Cameco (CCJ) Radiated the Screener for Unusual Options Activity

On a down day for the equities market, one name lit up the ticker board, both for its robust performance and the controversial underlying industry. Shares of Cameco (CCJ) – the world’s largest publicly traded uranium company – gained over 9% on the Monday, Aug. 29 session. What’s more, the afterhours session took CCJ stock even higher, up 1.4%.

It’s an interesting time for investors of energy-related public companies. Though society has gradually climbed its way out of the doldrums of the COVID-19 crisis, quite a few people still work from home. Naturally, this dynamic creates less of an incentive for motorized transportation.

Indeed, according to the U.S. Federal Highway Administration, vehicle miles traveled stagnated since February 2022. Further, this metric really hasn’t made much progress since around October of last year.

Of course, circumstances drastically changed when Russia invaded Ukraine, sending global hydrocarbon energy supplies into turmoil. With western powers and allies imposing sanctions on Russia and Moscow responding in kind with energy flow restrictions, reduced supplies led to dramatically escalated prices. Subsequently, many Americans in their lifetimes never experienced such pain at the pump.

Naturally, the wild ebb and flow of geopolitics in 2022 shined a major spotlight on hydrocarbon energy dependency. In turn, the extremely dependent European region saw its leaders pivot to fast-tracking renewable energy infrastructures.

Still, one sector may finally have a chance to shine the brightest (literally and figuratively) and that would be the nuclear energy industry. Perhaps not surprisingly to industry observers, CCJ stock was one of the key subjects of unusual options activity.

Bullish Traders Bid Up CCJ Stock

Following the close of the Aug. 29 session, bullish traders acquired several call options on CCJ stock across various strike prices and expiration dates. They are as follows:

• $31 calls with an expiration date of Sept. 2, 2022. The volume to open interest (VOL/OI) ratio was 47.3.
• $34 calls with an expiration date of Oct. 21, 2022. The VOL/OI ratio was 12.57.
• $30 calls with an expiration date of Sept. 2, 2022. The VOL/OI ratio was 12.25.
• $34 calls with an expiration date of Sept. 16, 2022. The VOL/OI ratio was 9.59.

To be fair, most of these calls represent short-term wagers, expiring at various points in September. However, the October call signifies broader interest in CCJ stock as a longer-term investment. Here, the bid-ask spread as represented by the midpoint price ($1.09) was 7.34%.

Interestingly, the rising interest in call options for CCJ stock aligns with broader bullish sentiment. According to Barchart.com, the put/call OI ratio stood at 0.45 following Monday’s session. Given that the delineation point between optimism and pessimism is around 0.70, the 0.45 figure indicates that traders are buying more calls than puts.

Also bolstering the bullish thesis for CCJ stock is analyst sentiment. To be fair, only five analysts cover Cameco. However, all these experts are bullish on the company’s prospects, with three assigning a “strong buy” rating while the remaining two have issued “moderate buy” ratings.

Energy Density and Capacity Factor

Obviously, while nuclear energy represents an important cog in the broader infrastructural profile, it features a challenging public perspective. In many ways, incidents like Three Mile Island, Chernobyl and Fukushima have done to the nuclear energy industry what the book and film Jaws did to sharks. While sharks play a vital role in balancing the ecosystem, the general perception tends to focus on rare shark attacks on humans.

Setting aside the product evangelism difficulties that the nuclear industry faces, CCJ stock may be one of the more compelling ideas within the wider energy sphere. That’s because the underlying company enjoys the fundamental relevance of energy density and capacity factor.

Regarding the former attribute, the Nuclear Energy Institute states that “One uranium fuel pellet creates as much energy as one ton of coal, 149 gallons of oil or 17,000 cubic feet of natural gas.” Other energy sources can’t come anywhere near this magnitude of density.

For the latter, the Office of Nuclear Energy reports that the underlying source features a capacity factor of 92.5%. In other words, every year, nuclear powerplants churn out maximum power more than 92% of the time. On the other hand, renewable sources like wind and solar have capacity factors of 35.4% and 24.9%, respectively, due to their intermittent nature.

Even if you reject the idea of CCJ stock as an investment opportunity, the underlying science is clear: no energy source is as powerful or as reliable as nuclear.

A Hard Reality

Granted, the political and ideological talking points of the day suggest that government agencies should focus on developing green and renewable solutions. The problem here stems from economics. Sure, the cost profile of renewable energy infrastructures is improving. However, they will never come close to the immense power, density and reliability of nuclear powerplants.

To be clear, the above argument isn’t a guarantee that CCJ stock will see upside. Arguably, though, Cameco is aligned much more with realistic expectations than the political narrative supporting a full transition to wind and solar.

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