X Analysis

United States Steel Corp. (X)

Updated 3/23/2018: X as it turned out was a play dependent upon the rhetoric and actions in Washington and capitals of the major powers more than on the risk/reward analysis I bring to my trades. 

The steel company’s shares fell sharply with the broad markets after the U.S. president announced tariffs globally on steel and aluminum, recovered less than the markets as a whole in response to the decline, and then fell sharply on March 22, a day before my exit, as the U.S. announced tariffs on China 

The decline continued the next day, and I exited late in the day as my profits reached 53.8% of their potential maximum. I exited for a debit of $0.36 on the options spread with shares at $34.22.

At exit, shares had declined 12.8% over nine days, for a -519% annual rate. The options position produced a 102.8% return for a +4,168% annual rate


I have entered a short vertical spread on X, using options that trade for the last time 65 days hence, on May 18. The premium is a $0.78 credit and the stock at the time of entry was priced at $39.24.

I made the decision to enter the trade in my account based on expectations of a negative earnings surprise as reported by Zacks, a downtrend signal on the Fisher Transformer and a bearish Elliott wave analysis. My view of the markets is that they have been in a significant downtrend since the Jan. 26 peak, and so I chose to trade a symbol with bearish metrics.

X publishes earnings on April 24 after the closing bell.

Implied volatility stands at 47%, which is 2.8 times the VIX, a measure of the volatility of the S&P 500 index.

X’s IV stands higher than 31% of its daily readings over the past year and stands in the 62nd percentile of its most recent broad movement.

The price used for analysis was $39.43.

Premium: $0.78 Expire OTM  
X-bear call spread Strike Odds Delta
Calls
Long 42.00 66.5% 41
Break-even 39.22 62.0% 46
Short 40.00 57.5% 51

The premium is 78% of the width of the position’s wings.

The risk/reward ratio is 1.6:1.

The bid/ask spread was 10.3%.

By Tim Bovee, Portland, Oregon, March 14, 2018

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License
Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

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