Many stock investors are down on steel at present. But there is a growing number of analysts who feel the sector may be ready to rebound. In this article we will look at what some analysts are saying and at two attractive option trades. The buzz generally focuses on two key companies: US Steel (X) and AK Steel (AKS).
Audio Podcast:
An audio podcast of this article is available at: poweropt.com/podcasts/2007_01_24_Steel.mp3
Early this month, an analyst with Banc of America, Kuni Chen, sent out a poll asking 50 steel sector executives and managers asking questions about customer order activity, spot price expectations, and inventory levels. The answers led Chen to become very optimistic about the sector’s prospects.
In a note to a client Chen explained, “Our third monthly poll suggests an improving operating environment going forward. Recent results give us added conviction in our contrarian outlook for 2007 of flat to higher pricing.”
Jim Cramer Agrees:
Today in his thestreet.com article, Jim Cramer wrote, “Can you believe the number AK Steel’s doing on the bears? Don’t the people at AK read the papers? Things are supposed to be bad for the company, not good. What right do they have to talk things up?”
In October of last year Cramer also reported on the resilience of US Steel’s stock price, “When you see it bounce like it did in a week…” is what matters, he said.
He added, “There are really hard fought moments when it’s too late to sell that give everyone a sinking feeling, signaling a buy. That’s not when you panic. That’s when you should be pulling the trigger. That’s when you should be buying.”
Competitors:
Competitors for X include: Mittal Steel Company NV (MT), Nucor Corp. (NUE), Arcelor S.A. (private), AK Steel Hldg. Corp. (AKS), Cleveland-Cliffs Inc. (CLF), Commercial Metals Co. (CMC), Carpenter Tech. Corp. (CRS), Gerdau AmeriSteel Corp. (GNA), Ipsco Inc. (IPS), Steel Dynamics Inc. (STLD), Timken Co. (TKR), Tenaris SA (TS), Ternium S.A. (TX), and Wheeling-Pittsburgh Corp. (WPSC).
Potential Trades:
All of the following option trades have 24 days until expiration. U.S. Steel Group is currently trading at $75.11 and AK Steel Hldg. Corp. is currently trading at $18.40. These trades were discovered using the powerful suite of option search tools found at PowerOptions.
| Covered Call – U.S. Steel Group (X) $ 75.11 (24) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPTION | Strike Info |
Opt Bid |
% Dnsd. Prot. |
% If Inch. |
% If Asgnd |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| XBO | 07 FEB 75.00 | $3.00 | 4.00% | 4.00% | 4.00% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bull-Call Debit Spread — AK Steel Hldg. Corp. (AKS) $ 18.40 (24) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sell Opt |
Strike Info |
Bid Price |
Buy Option |
Strike Info |
Ask Price |
% Return |
Break Even |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| AKSBW | 07 FEB $17.50 | $1.35 | AKSBC | 07 FEB $15.00 | $3.50 | 16.30% | $17.15 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The US Steel covered call trade; an in-the-money covered call, offers 4.0% downside protection and a potential profit of 4.0% if the stock remains unchanged or rises. The net cost of this trade, per 100 options, is $7,211.00.
The second trade is a bull call debit spread with AK Steel options. This trade offers 16.3% potential profit if the stock remains above $17.50. If the stock decreases below the break-even price of $17.15, the investment begins to lose money. If the stock price goes below the lower strike price of $15.00, the entire investment is lost. The net cost of this trade, per 100 options, is $215.00.
For more information about how to identify and research great option trades, visit the PowerOptions website. There you will find the data you need to make quick, clear, and informed decisions. You can trade knowing you have found the best investment. Also, PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades. PowerOptions’ premium customer support is second to none in the industry. They can be easily contacted when you need them at their toll-free number to answer customer questions. Call them now toll free at 877-992-7971.
PowerOptions provides a free 14-day trial of its service. So join PowerOptions today, and you too can start reaping the benefits of the covered call investment strategy.
PowerOptions’ sister company PowerOptionsApplied provides expert stock option trading recommendations. PowerOptionsApplied specializes in covered calls, naked puts and iron condor stock options strategy recommendations. PowerOptionsApplied provides a 30-day risk free trial of its service.
[tags]Banc of America, Kuni Chen, Jim Cramer, Cramer, Arcelor S.A., AKS, AK Steel Hldg. Corp., CLF, Cleveland-Cliffs Inc., CMC, Commercial Metals Co., CRS, Carpenter Tech. Corp., GNA, Gerdau AmeriSteel Corp., IPS, Ipsco Inc., MT, Mittal Steel Co. N.V., NUE, Nucor Corp., STLD, Steel Dynamics Inc., TKR, Timken Co., TS, Tenaris SA, TX, Ternium S.A., WPSC, Wheeling-Pittsburgh Corp., X, U.S. Steel Group, covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options[/tags]