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Butterfly is taking wing in U.S. Steel

David Russell (david.russell@optionmonster.com)

A bullish spread sees more upside for U.S. Steel in coming weeks.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 2,500 September 21 calls for $0.54 and the sale of 5,000 September 23 calls for $0.205. A block of 2,500 September 25 calls were also sold for $0.10. Volume exceeded open interest at all three strikes.

The trade cost $57,500 and will expand to a maximum value of $625,000 if the steelmaker closes at $23 on expiration. Gains will erode above that level and the entire position will go worthless over $25.

The strategy is known as a butterfly spread because it has more contracts at the middle strike, with smaller blocks at the wings. It's a common method for leveraging a move to a specific level. (See our Education section)

X is up 2.93 percent to $19.35 in afternoon trading. The steel maker is down 19 percent so far this year but has been making higher lows since April. The shares have been especially strong in the last week amid a wave of bullish activity in the metals space.

They peaked around $23 several times last year, which could make some chart watchers think that level will now become resistance. The butterfly is an ideal strategy for such a setup.

Total option volume is triple the daily average so far today, according to the Heat Seeker. Calls outnumber puts by more than 4 to 1.

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