3 Red-Hot Commodity Stocks in Option Traders' Crosshairs

Option traders are streaming to metal stocks Barrick Gold Corporation (USA) (ABX), Cliffs Natural Resources Inc (CLF), and United States Steel Corporation (X)

by Alex Eppstein

Published on Mar 7, 2016 at 11:40 AM
Updated on Jun 24, 2020 at 10:16 AM

Commodity stocks are breaking out today, as iron ore flirts with its biggest daily gain since 2009 and gold nears a 13-month high ahead of this week's European Central Bank (ECB) meeting. Among the big winners are Barrick Gold Corporation (USA) (NYSE:ABX), Cliffs Natural Resources Inc (NYSE:CLF), and United States Steel Corporation (NYSE:X), with each metal stock attracting attention from option traders.

ABX was last seen 3.6% higher at $14.22, and has now nearly doubled on a year-to-date basis. In today's options pits, calls are crossing at twice their average intraday rate -- and more than quadruple the pace of puts. While long-term traders are targeting the January 2017 13-strike call, short-term speculators appear to be buying positions at the April 16 call -- anticipating ABX will topple $16 by back-month expiration, territory not charted since September 2014.

This represents a change of pace for Barrick Gold Corporation option traders. During the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), option players have bought to open 1.48 puts for every call -- the highest ratio of its kind in the last year. Likewise, ABX's Schaeffer's put/call open interest ratio (SOIR) stands at an annual peak of 1.26. Should these skeptical bettors start hitting the exits amid the stock's journey north, it could result in tailwinds.

CLF, meanwhile, has soared 19% to trade at $3.44, bringing its 2016 lead to nearly 118%. In fact, the stock is on track for its highest close since early September. Not surprisingly, option traders have taken a glass-half-full approach of late. CLF's 10-day ISE/CBOE/PHLX call/put volume ratio of 13.41 outstrips all but 2% of comparable readings recorded in the previous 12 months.

In today's options pits, intraday volume is running at three times the norm. One of Cliffs Natural Resources Inc's most active options is the weekly 3/11 3-strike put, where traders are buying to open positions. In other words, these buyers believe CLF will reverse back below $3 by Friday's closing bell, when the weekly series expires.

Finally, X has rallied 3.8% to trade at $13.47, and this month alone, the shares have advanced nearly 48%. Nonetheless, short-term traders are more put-skewed now than usual. Specifically, the stock's SOIR of 2.42 ranks in the 91st percentile of its annual range.

In today's action, it looks like traders are buying to open the May 17 call. In so doing, they're betting on United States Steel Corporation to topple $17 for the first time since August, by the close on Friday, May 20.

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