The traditional last week of summer on Wall Street went out with a whimper, as the market fell for a third straight week. The numbers weren’t pretty for the bulls as the S&P 500 fell 3.3%, the Dow declined 3%, and the Nasdaq fell another 4.2%.

Cabot Profit Booster Issue: September 7, 2022

Market Overview
The traditional last week of summer on Wall Street went out with a whimper, as the market fell for a third straight week. The numbers weren’t pretty for the bulls as the S&P 500 fell 3.3%, the Dow declined 3%, and the Nasdaq fell another 4.2%.

Buckle up, it feels as if the coming days could be critical as the bears are targeting a re-test of the June/July market lows.

This week we are executing a covered call in Cameco (CCJ), which is a leading uranium play. Though of note, as has been the case recently, we are playing this defensively by selling an in-the-money call.

The Stock – Cameco (CCJ)
Why the Strength
The global energy crisis has catapulted uranium back into the headlines, with energy security concerns and government-sponsored green energy initiatives helping the cause. Other demand drivers include a major nuclear policy reversal from Japan’s government (a big reason for the stock’s recent push higher), plus India’s plan to build a massive nuclear reactor, as both countries try to move away from coal and natural gas imports. Moreover, as the world moves away from Russia-enriched uranium supplies, Cameco—one of the world’s largest uranium miners—is becoming more attractive in the bid to fill the sizable demand gap.

The company recently made its own headlines when it announced a restart of operations at its McArthur River mine (the world’s largest high-grade uranium deposit), which closed in 2018. Cameco’s management said it plans to operate the mine at a “lower-than-full-capacity rate,” adding that the company is “still in supply discipline mode,” which should provide the market with more of the coveted energy source while allowing prices to remain firm.

Meanwhile, as geopolitical factors continue to highlight supply concerns, Cameco managed to benefit from realized uranium prices that were 41% higher than a year ago, as well as higher fuel service sales prices (up 8%) in Q2. Revenue of $558 million jumped 55% from a year ago while blowing past Wall Street’s expectations; per-share earnings of 18 cents also crushed the consensus (by 17 cents). Maybe most importantly, Cameco added 45 million pounds to its portfolio of long-term uranium contracts in the first half of 2022, with a “significant and growing pipeline” of further contract discussions underway (i.e., this isn’t just a play on current uranium prices). After many false starts over the years, Wall Street sees Cameco’s bottom line lifting rapidly through at least next year.

Technical Analysis
CCJ hit a yearly peak back in April at 32, but turned tail and dropped to 20 a month later as uranium stocks fell out of favor and, of course, the market collapsed. Unlike many of its industry peers, however, the stock bottomed that month and spent the next 14 weeks testing support in the low 20s, holding every time—and the past two weeks have seen the buyers back at it (spurred on by the Japan news), with big-volume gains. CCJ is usually pretty herky-jerky, but we’re not opposed to starting a position here. Stop — 24.5

The Covered Call Trade
Buy Cameco (CCJ) Stock at 29, Sell to Open October 26 Strike Calls (exp. 10/21) for $4, or a Net Price of 25 or less

Static Return: $100 per covered call (4%)

Breakeven: 25

Covered Call Return (if assigned): $100 per covered call (4%)

Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.

However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 25 or less. (In this case 29 minus 4 = 25. Or another example is you could pay 28.75 for the stock and sell the call for 3.75, which also equals 25)

For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …

Open Positions
If our stop is hit, I will send an alert giving detailed instructions on how to exit the trade. But don’t get too worried about setting the stop. I will manage that for you.

The next Cabot Profit Booster issue will be published on September 13, 2022.

Analyst Bio

Jacob Mintz

Jacob Mintz is a professional options trader and editor of Cabot Options Trader. Using his proprietary options scans, Jacob creates and manages positions in equities based on unusual option activity and risk/reward.

Jacob developed his proprietary system during his years as an options market maker on the floor of the Chicago Board of Options Exchange, where he ran several trading crowds for nearly 10 years.

After a successful career on the trading floor Jacob was tasked with setting up a trading desk at a top-tier options trading company, trading against the most sophisticated hedge funds and institutions in the world.

Today Jacob trades for himself, coaches and teaches about options trading, and runs our Cabot Options Trader, Cabot Options Trader Pro and Cabot Profit Booster advisories. Jacob lives in North Carolina with his wife and two kids who keep him very busy with their sports and social calendars.