Cliffs Natural Resources Inc (CLF) Dive Sparks Bearish Options Betting

Casablanca Capital has unloaded its stake in Cliffs Natural Resources Inc (CLF)

May 9, 2016 at 2:45 PM
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Cliffs Natural Resources Inc (NYSE:CLF) options are in high demand today, as the stock sells off after Casablanca Capital said it has exited its position in the mining firm. Specifically, the activist investment firm said it plans "to wind down its business" following the death of its former chairman and co-founder Donald Drapkin. The shares of CLF have plummeted 12.8% at $3.06, and since hitting a year-to-date high of $5.83 as recently as April 28 on a surprise quarterly profit, they've lost 48% of their value.

As alluded to, CLF's options pits are in overdrive -- particularly on the put side of the aisle. So far, roughly 13,000 puts have changed hands, doubling the expected intraday rate. The most active put is the June 2 strike, where traders are purchasing fresh positions in the hopes the stock will breach $2 by June expiration -- territory not charted since late February.

Longer term, options traders have seemingly been very bullish toward CLF. The stock's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 4.97 ranks in the 95th annual percentile -- with nearly five calls bought to open for each put.

That said, with two-fifths of CLF's float sold short, it's possible some of the call buyers are short sellers seeking an upside hedge. Today, however, the shares are on the short-sale restricted list, not unlike this mining sector peer.

Sentiment is no more optimistic among the brokerage bunch. Not a single analyst rates Cliffs Natural Resources Inc (NYSE:CLF) anything better than a "hold." Plus, the stock's consensus 12-month price target of $3 resides south of the current perch.

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