This iron stock is red hot this week, and there still may be time to strike

Shares of Cliffs Natural Resources have soared about 15 percent on Tuesday and Wednesday, following base metals prices higher. At this point, the stock is up more than 70 percent in the past three months, but AlphaShark's Andrew Keene says the rally isn't over.

The company has been the beneficiary of an improving outlook and the expectation that infrastructure spending is set to increase, at least in the U.S. More recently, China's Hebei province announced plans this week to cut steel and iron production, according to the Xinhua news agency. This is obviously good news for iron supplier Cliffs.

Though Cliffs is actually below its early December highs, it has recently passed its 20- and 50-day moving averages, Keene noted. At this point, the stock is likely to ride its momentum higher, and its recent "resistance" level of $11 will soon become "support," according to the trader.

Bolstering his case, Keene said the stock has attracted bullish options activity.

To determine how high Cliffs can go, Keene looks at a weekly chart of the stock and eyes what he sees as "old support" around $14, which Cliffs last hit over two years ago. "I think it can head somewhere between the $13 and $14 range by April," Keene said Wednesday on CNBC's "Trading Nation."

As a result, Keene is buying the April 12-strike calls and selling the April 13-strike calls for a total cost of 20 cents per share. For Keene to make money on the trade, Cliffs would have to close above the breakeven point of $12.20 on April expiration.

If Cliffs manages to close above $13 on April 21, this "call spread" will be worth $1, meaning that Keen will have quintupled his money. On the other hand, if the stock closes below $12, the entire amount paid for the trade will be lost.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

Read more