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Dr. Kris has two degrees from MIT because one just wasn't enough. Her life goal was to figure out the universe and having done that (at least to her satisfaction), she decided to tackle something even more difficult—the stock market. Applying the scientific method along with an insatiably... More
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  • A low risk/high reward uranium play  0 comments
    Mar 21, 2011 5:26 PM | about stocks: URA
    One way to play the rebound in uranium
    Tags: URA, commodities, options, call-debit spreads

    The Global Uranium ETF (NYSEARCA:URA) is definitely on the rebound. After having dropped 40% from it’s recent $22 high, it held support at $13.50 during last week’s nuclear meltdown. Last Friday, the stock gapped up on heavy volume only to continue its upward push (+8%) today.

    Options volume has increased both on the call and the put sides (maybe put positions were closed out). There’s enough open interest in the April calls to warrant a viable play.

    The April 17.5/20 call debit spread sports a very nice risk/reward profile.
    April 17.5 Call @ $0.45 (OI = 380)  [Buy]
    April 20 Call @ $0.10 (OI = 400)     [Sell]
    Net debit = $0.35 per contract

    In this example you’re risking $0.35 to make $2.15 ($2.50 – $0.35). That’s a 6:1 reward to risk, but remember that you can lose all of your investment should the stock fall below $17.50 at expiration. Your breakeven point is at $17.85.

    The daily chart of the URA is shown below.

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