Uranium producer Cameco (CCJ) is flat over the past year, having given up recent gains and going back to last summer’s lows. One trader sees a further decline in the weeks ahead.
That’s based on the May $37 puts. With 65 days until expiration, 14,310 contracts traded compared to a prior open interest of 294, for a 49-fold rise in volume on the trade. The buyer of the puts paid $2.05 to make the bearish bet.
Cameco shares recently traded for about $40.50, so shares would need to drop by about $3.50, or about 8.7%, for the option to move in-the-money. The strike price of the options is near Cameco’s 52-week low of $35.43.
Cameco has had a strong year operationally, thanks to soaring demand for uranium. Earnings are up a hefty 40%, and total earnings grew by nearly 70%. Investors have no option for directly playing uranium prices, so producers like Cameco serve as a proxy for demand in the space.
Action to take: The past few weeks has raised concerns about the health of the AI rally, which could drive more nuclear energy use and uranium demand. However, earnings season suggested that investors shouldn’t count that trend out just yet.
Investors may want to start accumulating shares here, and use any further weakness to add to that position.
For traders, the May $37 puts are well positioned for any further short-term weakness in shares. The options are inexpensive enough to see mid-double-digit returns.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.