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Using Options to Build a Position in Cameco

Cameco is a company worth owning if you believe that uranium has a future. I am interested in establishing a sizable position and will use options to build that position while lowering my cost basis. The idea for this trade came from a recent Rick Rule interview on BNN where he mentioned the strategy of selling options around a core position. I would like to demonstrate the implementation of this strategy by profiling my CCJ trades.

Cameco is a decent candidate for an options selling strategy because it offers options with a relatively high volatility component (though not with the greatest liquidity – the bid/ask spread is a little wide). So I started with buying a covered call and selling a put. You could also look at it as buying shares and selling a strangle. I intend to roll the options each month as long as a decent volatility component remains. Let’s see how far we can lower the cost basis over time.

Bought CCJ, sold the April 9 Call and April 8 Put for a net debit of 8.15 (USD). [The covered call was bought for 8.40 debit and selling the call collected 0.25. For reference, the closing stock price was 8.67.]

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