Hey Traders,
Between the constant back-and-forth on the government spending bill and green initiatives …
The World Climate Summit this past week …
Uranium stocks have been going … well, nuclear.
Here’s three uranium stocks I’m keeping my eye on.
Cameco Corp. (Ticker: CCJ)
Is a list of uranium stocks really a list of uranium stocks without CCJ?
The stock caught some tailwinds on Wednesday, and touched yet another new 10-year high, though the shares didn’t manage to continue their momentum into the end of the week.
However, I think CCJ’s end-of-week slowdown might actually represent a good time to get into CCJ, as I don’t think this rally is done.
This slight consolidation could be the shares taking a quick breather before making yet another move to the upside …
Interestingly, in spite of CCJ’s recent rally, options are relatively cheap.
It’s 30-day implied volatility, which tells me volatility expectations, is below the 20-day historical volatility, which tells me recent movement.
In essence, this shows me that traders are actually pricing in less movement than CCJ has been seeing, so options are actually relatively cheap right now.
And, in fact, CCJ’s 30-day implied volatility is only in the 25th percentile of its annual range, telling me that options traders have priced in higher volatility expectations 75% of the time over the last year.
But with uranium’s run up, and with increasing demand for uranium out of both domestic and foreign actors like China, I don’t think CCJ is slowing down any time soon.
And the options pits seem to agree. Open interest on CCJ options is at 110% of its usual volume, with a huge majority of that being on the call side (we’re talking 1,263,452 calls open versus 234,063 puts!).
Drilling down into standard November expiration, the overhead 35-strike calls have the most open interest, with more than 30,000 contracts currently open.
By comparison, the highest put open interest lies at the 22-strike, with 12,000 contracts.
Uranium Energy Corp. (Ticker: UEC)
UEC has been off to the races lately.
The shares also enjoyed the sector-wide Wednesday rally, but they managed to keep their momentum going through the end of the week, hitting a 10-year high while they were at it.
Volatility isn’t exactly low, sitting in the 32nd percentile of its annual range, but at least UEC options aren’t trading at too much of a premium.
However, implied volatility does sit higher than historical volatility, so options traders are paying for a bit more movement than what they’re actually seeing.
In the options pits, UEC open interest is at 102% of its normal amount, so options traders are slightly more interested than usual, but the stock hasn’t garnered quite the attention that some of its fellow uranium names have.
However, like CCJ, UEC’s pits are definitely significantly more call-skewed, with call open interest coming in at 107,354 contracts, and puts making up just 21,759 of the total open contracts.
Looking at the most popular front-month contracts, the at-the-money November 5-strike calls have the heaviest open interest with 8,432 contracts, while on the put side, traders are targeting the out-of-the-money 2.50-strike and 3-strike puts (with 2,811 and 2,522 contracts open, respectively).
Denison Mines (Ticker: DNN):
I saved the best for last ….
Because DNN might be my favorite uranium name right now.
The shares have been climbing pretty steadily for the last few months, and have doubled from their July lows …
But still, below $2, I think DNN is straight-up CHEAP!
And I think once it breaks $2 ….
Which it will …
DNN won’t have many roadblocks to climb to $2.25, $2.50, and beyond in relatively short order.
I’m long a few DNN calls in some of my trading programs, and I’ve already scooped up some pretty nice profits playing this name.
However, like I said, I still think this could run higher.
In the pits, options are a relative bargain right now. Even though DNN’s 30-day implied volatility sits above its 20-day historical volatility …
The implied volatility is only in the 14th percentile of its annual range, so options traders have priced in higher volatility expectations 86% of the time over the last year.
Of course, the pits are definitely taking advantage of this “bargain,” and DNN’s current open interest is at 113% of its usual amount, with calls outnumbering puts more than four-to-one (512,583 to 120,095 open contracts).
Of the front-month options, a lot of options traders seem to agree with me about DNN breaking through the $2 mark, as the November 2-strike puts have by far the most open interest at 75,103 contracts (the 1.5-strike calls are the second most popular, with just 8,394 contracts, to put that into perspective).
On the put side, the 1.5-strike calls have more than double the open interest of the next most popular contract, with 16,469 currently open.
(By the way, the January 2022 term seems to have relatively low amounts of volatility being priced in right now …)
Your Only Option,
Mark Sebastian
