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Here’s why one trader is betting nearly a million dollars on steel

Steel stocks are getting crushed this year, but some see a comeback on the horizon.

Credit Suisse upgraded the steel sector to outperform from neutral on Wednesday. The firm cited increasing international demand and a recovery in energy and construction as potential catalysts to drive the sector higher in the third quarter.

Furthermore, the firm increased U.S. Steel's price target to $29 from $25 on the bullish outlook following recent underperformance.

U.S. Steel "has gotten creamed this year, down 37 percent on the year, and it's down 50 percent from its 52-week highs," Dan Nathan of RiskReversal.com said Wednesday on CNBC's "Fast Money." "What I find really interesting about this. ... It's one of those stocks in my mind that was expected to be a huge beneficiary of the whole Trump administration," due to the potential for infrastructure spending and protectionist trade policies.

However, on the Credit Suisse upgrade, "call volume ran really hot [on Wednesday]. It was three times [the] average daily volume and four times that of puts," Nathan said.

One especially notable trade was the apparent purchase of 10,000 June 22-strike calls for 96 cents per options contract. Since each contract references 100 shares, this is a $960,000 bet that U.S. Steel stock will close above $22.96 by June expiration. That is 11 percent higher than Wednesday's closing price.

"Options prices [on U.S. Steel] are relatively low, but they're still high relatively compared to other sectors," Nathan added.

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