Laggard sectors like Metals and Mining stocks finally put in a bottom and bounced higher from summer extreme lows.
The XME sector exchange traded fund that tracks Metals and Mining is up 30% plus since the June low. Cliffs Natural Resource’s, CLF, a major supplier of Iron Ore, had crushing drop from $100 a share in 2011. The 2013 low at $15.40 started the last rally run to $29 and an 80% jump. The selloff from the November peak has pressured CLF again with $16 support below.
The heightened implied volatility makes option selling strategies attractive as pure probability trades that utilize time decay acceleration. As of this writing CLF, is trading around $18.25. The $20 level is the long term pivot that is upside resistance to overcome on a monthly closing basis to reverse the down trend.
TRADE SETUP
Sell the CLF April $16 Puts to open at $ .40 or better. The cash secured Put sale would assign long shares at $15.60 if it is put to you costing $1560 per option sold.
Only sell this put if you want to own the shares at a discount to the current price. The worst case is being long from $15.60 with two year low at $15.41.
The combination of time decay and probability make the option sale attractive with less than three weeks until expiration. If assigned shares, a May covered call can be sold against the stock to lower the cost basis again when you own it.
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