Cliffs Natural Resources Inc (CLF) Stock Surge Attracts Options Bulls

Option traders are betting on extended upside for red-hot Cliffs Natural Resources Inc (CLF)

Nov 22, 2016 at 2:29 PM
facebook twitter linkedin

Bullish options traders are swarming Cliffs Natural Resources Inc (NYSE:CLF), as the shares jump 13% amid a broader rally in mining stocks. Call options are changing hands at four times the expected pace for this point in the day, and with 65,159 calls on the tape, volume is running in the 99th percentile of its annual intraday range. On a closer look, CLF calls account for eight of the stock's 10 most popular options today, with traders taking special interest in weekly strikes. 

Leading the way thus far by a rather large margin is the weekly 11/25 8-strike call, where it appears new positions are being purchased. Next up is the weekly 11/25 7.50-strike call, and much of the action here is due to one trader who seemingly bought to open 4,999 contracts for roughly $300,000 ($0.60 premium paid * number of contracts purchased * 100 shares per contract). If this is the case, the goal for the call buyers is for CLF to extend its rally through week's end, when the weekly 11/25 series expires.

Call buying has been extremely popular on Cliffs Natural Resources in recent weeks, though. In fact, during the past 10 sessions at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 2.13 calls for each put. Plus, CLF's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) comes in at 0.44, showing call open interest more than doubles put open interest among near-the-money options expiring within three months. 

It certainly seems like an opportune time for near-term traders to buy premium on CLF options. The stock's Schaeffer's Volatility Index (SVI) of 65% is just 2 percentage points from a 12-month low, so volatility expectations seem rather muted at the moment toward the stock's short-term options. Moreover, CLF's Schaeffer's Volatility Scorecard (SVS) is docked at a lofty 98, meaning the security has tended to make bigger-than-expected moves during the past year, compared to what the options market has priced in. 

The bullish bias among options traders isn't surprising given CLF's rapid rise on the charts this year. After ending 2015 at $1.58, the stock was last seen trading at $8.55, touching an annual high of $8.57 earlier in the session. Now, CLF shares are staring down their 36-month moving average -- positioned at $8.60 -- a trendline they haven't closed above since April 2012. 

An unwinding of pessimism could certainly help lift the shares of Cliffs Natural Resources Inc's (NYSE:CLF) even further up the charts. Despite the stock's epic run this year, only two of seven brokerage firms recommend buying it. Plus, 33% of the equity's float is controlled by short sellers. CLF's rally could easily continue amid a round of bullish analyst attention, and/or a short-squeeze situation. 

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.

If you are not making money with options, you aren’t buying options like this…

There is no options strategy that more perfectly approaches trading the fastest moving and most volatile stocks available in the marketplace than this one. In fact, there is no strategy that better utilizes put options for optimal returns and a real trading edge over other traders in the exact same market. New options traders fail out at an incredible rate without proper trade research, execution timing, and option picking. Capitalize on Schaeffer’s 100+ years of options trading excellence with the most coveted product launch in company history. Don't waste another second... join us right now before the next round of trades are released!

Schaeffer's Investment Research Stock Pick Report


Special Offers from Schaeffer's Trading Partners