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Is More Downside Ahead for Cliffs Natural Resources Inc (CLF)?

Cliffs Natural Resources Inc's November 13 put was popular on Thursday

by 8/29/2014 9:31 AM
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Cliffs Natural Resources Inc (NYSE:CLF) plunged 6% on Thursday to close at $15.06 -- dragging its year-to-date deficit to 42.5% -- as a slump in spot iron ore prices applied pressure to mining stocks. Amid this sell-off, put volume accelerated to two times the average daily pace, and speculators upped the bearish ante to gamble on multi-year lows.

Drilling down, the November 13 put saw the most action in CLF's options pits yesterday, with 5,943 contracts on the tape at the close. The majority of these crossed at the ask price, implied volatility edged higher, and almost all of the volume translated into open interest overnight, collectively pointing to the purchase of new positions.

The volume-weighted average price (VWAP) for the out-of-the-money puts was $0.67, making breakeven at the close on Friday, Nov. 21 -- when the November series expires -- $12.33 (strike less VWAP). Considering a move south of $13 would mark a new five-year low for the shares, delta on the November 13 put finished at negative 0.25 yesterday, suggesting a roughly 1-in-4 chance the position will be in the money at expiration.

However, the lifetime of this option includes Cliffs Natural Resources Inc's (NYSE:CLF) third-quarter earnings report, tentatively scheduled for the week of Oct. 22. The stock has seen some major post-earnings moves, including a 20% single-session plunge in February 2013, and a 15% single-session pop in April 2013. On average, though, the equity has shed 0.4% over the past eight quarters in the session subsequent to reporting.


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