Steel producer U.S. Steel Corporation (X) is up 22% over the past year. Shares have trended higher amid acquisition discussions. One trader sees shares pulling back over the next few weeks.
That’s based on the December 20 $32 puts. With 37 days until expiration, 4,806 contracts traded compared to a prior open interest of 116, for a 41-fold rise in volume on the trade. The buyer of the puts paid $1.15 to make the bearish bet.
U.S. Steel recently traded for about $41.25, so shares would need to drop by $9.25, or over 23%, for the option to move in-the-money.
Shares traded as high as $50.20 last December, but fell to a low under $30 as the merger deal was shut down, and shares have since started to pull back after topping over $40.
Operationally, U.S. Steel has struggled in a fiercely competitive global environment. Revenues are down 13% over the past year, and earnings growth has declined by 60%.
Action to take: Shares are largely a speculation on this point as a buyout opportunity, which may or may not materialize. It’s likely at this point that shares could pull back under $40 in the coming weeks. For now, interested investors should wait for a clearer picture before buying.
For traders, the December 20 $32 puts would play well to where shares have averaged over the past year, and could offer a hedge against today’s high-flying overall market.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.