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November 4, 2011  Fri 12:22 PM CT

X: SEE CHART GET CHAIN FIND STRATEGIES
U.S. Steel appears to reversing after a big drop, and one investor is betting on a rip to the upside.

optionMONSTER's Heat Seeker monitoring system detected the purchase of about 20,000 January 30 calls for $2.87 and the sale of an equal number of January 35 calls for $1.30, resulting in a net cost of about $1.57.

Known as a bullish call spread, the trade will earn a maximum profit of 218 percent if X closes at or above $35 on expiration. (See our Education section)

X is up 5.31 percent to $27.96 in afternoon trading but has lost more than half its value in the last
year. The stock bounced below $20 level in early October and has been pushing higher since. In the last week it seems to have found support above its 50-day moving average, which could lead some chart watchers to believe that it's reversing after a long decline.

The improvement comes amid continued negativity from steel companies, though X's last earnings report on Oct. 25 was better than expected. (See our new researchLAB service)

Overall option volume in the name is more than double the average amount so far today, with calls outnumbering puts by almost 7 to 1, according to the Heat Seeker.
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Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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