Cliffs Natural Resources Options (CLF) : Unusual Trading Activity

| September 5, 2012 | 0 Comments

CLF OptionsOptions in iron ore company Cliffs Natural Resources (CLF) showed an unusual trade on the bullish side at the end of yesterday’s trading session.   

CLF has been getting beaten down heavy over the last several months with no reprieve.  The stock has gone from $60 per share to a low this morning of around $32 a share before rebounding slightly.

But at least one trader is calling a bottom here. 

Puts dominated yesterday’s option activity in Cliffs Natural Resources as its shares traded at their lowest levels since 2009.

At the close yesterday, CLF was down 3.8% to $34.45.  The iron ore producer has lost half of its value in the last four months and is now back at levels from November 2009.

So, what’s this option trader thinking calling the bottom on this falling knife?

According to our tracking system, a trader sold 1,000 CLF September $37 strike put options for $2.18.  At the same time, the trader bought 1,000 CLF September $36 puts for an ask price of $1.45 at 5 times the open interest at that strike. 

This indicates a new opening credit spread position.

In other words, this trader collected a total of $73,000 which he will pocket as long as CLF remains above $37 until September expiration.

Not a bad return for six weeks!

Now, what’s the story here?

Cliffs Natural Resources is the largest producer of iron ore in North America.

The company operates mines in the United States and Canada that supply nearly 50% of North American blast furnace demand.

CLF also owns two iron ore mines in Australia and has a minority stake in an iron ore asset in Brazil. In addition to iron ore, Cliffs operates several coal mines in the US as well as a large chromite (another substitution for aluminum) project in Canada.

It sounds good… what else is contributing to this trader’s bullish position?

For one, in the event Chinese steel consumption continues to grow at healthy rates, it will be difficult for global supplies of iron ore to keep up, setting the stage for an extended period of abnormally high prices.

In addition to the Bloom Lake and the renegotiation of pricing mechanisms with the US, customers will afford proportionally greater exposure to the seaborne market, allowing Cliffs to capitalize on a “stronger for longer” investment boom in iron ore-hungry China.  Obviously this new pricing will contribute to top line revenue.

Lastly, Cliffs has an attractive growth profile driven largely by a two-phase expansion of their Bloom Lake project. 

It’s a real surprise that with all these positive reasons, CLF’s stock price is not substantially higher.

Let’s see if this bottom calling will turn into large profits.

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

Safe Trading,

Marcus Haber

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.