Shares of uranium mining firm Cameco (CCJ) recently soared as calls for further nuclear power use have gained traction. One trader sees the potential for an even bigger gain in the next few months.
That’s based on the September $40 calls. With 179 days until expiration, 18,390 contracts traded compared to an open interest of 306, for a 60-fold jump in volume on the trade. The buyer of the calls paid $1.48 to get in.
With shares around $27, options would move in-the-money if shares surged about 48 percent from here. That’s a steep move, but a possible one, given the tight supply and demand dynamics of the uranium market. However, shares would first have to break over their 52-week high near $28.50.
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Shares have an all-time high over $50 going back to the peak of the commodity boom that ended in 2007, so the strike price is reasonable within the context of a major commodity rally.
Action to take: Shares have already had a great run in the past year, with a 39 percent gain. It’s possible that further gains are likely thanks to rising uranium prices in the coming months. Investors may like shares as a hedge against market uncertainty elsewhere.
For traders, the September calls offer a reasonable time until expiration for a big move in shares to play out. Traders might want to consider buying multiple contracts given the low price, and gradually sell portions of their positions on a rally higher, to ensure that any subsequent drop in shares doesn’t wipe out too many gains.
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 of the companies mentioned in this article.