Options traders bet on U.S. steel stocks ahead of tariffs decision
Traders in the options market are betting that shares of U.S. steel makers will get a boost when the U.S. Commerce Department unveils findings from its investigation into cheap steel imports, according to data and analysts on Friday.
The investigation was ordered by President Donald Trump in April under the rarely used section 232 of the Trade Expansion Act of 1962 and could clear the way for restrictions on steel imports.
U.S. Secretary of Commerce Wilbur Ross is expected to announce the outcome of the steel inquiry after Trump has spoken with G20 leaders at the July 7-8 summit in Germany.
A decision that results in a material reduction in the current level of domestic steel imports could provide a near-term boost to shares of U.S. steel companies, according to Wall Street analysts.
Recent trading data in options on top steel companies, including United States Steel Corp, Nucor Corp and AK Steel Holding Corp show traders are counting on some good news.
“Everything looks pretty bullish. Every factor you would look at is sort of aligned in the same direction,” said Jim Strugger, MKM Partners derivatives strategist.
Traders have shown a marked preference for loading up on call options.
Calls convey the right to buy shares at a fixed price in the future and usually are used to place bets on shares rising, while put options convey the right to sell shares at a certain price in the future.
For U.S. Steel Corp, there are 1.1 calls open for each open put contract, close to the most in more than five years, according to options analytics firm Trade Alert data.
Other steel stocks also exhibit similarly elevated positioning in call contracts.
“They are not trying to pick a winner within the industry. It seems like it is more of a sector bet,” said Steve Claussen, vice president of trade strategy at E-Trade Financial in Chicago.
Much of the bullish positioning is concentrated in contracts set to expire over the next two weeks.
“The implied expectation is that you are expecting a short-term move very quickly. These are definitely event-driven trades in my opinion,” Claussen said.
Several of these steel companies are set to report quarterly results before the end of July.
Trump’s election initially boosted steel stocks, with the S&P 1500 steel index surging 36 percent in the month after the Nov. 8 vote. The index has given up most of those gains and is up 10 percent since the election.
Source: Reuters (Reporting by Saqib Iqbal Ahmed; Editing by Marguerita Choy)