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Markets

Cliffs Natural faces bearish play

Coal miners have struggled, and now traders are positioning for the bottom to fall out for Cliffs Natural Resources.

optionMONSTER's Depth Charge monitoring program detected the purchase of 19,000 January 12 puts for $1.10. A block of 7,000 October 17 puts was sold for $3 around the same time against open interest, which suggests an existing position was closed and rolled to the lower strike.

Making the adjustment let the investor collect a credit of $10,000 and provided him or her with an additional three months to profit from further declines in the stock price. They kept a similar net delta but stand to enjoy greater leverage in the event of a big drop because they now own more contracts.

Puts lock in the price where a stock can be sold, so they gain in value when shares fall. Traders use them to speculate on drops or to protect long holding s. (See our Education section)

CLF rose 3.36 percent to $16.60 yesterday but has lost more than one-third of its value in the last six months. Hurt by weak prices and slow growth in China, earnings have shrunk for four years straight and turned negative in the last 12 months.

The stock is now trying to hold the same four-year low where it bottomed last June. Some chart watchers may expect significant losses if that support is broken.

Overall option volume was triple the daily average, with puts accounting for more than two-thirds of the total.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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