Call Volume Hits Fever Pitch on Cliffs Natural Resources Inc (CLF)

Cliffs Natural Resources Inc (NYSE:CLF) is flying today on new tariff restrictions

by Karee Venema

Published on Mar 2, 2016 at 3:23 PM
Updated on Mar 2, 2016 at 3:44 PM

Cliffs Natural Resources Inc (NYSE:CLF) has surged 20.6% to $2.75, as the mining sector rallies on reports the Commerce Department will begin imposing anti-dumping tariffs. The bull gap has options traders pilling on, with most lining up on the call side of the fence.

By the numbers,17,000 calls have changed hands, compared to fewer than 1,900 puts. The most active option is CLF's April 2.50 call, where it looks like some speculators may be selling to close their now in-the-money positions. Elsewhere, buy-to-open activity has been detected at CLF's March 3 call, as traders roll the dice on a move above $3 by the close on Friday, March 18 -- when front-month options expire.

Today's accelerated call volume only echoes the withstanding trend seen in CLF's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day call/put volume ratio of 16.43 sits just 1 percentage points from a 52-week peak. In other words, calls have been bought to open over puts at a near annual-high clip.

Echoing this is CLF's Schaeffer's put/call open interest ratio (SOIR) of 0.76, which rests lower than 83% of all comparable readings taken in the past year. In other words, short-term speculators are more call-heavy than usual toward the security.

However, there may be an ulterior motive to this call buying -- particularly at out-of-the-money strikes. Specifically, with short interest accounting for 34.5% of the CLF's available float, it's likely that a portion of this call volume is a result of short sellers hedging their bearish bets.

For the most part, though, these short sellers have been on the right side of Cliffs Natural Resources Inc. Heading into today's trading, the shares were down 66% year-over-year -- and hit an 28-year low of $1.20 on Jan. 12.

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