BUY the US Steel (X) December 2025 $20-$23 at-the-money vertical Bull Call spread LEAPS at $1.29 or best
Opening Trade
6-13-2023
expiration date: December 19, 2025
Number of Contracts = 1 contract
I normally don’t look at industries that are besieged by foreign competition, undercut by cheap imports, bedeviled by union problems, are major polluters, and whose principal product has declined in output by 32% since 1970, from 140 million tons a year to only 94.7 million tons.
However, I learned a lot covering the Japanese steel industry for Rupert Murdoch’s Australian newspaper for a decade during the 1970s.
In fact, I learned so much that President Jimmy Carter offered to appoint me as Deputy US Secretary of the Treasury for International Affairs so I could negotiate a steel pact with Japan. I turned the job down because as a G-15 I would only earn $15,000 a year.
Did I also mention that I was a dummy in the 1970s?
Walking in and out of steel mills all over the world for a decade there is one thing I learned for sure. There is no better call on the global economy.
US Steel (X) is the largest steel producer in the United States. In 2022, (X) knocked out 22.4 million tons of steel. Over the last 53 years, it has dealt with the onslaught of competition from Japan and China by becoming the most efficient blast furnace steel producer in the world.
As a result, (X) is highly leveraged to any increase in global steel demand. Its principal customers are the auto, construction, housing, shipbuilding, and oil industries.
(X) is in the half of the stock market that is currently discounting a deep recession. If we get one, the current share price is justified. If we don’t, the shares are overdue for a nice run-up. That makes (X) an ideal LEAPS candidate.
To learn more about US Steel, please visit their website at https://www.ussteel.com
I am therefore buying the US Steel (X) December 2025 $20-$23 at-the-money vertical Bull Call spread LEAPS at $1.29 or best.
Don’t pay more than $2.00 or you’ll be chasing on a risk/reward basis.
If you are looking for a cheap lottery ticket, then here is a lottery ticket.
While the chance of winning a real lottery is something like a million to one, this one is more like 10:1 in your favor. And the payoff is more than 2:1. That is the probability that US Steel (X) shares will rise over the next 32 months.
If you want to get more aggressive with more leverage, use a pair of strike prices higher up. This will give you a larger number of contracts at a lower price.
Please note that these options are illiquid, and it may take some work to get in or out. Start at my price and work your way up until you get done. Executing these trades is more an art than a science.
Let’s say the US Steel (X) December 2025 $20-$23 at-the-money vertical Bull Call spread LEAPS are showing a bid/offer spread of $1.25-$2.00. Enter an order for one contract at $1.30, another for $1.40, another for $1.50, and so on. Eventually, you will enter a price that gets filled immediately. That is the real price. Then enter an order for your full position at that real price.
Notice that the day-to-day volatility of LEAPS prices is miniscule since the time value is so great. This means that the day-to-day moves in your P&L will be small. It also means you can buy your position over the course of a month just entering new orders every day. I know this can be tedious, but getting screwed by overpaying for a position is even more tedious.
Look at the math below and you will see that if (X) shares are slightly higher than unchanged in 32 months it will generate a 132.6% profit with this position, such is the wonder of LEAPS.
Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. Just enter a limit order and work it until you find the real price.
This is a bet that US Steel will close above $23 by the December 19, 2025 options expiration in 32 months.
Here are the specific trades you need to execute this position:
Buy 1 December 2025 (X) $20 call at……..…….………$9.00
Sell short 1 December 2025 (X) $23 call at……….……$7.71
Net Cost:………………...........………….………..…….….....$1.29
Potential Profit: $3.00 - $1.29 = $1.71
(1 X 100 X $1.71) = $171 or 100% 32 months.
To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on “How to Execute a Vertical Bull Call Debit Spread” by clicking here.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
