Options Bears Rush to Mining Stock Amid Billion-Dollar Deal

There is plenty of short interest to cover for CLF

Deputy Editor
Sep 28, 2020 at 3:24 PM
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The shares of Cleveland-Cliffs Inc (NYSE:CLF) were last seen up 10.4% to trade at $6.49 after it was reported that the mining company, known for iron ore pellets, will buy all of the U.S. assets of the world's largest steelmaker, ArcelorMittal (MT). The $1.4 billion dollar cash-and-stock deal has been made amid a push among steelmakers to consolidate and diversify their business, making it less vulnerable to swings in demand. 

Earlier swinging up to familiar pressure at the $7 region, CLF is now above a slew of long and short-term moving averages. However, gains look to have been capped by the descending 320-day moving average. Year-to-date, the equity is down 22.3%.

CLF Sep 28

Three of the four analysts in coverage sport a "hold" rating on Cleveland-Cliffs stock, with the remaining brokerages at a "strong buy." Meanwhile, though short interest has fallen 6.8% in the last month, the 90.31 million shares sold short still account for 33.4% of the stock's available float. In other words, it would take over nine days to cover these bearish bets at CLF's average pace of trading.

Calls have been popular in the last 10 weeks. This is per CLF's 50-day call/put volume ratio of 8.95 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio stands higher than 83% of readings from the past year, meaning long calls are being picked up at a faster-than-usual rate. 

Today, however, puts are winning out in the options pits. So far, 40,000 puts and 27,000 calls have crossed the tape -- 3.8 times the usual daily volume, with put volume pacing for the 99th percentile of its annual range. Most popular is the weekly 1/21 2022, 3-strike put, which also happens to be the top open interest position.


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