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AK Steel (NYSE:AKS) produces flat-rolled carbon, stainless, and electrical steels, and tubular products in the United States and internationally. It manufactures flat-rolled carbon steels, including coated, cold-rolled, and hot-rolled products; and specialty stainless and electrical steels that are sold in hot band, and sheet and strip forms.

AK Steel has had a wild ride so far this year. From its peak of $17.88/share on February 8, 2011 to its low of $5.51 on October 4th, there has been no shortage of volatility with this stock. AKS is currently trading at $7.65/share after Tuesday's market open.

52wk high: 17.88
52wk low: 5.51
EPS: -1.05
PE: N/A
Div Rate: 0.20
Yield: 2.3121
Market Cap: 953.79 M

All steel stocks have been really hit hard by market condition over the last few months. This includes Alcoa (NYSE:AA), United States Steel Corp. (NYSE:X), and Arcelor Mittal (NYSE:MT). All of them are trading at the lower-end of their 52-week range.

AK Steel has a beta of 2.79, which is exceptionally high. While not a good choice for the conservative investor, AKS does offer significant upside with risks.

Currently, there is a short float of 21.8%. The short ratio is 2.27. There has been a nice run-up in the stock over the last few weeks, but has again dropped after Tuesday's earnings release. However, I feel that it can go a bit higher than where its currently trading at.

Date Open High Low Close Volume
Oct 24, 2011 8.16 8.65 8.12 8.65 10,115,083
Oct 21, 2011 8.22 8.25 7.89 8.05 7,195,721
Oct 20, 2011 7.67 8.02 7.53 8.01 10,106,729
Oct 19, 2011 8.03 8.03 7.64 7.70 9,536,692
Oct 18, 2011 7.24 8.14 6.99 8.06 18,735,995
Oct 17, 2011 7.43 7.43 7.05 7.15 6,185,373
Oct 14, 2011 7.56 7.66 7.35 7.52 5,617,298
Oct 13, 2011 7.32 7.46 7.05 7.38 5,581,930
Oct 12, 2011 7.27 7.63 7.22 7.48 8,501,137
Oct 11, 2011 6.94 7.32 6.90 7.17 8,073,162
Oct 10, 2011 6.92 7.15 6.85 7.07 6,038,875
Oct 7, 2011 7.08 7.15 6.56 6.67 9,644,570
Oct 6, 2011 6.85 7.10 6.72 6.97 9,424,671
Oct 5, 2011 6.39 6.87 6.22 6.77 11,931,216
Oct 4, 2011 5.68 6.34 5.51 6.32 12,777,069

Here is an interesting chart that shows its upside potential with clearly room to go higher. There is also downside risk, as well:

This chart shows a nice upward movement forming. While I do not think it will reach those highs in the $16- $17/share range, I can easily see AKS trading for $11+ a share.

On Tuesday morning, AK Steel reported their third-quarter earnings that saw that its losses narrowed as higher prices offset a drop in steel shipments. .Steel also said "challenging global economic conditions have created strong headwinds for our company," They did not did not give a financial forecast for the final three months of the year.

If you are willing to take on some heavy risk with a high reward, call options going forward with March 2012 strike prices are very cheap right now after this latest earnings miss. A trade that I am going to initiate is to buy more calls than puts. At its current price, AKS does have some appeal here. I will open up a position with March 2012 $10.00 strike calls. In addition, I will also purchase March 2012 put options with a $5.00 strike as a minor hedge against those calls, with a 3:1 call/put ratio.

Good luck.

Source: Trading AK Steel After Latest Earnings Disappointment

Additional disclosure: I will be buying March 2012 options with calls favoring a 3/1 ratio.