It is no surprise that Cliffs Natural Resources (CLF) has struggled recently, as coal prices have been cut in half in the last 10 months, and steel prices have fallen more than 25% in just six months. The $700M international mining and natural resources company has experienced an 82% collapse in its share price since the beginning of 2014, but, at least in the near-term, Cliffs is showing signs of life.

Shares of CLF snapped a 9-day losing streak on March 18th, printing a bullish hammer at the bottom of the down trending channel. The stock is now poised to trade back up to former support at the $5.50-$6.00 area in the next 1-2 months. In case of a more severe correction, a stop loss can be placed under the 52-week low of $4.12.

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One of the biggest reasons for the reversal can be attributed to the U.S. Dollar ETF (UUP) being on pace for the worst week since 2013. While it may be too early to call a top in the U.S. Dollar Index, the currency is likely to see continuation back to the 10-week exponential moving average near the 96 level.

One large options trader also agrees with having a short-term bullish bias in Cliffs. Just minutes before the close on March 18th, someone purchased 20,000 Apr 10 weekly $5 calls for $0.20-$0.22 each. He/she has a breakeven point of $5.21 on the $420,000 bet that expires in less than four weeks.

Cliffs Natural Resources Options Trade Idea

  • Buy the Apr 10 weekly $4.50/$5.50 bull call spread for a $0.35 debit or better.
  • (Buy the Apr 10 weekly $4.50 call and sell the Apr 10 weekly $5.50 call, all in one trade)
  • Stop loss- None
  • 1st upside target- $0.70
  • 2nd upside target- $0.95

Notes: By purchasing this call spread over a long call you have a breakeven of $4.85 instead of $5.21.

Disclosure: I plan on getting long CLF call spreads.

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