Shares of iron ore producer Cleveland-Cliffs (CLF) have lost 40 percent of their value in the past year, more than double the drop in the S&P 500. One trader sees a further decline ahead.
That’s based on the March 2023 $9 puts. With 137 days until expiration, 6,374 contracts traded compared to a prior open interest of 117, for a 54-fold rise in trading volume. The buyer of the puts paid $0.41 to get in.
Shares recently traded near $14, so the stock would need to drop another $5 for the option to move in-the-money. That would be a further 35 percent drop in shares in the next few months, and would be far
A slowing economy and rising inflation have caused earnings to drop 88 percent for the company, and revenue is down 6 percent in the past year.
Action to take: Shares are in a downtrend, so investors should hold off on buying for now. Since CLF suspended its dividend in early 2020 and never brought it back after the pandemic ended, investors won’t even be paid to wait for a rebound here.
For traders, the options are a reasonably-priced bet with the capacity for triple-digit returns. In today’s markets, traders may want to buy now, take a quick profit on a down day for shares, and look for a similar trade after the next market bounce.
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.