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Resurgent US Steel has more room to run: Trader

Steel stocks are surging.

Since hitting their lows last week, shares of United States Steel and AK Steel have rallied a respective 20 and 35 percent. And if the options market is any indication, one of these names has a lot more room to run in the near term.

On Monday, when U.S. Steel rallied nearly 9 percent, options call volume ran more than two times its daily average. One trade that stood out involved a trader betting that U.S. Steel could see a super surge in the next month. Specifically, that trader purchased more than 10,000 of the November 14-strike calls at an average price of 42 cents. Since buying a call is a bullish strategy that allows one the right to buy a stock at a set price for a given time, this is a bet that U.S. Steel could rise above $14.42, or more than 25 percent, by mid-November.

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Shares of the nation's largest steel producer have rapidly underperformed the broader market this year, down a staggering 57 percent while the Dow Jones industrial average is down around 6 percent. The move comes amid a larger breakdown in the commodities complex and economic slowdown in China.

"U.S. Steel is set to report earnings on November 7 and this is one of the worst performing stocks of the year," Mike Khouw said Monday on CNBC's "Fast Money." The stock has fallen more than 70 percent from its 52-week high hit in late October 2014. "The stock has moved an average of 10 percent in four of the past five quarters," added Khouw, founder of Optimize Advisors and a CNBC contributor. He noted that the options trader is obviously betting on the move to be higher.

It appears Wall Street is also betting on somewhat of a comeback for the stock. Of the 18 analysts who cover U.S. Steel, the average rating is a hold with a price target of $19.93.

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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