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August 27, 2013  Tue 2:45 AM CT

X: SEE CHART GET CHAIN FIND STRATEGIES
A large trader is looking for U.S. Steel to stay range-bound through next spring.

optionMONSTER systems detected the sale of 3,000 April 18 puts for the bid price of $2.31 yesterday. This is clearly a new position, as open interest in the strike was just 14 contracts before the trade appeared.

Less than a minute later, a block of 120,000 shares of X was sold for $18.815. Combined with the puts, that would make for a delta-neutral play that is short volatility. This means that the trader is looking for shares to remain range-bound and/or for the actual volatility to be less than that implied by the options. (See our Education section)

X was up fractionally yesterday to close at $18.69, in the middle of its recent range. Shares of the steel maker were at a low around $16 in late April and tested resistance at $19.50 two weeks ago.
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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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