Cliffs Natural Resources Inc. (CLF) Bull Eyes a Move to Double-Digits

Cliffs Natural Resources Inc's (CLF) April 10 call was bought to open yesterday

by Karee Venema

Published on Jan 9, 2015 at 10:36 AM
Updated on Apr 20, 2015 at 5:32 PM

Cliffs Natural Resources Inc (NYSE:CLF) popped 7.2% yesterday, amid reports the commodity concern is in talks with the Quebec government to reopen its Bloom Lake iron ore mine. The rally sparked a rush of call activity in the equity's options pits, with the contracts changing hands at three times the average daily pace.

Roughly two-fifths of the day's call volume occurred when a massive block of 17,000 contracts was bought to open at the April 10 strike for $646,000 (number of contracts * $0.38 premium paid * 100 shares per contract). This is the most the speculator stands to lose, should CLF settle in single digits at the close on Friday, April 17 -- when the series expires. Profit, meanwhile, will accumulate above the at-expiration breakeven mark of $10.38 (strike plus the premium paid).

From a wider sentiment perspective, Thursday's accelerated call activity just echoes the recent trend seen in CLF's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the equity's 10-day call/put volume ratio of 2.35 ranks 8 percentage points from an annual bullish peak. With more than half of the stock's float sold short, though, a portion of this activity may be a result of short sellers hedging their bearish bets against any unexpected upside.

In fact, yesterday's rally -- which was quickly contained by CLF's 30-day moving average -- runs counter to the stock's withstanding technical trajectory. Year-over-year, the shares have shed 69% of their value, and more recently, the security has underperformed the broader S&P 500 Index (SPX) by nearly 33 percentage points over the past two months. Today, Cliffs Natural Resources Inc (NYSE:CLF) is headed lower along with the broader equities market, and was last seen down 4% at $7.03.

Daily Chart of CLF Since January 2014 With 30-Day Moving Average

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