Now that US Steel (X) has had earnings, I don't think they're going any lower.
It was their biggest quarter ever at $6.3Bn in Revenues $1.6Bn in Profit yet you can still buy the whole company for $5.6Bn at $24. At the moment, they only have $888M in net debt and they are buying back $500M (10%) of their own stock.
There's a trend towards protectionism and stimulus from both sides of the aisle that is good for X and CLF in the long run. They are in an up cycle and there will be a reinvestment cycle ahead as well as a possible recession but that's no reason not to start a small position now.
Conservatively, they should hold $15 so, for the Earnings Portfolio (we already have an LTP position), let's:
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- Sell 20 X 2024 $15 puts for $2 ($4,000)
- Buy 20 X 2024 $15 calls for $11.30 ($22,600)
- Sell 20 X 2024 $25 calls for $6.30 ($12,600)
That's net $6,000 on the $20,000 spread so we have $14,000 (233%) upside potential over 18 months and worst case is we own 2,000 shares at net $18, which is 25% below the current price and then we sell more puts and calls against those, etc.
CLF actually does better than X (in the average year), making about $1.5Bn with a $9.6Bn valuation at $18.75. We have them in the LTP as well and they have almost the same chart as X.
I'm not going to add both to our portfolios but, as a new trade, I would go with:
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- Sell 10 CLF 2024 $15 puts for $2.80 ($2,800)
- Buy 20 CLF 2024 $15 calls for $7 ($14,000)
- Sell 20 CLF 2024 $22 calls for $4 ($8,000)
That's net $3,200 on the $14,000 spread so we have $10,800 (337%) upside potential and our worst case would be owning 1,000 shares of CLF at net $18.20, which is about the current price.
