Cliffs Natural Resources Inc (CLF) Sees a Rare Pop in Bullish Betting

Cliffs Natural Resources Inc option players anticipate a bigger bounce

Dec 29, 2014 at 11:36 AM
facebook twitter linkedin


Cliffs Natural Resources Inc (NYSE:CLF) is on the mend today, up 8.5% at $6.84 -- and on pace to end atop its 10-day moving average for the first time since Nov. 10. What's more, option traders are adopting a relatively rare bullish stance today, buying to open short-term calls to gamble on more upside for CLF.

Already today, the stock has seen roughly 15,000 calls cross the tape -- about four times the norm, and close to three times the number of CLF puts exchanged. Speculators have taken a shine to the equity's weekly 1/2 calls, which expire at Friday's closing bell, with buy-to-open activity detected at the 5, 6.50, and 7 strikes. By purchasing the calls to open, the buyers expect CLF to extend today's bounce and end the week north of the respective strikes.

As alluded to earlier, today's appetite for calls runs counter to the recent trend on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), where traders have bought to open more than two CLF puts for every call during the past two weeks. In fact, the equity's 10-day put/call volume ratio of 2.11 sits higher than 94% of all other readings from the past year, pointing to accelerated put buying of late.

Short-term traders are paying up for their CLF options, too. The security's Schaeffer's Volatility Index (SVI) of 88% stands higher than almost two-thirds of all other readings from the past year, suggesting CLF's near-term contracts are rather pricey, historically speaking.

Despite today's uptick, Cliffs Natural Resources Inc remains 74% lower on the year, and plumbed decade lows earlier this month. Furthermore, the stock has underperformed the broader S&P 500 Index (SPX) by more than 41 percentage points during the past three months, so it's no surprise to find that short interest accounts for more than half of CLF's total available float.

Daily Chart of CLF since October 2014 with 10-Day Moving Average
 

 

 

These investors are using the market's volatility to their advantage and scoring triple-digit gains on many of their trades.

Even in today's sideways bear market, this trading strategy has continued to provide consistency and profitability to a small group of investors. By using this approach, these traders are removing directional risk and still hitting triple-digit returns. If you want access to this strategy, and lower risk with higher returns sounds good to you, then don't wait another minute.

Join us now to receive our next trades the moment they come out!

 

Common mistakes options traders make
 


 


 
Special Offers from Schaeffer's Trading Partners