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How bears are playing U.S. Steel

David Russell (david.russell@optionmonster.com)

U.S. Steel has bounced smartly, but yesterday the bears came back to the name.

optionMONSTER's Depth Charge monitoring program detected the purchase of about 13,800 June 19 puts for $1.20 and the sale of an equal number of June 16 puts for $0.21, resulting in a net cost of about $0.99. Volume was below open interest in the 16s, so there are two possible explanations of the trade.

One is that traders had previously owned puts at the lower strike and adjusted to the June 19s after the stock climbed, making another bet on the bearish side.

Alternatively, both halves of the trade could have been opened, in which case it was a vertical spread . That strategy would control a drop from $19 to $16, returning more than 200 percent if such a move occurs. (See our Education section for more on how options can be used to generate leverage to the upside or downside.)

X fell 0.57 percent to $19.15 yesterday but is up 12 percent in the last week. The shares have been rising along with other metal companies as sentiment improves toward the global economy, but it still faces bearish momentum.

The last earnings report on April 30 missed expectations on the top and bottom lines amid weak spot prices for flat-rolled steel.

Total option volume was almost twice the daily average in X yesterday, with puts outnumbering calls by 3 to 1.

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