It is another beautiful Monday morning and am I excited about the possibilities that options trading holds as we start this week on a winning note. On July 31, I wrote a piece on trading the options of U.S steel makers with a special focus on United States Steel Corporation (NYSE:X). United States Steel Corporation with its market capitalization of $4.86B is an integrated steel producer of flat-rolled and tubular products with production ore.
In that July piece, I recommended the X Jan 2015 35.000 call (X150117C00035000) at an asking price of $2.46 per share. When I wrote that piece, shares of U.S Steel were trading around $33.50 per share. As at 1:17PM today, the option contract was up 106.09% to $5.07 per contract as the image below shows. Shares of United States Steel have also gained 12.86% to trade around $37.81 today.
Possibilities in United States Steel
- Strong Technical Analysis
When I took a bullish position on United States Steel about 18 days ago, I was encouraged to take that bullish position based on the quality of the second quarter results. The stock has performed beyond expectations in the last 18 days and I strongly believe that the stock still much upside potential ahead.
For instance, United States Steel has made a new 52-week high to $38.49 per share today to mark the 18th new high in the last one month. In fact, shares of United States Steel are trading above the 20, 50 and 200-day moving averages to show that the bullish momentum on the stock is still very strong.
Strong Fundamental Factors
With a market capitalization of $5.26B, United States Steel is one of the strongest businesses in its industry. Its strong market position is evident in the quality of the second quarter earnings and the optimistic guidance for the full year.
For example, United State Steel expects its revenue to grow by 3.20% in fiscal 2014 and by 2.50% in fiscal 2015. More exciting is the fact that the company expects its earnings to skyrocket by 275.70% this year and by 23.10% next year. The most exciting part is that United States Steel expects its earnings to grow at an annual rate of 6.50% over the course of the next 5 years.
I am especially optimistic about the prospects of United States Steel based on the optimism inherent in analysts’ recommendation on the stock. For example, 1 Wall Street Analyst considers the stock a “Strong Buy” and 7 analysts’ including Zacks consider the stock a “Buy”.
How to Trade X Options
The Jan 2015 call I recommended earlier in July has already doubled and there is still much upside potential ahead. However, I think it might be smart to take some of our gains off the table by scaling out of our position on the stock.
The stock chart above shows that share of United States Steel are already overbought at an RSI of 85.65; hence, selling about 75% of your earlier position on the contract will net you about 25% in profits while the remaining 25% will allow you to be part of future upside opportunities on the stock.
If you did not buy the X Jan 2015 35.000 call (X150117C00035000)calls on my earlier recommendation, you may want to buy the contract when the stock experiences a pullback. I recommend buying the contract at as asking price of $3.50
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