US Steel (X) Sharply Lower On Heavy Volume

Posted: Friday, November 20, 2009 8:44 AM EDT

US Steel (NYSE: X) closed yesterday at $41.28. So far the stock has hit a 52-week low of $16.66 and 52-week high of $51.65. US Steel stock has been showing support around 39.74 and resistance in the 43.00 range. Technical indicators for the stock are Neutral and S&P gives X a neutral 3 STAR (out of 5) hold rating. X appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a Jan '10 39 covered call (FBJ AE) for a net debit in the $36.68 area. That is also the break even stock price for this trade. This covered call has a 57 day duration, provides 11.14% downside protection and a 6.32% assigned return rate for a 40.50% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the X Jan '11 12.50 Call (OUS AE) and selling the Jan '10 39 call (FBJ AE) for a $24.60 debit. The trade has a 57 day life and would provide 10.13% downside protection and a 7.72% assigned return rate for a 49.00% annualized return rate (for comparison purposes only). US Steel has a current annual dividend yield of 0.47%. [FBB-Seven Summits Research]

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