Cliffs Natural Resources Inc (CLF) Calls Heat Up as Stock Storms Higher

Options traders are eyeing a short-term move north of $9.50 for Cliffs Natural Resources Inc (CLF)

Dec 20, 2016 at 3:24 PM
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Options traders are placing bullish bets on Cliffs Natural Resources Inc (NYSE:CLF), amid the commodity stock's latest surge. At last check, CLF shares were 6.5% higher at $9.36, bringing their year-to-date lead to a mind-boggling 492%. This also explains why calls have been the options of choice on the equity, both today and in recent weeks.

Taking a quick step back, CLF's intraday gains are being attributed to unconfirmed buyout speculation -- which has reportedly been denied by the company. Adding to fuel to the proverbial fire, CNBC's Pete Najarian waxed optimistic on the stock during "Fast Money" earlier.

Diving into the options pits, CLF calls are running at 1.5 times the usual intraday rate, and outstrip puts by a nearly 4-to-1 margin. The most active option is the weekly 12/23 9.50-strike call, which traders are buying to open. By purchasing these out-of-the-money (OOTM) contracts, short-term speculators are anticipating the stock will settle Friday night -- when the series expires -- above $9.50.

Today's call buying is business as usual for Cliffs Natural Resources options bettors. During the past four weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open three times as many calls as puts. As a result, open interest on near-the-money strikes is very call-tilted, based on CLF's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 0.40.

On the other hand, the stock still has its fair share of detractors. Nearly one-quarter of CLF's float is sold short -- some of whom may have purchased calls, especially at OOTM strikes, as an upside hedge. Plus, five of seven covering analysts rate the long-term outperformer a lukewarm "hold." If Cliffs Natural Resources Inc (NYSE:CLF) can sustain its momentum, a round of short covering and/or upgrades could trigger another wave of buying power.

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