Why Cliffs Natural Resources Inc (CLF) Could Have More Room to Run

Cliffs Natural Resources Inc (NYSE:CLF) has been rallying hard in 2016, but short sellers and analysts are not quite sold on the mining stock

Dec 14, 2016 at 10:55 AM
facebook X logo linkedin

Cliffs Natural Resources Inc (NYSE:CLF) has been a technical standout in 2016, with the mining stock up over 500%. More recently, the shares pulled back after hitting a two-year high of $10.90 last Thursday, but found a foothold and bounced from the $9 region, home to their 20-day moving average and 2015 highs. In fact, CLF was last seen 4% higher at $9.68. And while options traders have been eyeing more upside for CLF stock, short sellers have been raising the bearish stakes -- suggesting there could be more fuel for the security's fire.

clf daily since december 2015

Taking a quick look at CLF's options pits shows speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 88,081 calls in the past four weeks, compared to 34,514 puts. What's more, the equity's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 0.52 suggests near-the-money calls nearly double puts among options set to expire in three months or less.

Drilling down, peak call open interest in the front-month series is found at the December 8 strike -- with 8,258 contracts outstanding -- most of which have been bought to open, according to data from the major options exchanges. In other words, call buyers are expecting CLF to settle north of $8 at this Friday's close, when standard December options expire.

clf december open interest

Outside of the options pits, however, traders have been growing skeptical of the mining stock. In fact, short interest rose 3.3% in the most recent reporting period -- and now accounts for a brow-raising 24.1% of the stock's available float. This pessimism is seen in the analyst community, too, where more than 71% of covering brokerages maintain a lukewarm "hold" rating on the outperformer. Plus, the average 12-month price target of $6.38 stands at a 34% discount to CLF's current price. Should the shares continue to rise, a capitulation among short sellers and/or a round of bullish brokerage notes could translate into tailwinds for the shares.

Lastly, now appears to be an affordable time to bet on Cliffs Natural Resources Inc's (NYSE:CLF) next move higher via options. For starters, the stock's Schaeffer's Volatility Index (SVI) of 69% ranks lower than 94% of all comparable readings taken in the past year, indicating low volatility expectations are currently priced into CLF's near-term options. What's more, the equity's Schaeffer's Volatility Scorecard (SVS) is docked at a lofty 99, meaning the options market has historically underpriced CLF's ability to make big moves on the charts over the last 12 months.

Let us help you profit from market volatility. Target big gains in short order with a 30-day trial of Schaeffer's Weekly Volatility Trader!

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls



Rainmaker Ads CGI