Call Traders Silent Ahead of Cleveland-Cliffs Earnings Report

Call open interest was near an annual low on Cleveland-Cliffs

by Josh Selway

Published on Feb 7, 2019 at 1:51 PM

Cleveland-Cliffs Inc (NYSE:CLF) will release its fourth-quarter earnings report before the opening bell tomorrow, Feb. 8, and the shares will be looking to extend their strong start for 2019. That is, the mining concern sports a year-to-date lead of 43.4%, last seen at $11.08, and earlier today touched its highest point since early November. Despite this technical success, there hasn't been a lot of bullish activity in the options pits, to say the least.

Jumping in, call open interest on CLF sat at just 208,168 contacts coming into today, which ranks 4 percentage points from a 52-week low. On the surface it would seem bullish activity has picked up today, since calls are crossing at six times the expected pace. However, the unusual trading data stems from one speculator who seemingly sold to open 10,000 February 12.50 calls while also buying to open 10,000 weekly 2/8 10.50-strike puts. This defensive trade is likely the work of a shareholder preparing against a potential pullback in the stock.

The options market is pricing in a 14.1% swing for Cleveland-Cliffs for tomorrow's trading, coming in above the average post-earnings move of 8.3% over the past two years. Bulls will be hoping for a repeat of July's earnings reaction, when the equity jumped 12.7% after the company's report.

From a contrarian perspective, CLF stock remains appealing due to the put-skewed stance of near-term speculators, on top of the short squeeze potential surrounding it -- data we highlighted in our coverage of the security a week ago. Something else to watch out for after earnings will be a round of price-target hikes, since the shares are already atop their average 12-month price target of $10.95.

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