Posted on July 18, 2019
Before we get to today’s action, we’ve got a single open trade to attend to.
It was initiated a’way back on April 17th but went against us, so we’ve been forced to roll it out.
On July 4th we sent you a letter called Important Note to Roll Out Your Short GLD CALLs, wherein you were instructed to buy back your GLD July 5th 123 CALL for $10.80, and sell off the GLD July 19th 122 CALL for $11.65. That netted you an additional $0.85 premium, for a total of $1.10 collected in toto.
Today, we’re still on the wrong side of the trade, so we’re urging you to buy back your GLD July 19th 122 CALL for $12.60 and sell the GLD September 30th 122 CALL for $13.10. In so doing, you add yet another $0.50 to your premium, amounting to a total of $1.60 collected to date.
That move gives us better than two months breathing room on the trade (in addition to the added premium).
Our trade today pits two players in the steel industry against one another.
The first, Nucor (NYSE:NUE), has been a slow and steady performer in the sector for years, while U.S. Steel (NYSE:X) has a far more volatile trading profile.
Here’s a chart of the two companies pegged against each other for the last five years –
The steel business is going through some rough times both here and abroad, and that’s manifest in the charts. Trade wars between the world’s biggest producers and consumers of commodities are simply not price supportive.
That said, it’s also clear from the chart that the action on U.S. Steel is consistently more volatile than Nucor. When NUE falls, X nosedives. When NUE climbs, X soars. And that’s the way it’s played for the last decade.
The spread has never been so wide in that period as it is today, and that’s what’s informing our current bet.
As we write, NUE is announcing earnings, and the market is shrugging them off entirely. The stock is down exactly two cents, or -0.04%, in what’s being taken as an altogether ‘non-event’.
U.S. Steel reports on August 7th.
We’ll see if there’s any movement in resolving the trade war by that date.
Until then, should the steel sub-sector see a rise, we propose being long U.S. Steel, and short NUE. And we’re doing it like this –
A Jew and His Gold recommends you buy the X October 18th 18 CALL for $0.45 and sell the NUE October 18th 62.50 CALL for $0.45. Zero premium is the result.
Many happy returns,