Shares of iron ore producer Cleveland-Cliffs (CLF) have shed nearly half their value in the past few months. One trader sees a much bigger decline playing out over the next year and a half.
That’s based on the January 2024 $5.00 put. With 568 days until expiration, 10,010 contracts traded compared to a prior open interest of 164, for a 61-fold rise in volume on the trade. The buyer of the puts paid $0.41.
Shares recently traded for about $16, so they’d need to fall over two-thirds from here in order for the options to move in-the-money before expiration.
Overall, the stock is down 26 percent in the past year. That’s as revenue has been on the rise, with a 47 percent jump, and earnings are up over 1,850 percent in the same timeframe.
Action to take: The company will likely continue to see shares drop, as anything commodity-related will continue to trend lower as concerns over reducing inflation continue to weigh on such stocks. Investors should expect the company’s operations slow down substantially compared to the past year and stay away.
For traders, the January 2024 options are attractive. They’re well priced and have ample time for the current downtrend to continue to play out. They’re also inexpensive enough that traders can likely see high double-digit gains or better in the coming months.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.