Cliffs Natural Resources Inc. (CLF) Option Bull Bets Big

Cliffs Natural Resources Inc (NYSE:CLF) is up 8% today amid a sector-wide rally

by Karee Venema

Published on Jun 2, 2015 at 2:23 PM
Updated on Jun 24, 2020 at 10:16 AM

Cliffs Natural Resources Inc (NYSE:CLF) has jumped 8% today to trade at $5.52, amid a sector-wide rally. The move higher has prompted a rush of call activity in the equity's options pits, with the contracts changing hands at two times the average intraday rate -- and outpacing puts by a nearly 13-to-1 ratio.

Most active is CLF's July 5 call, where one speculator in particular bought to open a multi-exchange sweep of 7,976 contracts for $582,248 (number of contracts * $0.73 premium paid * 100 shares per contract). Based on the entry price, breakeven for today's call buyer is $5.75 (strike plus premium paid), a level she's hoping CLF continues to climb north of through the close on Friday, July 17 -- when back-month options expire.

Widening the sentiment scope reveals call buyers have been active on CLF for some time now. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day call/put volume ratio of 4.10 ranks in the 97th percentile of its annual range.

Echoing this is CLF's Schaeffer's put/call open interest ratio (SOIR) of 1.00, which rests lower than 86% of all similar readings taken in the past year. In other words, short-term speculators are more call-heavy than usual toward the stock.

Technically speaking, the security has been a long-term laggard, shedding more than 63% on a year-over-year basis. More recently, Cliffs Natural Resources Inc (NYSE:CLF) has spent the past month bouncing between $4.70 and $6.90. With nearly 47% of the stock's float sold short, it's possible that some of the recent call buying -- particularly at out-of-the-money strikes -- is a result of shorts hedging against an unexpected breakout.

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