Where options traders are mining for a rally

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Someone wants to turn iron into gold with options.

Here’s the large bullish trade detected yesterday in Cleveland-Cliffs (CLF):

  • 25,000 August 8 calls bought for $1.29.
  • 25,000 August 8 puts sold for $0.28.
  • 25,000 June 7 calls sold for $1.96 as an existing position expiring tomorrow was closed.

Calls fix the price where a security can be purchased, so they make money when a stock rises. Selling puts generates income but also creates the risk of being forced to buy shares if they crash. Combining the two results in a synthetic long-stock position. It requires less cash but has similar risk/reward profile. (See our Knowledge Center.)

The long and short of Wednesday’s is that the investor closed a winning bullish trade in the June 7 calls and rolled the position two months into the future. They recovered $0.95 of capital and remain extremely leveraged to further moves in the producer of iron-ore pellets.

CLF ended the session down 0.68 percent $8.79, but is up 26 percent so far this quarter. The stock rallied on a strong earnings report in late April and has benefited from President Trump’s tariffs on foreign steel.

Yesterday’s roll pushed overall option volume in CLF to more than triple the average in the last month, according to the TradeStation platform.

Cleveland-Cliffs (CLF) chart with key moving averages.
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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.