Today’s trade idea for option traders: United States Steel (trade closed)
(Last Updated On: 27. January 2023)
United States Steel is a steel producer and makes high value-added steel products, including its own XG3 advanced high-strength steel. It delivers to the automotive, construction, appliance, energy, containers, and packaging industries. U.S. Steel had beaten Q4 earnings on Jan. 27, which sent shares on a run to reclaim both the 50-day and 200-day moving averages. Since then, shares have notched six-straight weeks of strong gains. This is what I consider an invitation to give this stock a try and sell a put option.
Disclaimer:
The information I am giving you in this article is for informative purposes only and should not be treated as investment advice. It’s an options trade example, and the information presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in trading activities related to the information in this article should do their own research and seek advice from a licensed financial adviser.
Type of a trade: Cash secured put
Alternatively: Bull put spread
Expiration: 20th May 2022 (79 days)
Strike: $26
Premium for 1 option: between $200 and $204 on the day this article was published
Margin: apprx. $400 on the day this article was published (Please keep in mind: the margin size depends on your account size. The smaller your account size the higher the margin requirements. The margin I’m publishing here is the margin based on my account size. Therefore, it could also happen that with a small account, you would see a margin of more than $2000)
Pros for this trade:
– Based on the signal I get (ADX-Indicator), the price should continue to move at least sideways and to stay above the strike so we can get rid of the put option when the time is right
– Good fundamentals could support the price of this stock and keep it above the strike
– Low Fear & Greed index of 22 reduces the risk of a crash in the next weeks which is supportive for the price
Cons for this trade:
– An IV Rank of around 34 is pretty low and an IV Percentile of around 68% could be better as well
– X pays currently a dividend of just 0.72% which is far beyond of what I call a great dividend (Source: finviz.com). In case the price would fall below the strike and you would get the stock assigned, the waiting time wouldn’t be as sweet as with another stock, e.g. UNM where you get around 4%
– As trading with options is also a dealing with probabilities, every of my assumptions could turn out as a wrong estimation so at the end the stock would land in the money and you would close the position with a loss in case you don’t want to keep the stock
Result of this trade: you would be able to close the position on 31st March for around $35
Realized profit for 1 option: around $165 per option
Days in the trade: 29 (of maximum 79 days)
Summary
That’s what I call a perfect trade. Frankly, I wasn’t expecting the stock’s price surging like this. But I got help by the unfortunate events in Ukraine… Nevertheless, it was a good one and let’s see what happens next.
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