I agree with this:
- U.S. Steel (X +2.2%) racks up solid gains after Morgan Stanley analyst Evan Kurtz comes out pounding the table for the stock.
- Expectations have reset lower and guidance is now achievable, Kurtz writes, after the company lowered its 2015 EBITDA guidance to $700M-$900M from $1.1B-$1.4B and removed a major overhang on the stock; Kurtz believes the new guidance is realistic and attainable.
- Shares are correlated with steel prices and industry utilization, both of which are set to improve, Kurtz says; flat-rolled steel prices are bottoming, imports are falling, industry capacity utilization is rising, and service centers are closer to ending destocking.
- Kurtz also anticipates a flat-rolled trade case filing in the near future involving cold-rolled and/or coated sheet, and the possibility of U.S. trade enforcement reforms that would make anti-dumping cases easier to pursue represents a bull case option.
We have plenty of material stocks, so I don't want it for the LTP but you can play it like this:
- Sell 5 X 2017 $20 puts for $3 ($1,500)
- Buy 10 2017 $25/30 bull call spreads for $2.26 ($6.26/4.00) ($2,260)
The net is $760 cash on $5,000 worth of spreads and you've paid 0.76 per long spread so anything over $25.76 is profit up to $30 with a potential of $9,240 in profit at $30 (1,215%). TOS says the margin on 5 short puts is net $1,000 so it's a very margin-efficient trade and your worst case is being assigned 500 shares below $20 for $10,000 + the $760 cash so net $20.76 is still 20% off the current price.
