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A low risk/high reward uranium play

|Includes:Global X Uranium ETF (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.

Stocks: URA