 days hence, on May 5.
Implied volatility stands at 59%, which is 5.5 times the VIX, a measure of the volatility of the S&P 500 index.
X’s IV stands in the 34th percentile of its annual range and the 52nd percentile of its most recent broad movement.
The price used for analysis was $31.20.
| Premium: | $2.42 | Expire OTM | |
| X iron fly | Strike | Odds | Delta |
| Calls | |||
| Long | 36.50 | 36.5% | 10 |
| Break-even | 33.42 | ||
| Short | 31.00 | 51.3 | 53 |
| Puts | |||
| Short | 31.00 | 49.1% | 47 |
| Break-even | 28.92 | ||
| Long | 26.50 | 90.5% | 8 |
The premium is 48% of the width of the position’s wings.
The risk/reward ratio is 1.3:1.
Decision for My Account
I have entered a position on X as described above. The stock at the time of entry was priced at $31.09.
By Tim Bovee, Portland, Oregon, April 25, 2017
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