A new position was established in Cleveland-Cliffs Inc. (ticker CLF) by selling eight October 15th, 2021 100% Cash-Secured Put options at the $20.00 strike price at $1.59 per share when the price of Cleveland-Cliffs stock was slightly out-of-the-money at $19.79 per share. The Implied Volatility for these Put options increased to 69.8 today as the stock declined dramatically along with today's decrease in the price of iron ore. This Implied Volatility was very attractive to the Covered Calls Advisor since it was substantially higher than the current S&P 500 Volatility Index (VIX) of 26.7. So the $1,266.64 ($1.59 per share x 800 shares - $5.36 commission) is a nice premium to receive for selling these Put options. As preferred by the Covered Calls Advisor, Q3 2021 earnings will be reported on October 22nd which is after the October 15th options expiration date.
With acquisitions completed of ArcelorMittal USA and AK Steel, Cleveland-Cliffs is now the largest flat-rolled steel producer in North America and is also now vertically integrated from mining through production. Earnings this year are expected to exceed $5.00 per share which implies an extremely low P/E Ratio below 4.0. This is a very attractive valuation and furthermore, the average analysts' target price is $29.59 (+49.5% above today's purchase price).
As detailed below, for this Cleveland-Cliffs Inc. Cash-Secured Puts position two potential return-on-investment results are: (a) +7.5% absolute
return in 26 days (equivalent to a +104.7% annualized
return-on-investment) if the stock price is unchanged at $19.79 on the October 15th, 2021 options expiration date; and (b) +8.6% absolute
return in 26 days (equivalent to a +120.7% annualized
return-on-investment) if the stock price is above the $20.00 strike price on the October 15th, 2021 options expiration date.
Cleveland-Cliffs Inc. (CLF) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
09/20/2021 Sold 8 Cleveland-Cliffs Inc. October 15th, 2021 $20.00 100% Cash-Secured Put options @ $1.59 per share.
The Covered Calls Advisor does not use margin, so the detailed
information on this position and the potential result detailed below
reflect that this position was established using 100% cash
securitization for the eight Put options sold.
Two possible overall performance results (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $14,733.36
= ($20.00 - $1.59) * 800 shares + $5.36 commission
Net Profit:
(a) Options Income: +$1,266.64
= ($1.59 *800 shares) - $5.36 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If CLF stock is unchanged at $19.79 at the October 15th expiration): -$168.00
= ($19.79 - $20.00) * 800 shares
(c) Capital Appreciation (If CLF stock is above the $20.00 strike price at the Oct. 15th expiration): +$0.00
= ($20.00 - $20.00) * 800 shares
1. Total Net Profit (If CLF stock is unchanged at $19.79 at the October 15th expiration): +$1,098.64
= (+$1,266.64 options income +$0.00 dividend income -$168.00 capital appreciation); or
2. Total Net Profit (If CLF stock is above the $20.00 strike price at the Oct. 15th expiration): +$1,266.64
= (+$1,266.64 options income +$0.00 dividend income +$0.00 capital appreciation)
1. Absolute Return-on-Investment (If CLF stock is unchanged at $19.79 at the October 15th expiration): +7.5%
= +$1,098,.64/$14,733.36; and the
Equivalent Annualized Return-on-Investment: +104.7%
= (+$1,098,.64/$14,733.36) * (365/26 days)
2. Absolute Return-on-Investment (If CLF stock is above the $20.00 strike price at the Oct. 15th expiration): +8.6%
= +$1,266,.64/$14,733.36; and the
Equivalent Annualized Return-on-Investment (If CLF stock is above the $20.00 strike price at the Oct. 15th expiration): +120.7%
= (+$1,266,.64/$14,733.36) * (365/26 days)
