The Uranium Stock Generating Big Interest

Cameco Corporation (Ticker: CCJ) is one of the largest uranium producers in the world, and there seems to be hopes that the stock may be getting ready to see some heavy tailwinds thanks to the numerous “green energy” provisions included in the $1 trillion infrastructure bill.

CCJ has had a generally strong performance over the last year, though the shares sit slightly down from their June highs.

Sure, the shares did get a nice 3% lift on Tuesday, but that’s not what caught my eye …

Rather, what I found exceptionally interesting was a duo of spread trades bought to open in CCJ’s pits!

In particular, this trader first opened a September 20-26 strike call spread, opening 6,000 contracts of each.

Now, these were opened at the mid-price, so it’s difficult to ascertain exactly where this trader stands …

If they’re feeling particularly bullish, opening the 6,000 contracts of the September 20-strike call for $0.26 would have cost them $156,000 – but they would have been able to cover $60,000 of this by selling 6,000 contracts of the 26-strike call at $0.10.

Or if they’re neutral-to-bearish, they may have sold-to-open the 20-strike calls, and hedged potential losses with the opposing 26-strike contracts, taking in a $96,000 credit — which they’ll get to keep assuming CCJ stays below the $20 mark for the next five weeks.

But that wasn’t all! 

At the same time, this trader opened a ratio spread, opening 6,000 contracts of the December 22-strike calls at the bid of $0.70 and $0.71, and trading 9,000 contracts of the December 29-strike calls for $0.27.

Now, again, depending on the trader’s sentiment, we could interpret this two ways.

However, because the 6,000 contracts of the December 22-strike calls were traded at the bid, I think this may well be a call ratio back spread, where the trader used the proceeds of selling the 22-strike calls to purchase the 29-strike calls. The $423,000 premium received would have more than covered the $243,000 cost of purchasing the 29-strike calls, leaving them with a tidy $180,000 credit to their account.

While a huge rally would certainly work in their favor, this trader may actually be thinking that CCJ will remain below the 22-strike, letting them keep the premium received.

Looking around more broadly, the sentiment in CCJ’s pits seems quite bullish.

In particular, the August 13 17.5-strike calls crossed the line at a particularly rapid clip on Tuesday, with over 8,000 contracts traded.

Remember these calls expire on Friday, and CCJ closed on Tuesday at $17.58. For these trades to become profitable at the current ask price, CCJ will need to rise above $17.96 before the close on Friday.

Looking further out, there’s also some surprising heavy call open interest in the September-dated expiration term. Notably, the 17-strike, 20-strike, 25-strike, and 26-strike calls seem to be particular targets among options traders:

Personally, I like the CCJ September 18-strike calls that were crossing the line on Tuesday for about $0.80.

Should CCJ catch a tailwind – as it seems many options traders are expecting – within the next five weeks, these calls could see a handsome payday.

Your Only Option,

Mark Sebastian

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