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Market Insights

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Bears Linger in Debt Laden Steelmaker: Options Recap

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Steelmakers keep struggling, and now bears are looking for one of the weakest names to drop.

AK Steel (AKS) has lost more than half its value in the last year, making it one of worst-performing names in one of the worst-performing industries. Its debt load exceeds cash reserves by more than 50 times.

Yesterday, options traders were looking for the pain to continue. Check out this transaction, which crossed just minutes after the opening bell:

  • A block of 20,000 June 2.50 puts was bought for $0.31.
  • A matching number of May 2.50 puts was sold for $0.22.
  • Volume was below open interest in the May contracts but not June. That suggests someone closed an existing position and rolled it forward in time.

Puts fix the price where traders can sell a security, so they profit to the downside. (See our Knowledge Center.) Wednesday’s transaction essentially let the investor extend a bearish position one month into the future.

AKS Steel (AKS) with 200-day moving average.
AKS Steel (AKS) with 200-day moving average.

Making the adjustment cost him or her an additional $0.09. It also avoided assignment of short stock at expiration tomorrow.

AKS rose 0.2 percent to $2.34 yesterday. The company’s struggling with weak prices, falling auto demand and increased competition. It had a brief rally in late 2016 after President Trump was elected. But then it rolled over and has remained under its 200-day moving average almost continually since.

Overall options volume in AKS yesterday was more than quadruple its value in the last month. Puts accounted for a bearish 93 percent of the total.

About the author

David Russell
David Russell is VP of Market Intelligence at TradeStation Group. Drawing on two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.

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