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Uranium miner Cameco has been stuck at an old high, and one big options trader is bracing for a potential drop as earnings approach.
This large transaction was detected yesterday in CCJ, unfolding in several blocks over the course of the afternoon:
Puts fix the level where traders can sell a stock, so they can gain value to the downside. They can also be sold to generate a credit.
A vertical spread combines the two actions to profit from a move between two prices. The credit from selling the lower-strike puts reduces the overall cost, which increases leverage.
Monday’s position cost a net $0.86 per contract. It will be worth $4 if the stock closes under $41 on expiration — a potential profit of 365 percent from a move of about 15 percent in the underlying shares. The spread will also become worthless if the shares remain above $45.
CCJ fell 2.56 percent to $48.32 yesterday. It roughly doubled between May 2023 and January as uranium prices climbed. However it dropped in February after earnings missed estimates. The next set of numbers is due on April 30, so the put spread could be a hedge by an investor owning the shares. The strategy could protect against a drop toward the recent lows while letting them profit from a potential breakout to new highs.
Options trading is not suitable for all investors. Your TradeStation Securities’ account application to trade options will be considered and approved or disapproved based on all relevant factors, including your trading experience. See www.TradeStation.com/DisclosureOptions. Visit www.TradeStation.com/Pricing for full details on the costs and fees associated with options.
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