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Call Spread Looks For Upside In Cliffs Shares

 

Today’s tickers: CLF, YPF & ALU

CLF - Cliffs Natural Resources Inc. – A bullish spread initiated on Cliffs Natural Resources this morning looks for shares in the largest North American producer of iron ore pellets to move higher by year end. Shares in Cliffs today increased as much as 6.75% to $34.47 in the first half of the session, rebounding after last week trading down to a 2-year low of $28.05. One options player positioning for the price of the underlying to continue higher appears to have purchased a 500-lot Dec. 28 ’12 $34/$38 call spread for a net premium of $0.78 per contract. The spread makes money as long as CLF shares rally 2.6% over the current price of $33.91 to exceed the effective breakeven point at $34.78, with maximum potential profits of $3.22 per contract available on the position in the event shares gain 12% to hit $38.00 by expiration.

YPF - YPF SA – Shares in Argentina’s largest energy company rose sharply today on reports the oil and gas producer may bid for Petrobras’s Argentine assets. The stock increased as much as 7.6% to $13.95 in the first half of the trading day, sparking heavier than usual trading traffic in YPF options. Upside call buying in the front month options suggests some traders are positioning for shares to extend gains in the near term, with upwards of 700 lots changing hands at the Dec. $15 strike versus open interest of 10 contracts. It looks like most of these call options were purchased for an average premium of $0.10 apiece in the early going, preparing buyers to profit should YPF’s shares rally another 8% to exceed $15.10 at expiration next week. Shares in YPF, down roughly 60% year-to-date, last traded above $15.10 back in April. It looks like traders are also buying the Jan. 2013 $15 strike calls today, with roughly 310 purchased this morning for an average premium of $0.23 per contract. Time and sales data from Thursday’s session reveals around 500 of the Jan. 2013 $15 strike calls were purchased yesterday at a premium of $0.20 each.

ALU - Alcatel-Lucent SA – Mobile and broadband networking services provider, Alcatel-Lucent, appeared on our ‘hot by options volume’ scanner after a large block of put options changed hands in the January 2014 expiry. Shares in ALU increased 12% today to $1.23 after the French company secured a $2.1 billion financing deal underwritten by Goldman Sachs and Credit Suisse. One options player appears to be placing a floor on shares in ALU over the next year, selling 10,000 puts at the Jan. 2014 $1.0 strike for a premium of $0.25 per contract. The put seller keeps the full amount of premium received on the transaction as long as shares in ALU exceed $1.00 at expiration, but could have one million shares of the underlying stock put to him or her at an effective price of $0.75 a share in the event the contracts land in-the-money at expiration in 2014. Alcatel-Lucent shares dipped below $1.00 as recently as the 21st of November.

 

Caitlin Duffy
Equity Options Analyst


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