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X Trade
News 32.84 -0.16 DJ A Red Hot U.S. Steel Trade -- Barrons.com
Dec 13, 2017 13:54:00 (ET)
By Steven M. Sears
U.S. Steel's stock is a bit like the products it sells: heavy and hard to move. Shares are up about 1% this year, and yet the shares might suddenly get red hot on Feb. 16.
That's when the U.S. Department of Commerce is expected to finalize a preliminary ruling against Chinese steel makers redirecting steel to Vietnam to circumvent U.S. import laws and sell products without paying import taxes.
"The ruling brings formal action against Chinese steel producers circumventing duties, such as import taxes, carries punitive implications for buyers of those imports and provides a more favorable macro backdrop for U.S. steel producers," Shawn Quigg, a JPMorgan derivatives strategist, recently advised clients.
To position for U.S. Steel's stock (ticker: X) to rally, Quigg told clients to buy the company's February $33 call option and sell the $28 put option. When he recommended the trade, the stock was at $31.11, and the risk reversal -- that is, selling a put and buying a call with a higher strike price but the same expiration -- cost 58 cents.
Quigg's trade positions investors to benefit from a stock rally. If U.S. Steel's stock is at $37 at expiration, the call is worth $4, and the put would be worthless. Should the stock be below $28 at expiration, investors are obligated to buy the stock at the strike price, or to cover the put.
The stock has edged higher since Quigg first made his recommendation. The stock now trades around $32.50 and is seemingly stalled
, though JPMorgan steel analyst Michael Gambardella calls for the stock to trade at $48 by the end of 2018 due to a combination of Washington support for the steel industry and increased spending to improve U.S. infrastructure.
Investors can adjust Quigg's trade to reflect the higher strike price by selling the February $29 put and buying the February $36 call. Over the past 52 weeks, the stock has ranged from $18.55 to $41.83.
Quigg's trade basically lives or dies by the mid-February ruling. If the government finalizes the preliminary ruling, steel stocks could rally. U.S Steel's recent incremental advance shows that investors have bid shares slightly higher in anticipation of good news.
Of course, the opposite is true if the government's final ruling reverses course, which is why Quigg's low-cost, potentially high-return trade is worth considering.
STEVEN SEARS is the author of The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails.
Comments:
steve.sears@barrons.com
Follow: @sm_sears
(END) Dow Jones Newswires
December 13, 2017 13:54 ET (18:54 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
[Reply]
Originally Posted by kepp:
So I'm wanting to play around with a low-price stock which is currently sitting at $0.75 ...but the ask price is almost $2. Is that just because its expected to go that high? Do they ever sell below their ask price?
This is the wild west scam of penny stocks. Market makers don't want to hold these so they have a very wide bid and asked to make tons of money.
You invest $2000 and it's instantly worth only $750.......no thanks!
:-)
[Reply]
Originally Posted by kepp:
I found one with a bid/ask diff of $0.001
The rule of thumb is the tighter the spread the more liquid the stock denoting stability.
NYSE stocks used to trade with very tight spreads but the advent of computer trading has widened them a bit.
Apple almost always trades with a .01 difference between bid and ask. That's impressive.
:-)
[Reply]
I'm trying to quit my 15 year career as an IT developer/application engineer to become a farmer.
Does this equal profit, or not?
Originally Posted by Rain Man:
The only challenge is ponying up for that one share.
No ponies in the plans though.
[Reply]
