Buying (Going Long) Uranium Futures to Profit from a Rise in Uranium Prices

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Contents

Buying (Going Long) Uranium Futures to Profit from a Rise in Uranium Prices

If you are bullish on uranium, you can profit from a rise in uranium price by taking up a long position in the uranium futures market. You can do so by buying (going long) one or more uranium futures contracts at a futures exchange.

Example: Long Uranium Futures Trade

You decide to go long one near-month NYMEX Uranium Futures contract at the price of USD 53.00 per pound. Since each NYMEX Uranium Futures contract represents 250 pounds of uranium, the value of the futures contract is USD 13,250. However, instead of paying the full value of the contract, you will only be required to deposit an initial margin of USD 1,620 to open the long futures position.

Assuming that a week later, the price of uranium rises and correspondingly, the price of uranium futures jumps to USD 58.30 per pound. Each contract is now worth USD 14,575. So by selling your futures contract now, you can exit your long position in uranium futures with a profit of USD 1,325.

Long Uranium Futures Strategy: Buy LOW, Sell HIGH
BUY 250 pounds of uranium at USD 53.00/lb USD 13,250
SELL 250 pounds of uranium at USD 58.30/lb USD 14,575
Profit USD 1,325
Investment (Initial Margin) USD 1,620
Return on Investment 81.79%

Margin Requirements & Leverage

In the examples shown above, although uranium prices have moved by only 10%, the ROI generated is 81.79%. This leverage is made possible by the relatively low margin (approximately 12.23%) required to control a large amount of uranium represented by each contract.

Leverage is a double edged weapon. The above examples only depict positive scenarios whereby the market is favorable towards you. If the market turn against you, you will be required to top up your account to meet the margin requirements in order for your futures position to remain open.

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Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

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Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

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Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

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Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Uranium Futures Trading Basics

Uranium futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of uranium (eg. 250 pounds) at a predetermined price on a future delivery date.

Uranium Futures Exchanges

You can trade Uranium futures at New York Mercantile Exchange (NYMEX).

NYMEX Uranium futures prices are quoted in dollars and cents per pound and are traded in lot sizes of 250 pounds .

Exchange & Product Name Symbol Contract Size Initial Margin
NYMEX Uranium Futures
(Price Quotes)
UX 250 pounds
(Full Contract Spec)
USD 1,620 (approx. 12%)
(Latest Margin Info)

Uranium Futures Trading Basics

Consumers and producers of uranium can manage uranium price risk by purchasing and selling uranium futures. Uranium producers can employ a short hedge to lock in a selling price for the uranium they produce while businesses that require uranium can utilize a long hedge to secure a purchase price for the commodity they need.

Uranium futures are also traded by speculators who assume the price risk that hedgers try to avoid in return for a chance to profit from favorable uranium price movement. Speculators buy uranium futures when they believe that uranium prices will go up. Conversely, they will sell uranium futures when they think that uranium prices will fall.

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Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Uranium Outlook 2020: Fundamentals Strong, Will Prices Catch Up?

2020 was an eventful year for uranium, but what’s the uranium outlook for 2020? Experts weigh in on supply cuts, rising demand and more.

The U3O8 spot price started the year just above US$29 per pound with the promise that it could move higher once a Section 232 decision was passed down.

However, US President Donald Trump’s lack of any actionable items in his ruling and a delay in utilities coming to the market drove prices lower over the 12 month period.

By the end of May, prices had sunk to a half-year low of US$23.67. In mid-July, bolstered by the release of the Trump administration’s Section 232 ruling, which established an exploratory committee to examine the domestic nuclear fuel cycle, prices were able to rally from the US$24 range to US$26.31.

Learn to profit from the uranium market in 2020!

Read our free outlook report to learn how!

But that price momentum was short-lived. When the deadline for the Nuclear Fuel Working Group’s (NFWG) report was extended in mid-October, prices sank to their lowest point for 2020 at US$23.51.

While the U3O8 spot price stagnated for much of 2020, analysts and sector participants remain certain that the energy fuel will make bold gains once prices start to move. Read on to learn what market watchers think will happen in 2020.

Uranium outlook 2020: Section 232 still looms large

“The most challenging aspect of 2020 has been the lack of price direction despite the positive market fundamentals,” said Daniel Major, CEO of GoviEx Uranium (TSXV:GXU,OTCQB:GVXXF), a uranium explorer focused on Africa.

“Despite declining inventories, shortening of uncovered contracts and a supply deficit, the uranium price showed no spark of interest for the majority of the year. However, things are starting to look up in Q4.”

The main catalyst for price growth will be reductions in production and inventory.

Earlier this year, Kazatomprom, Kazakhstan’s national uranium producer, reported a Q1 production decline, and Cameco (TSX:CCO,NYSE:CCJ), the largest uranium producer, has dramatically reduced its stockpiles following the temporary closure of its flagship mine, McArthur River, in Saskatchewan.

Major, like many in the sector, had hoped the uranium strength early in the year would carry through.

“We had been expecting uranium to get to at least US$30 by the end of 2020,” he said. “However, the impact of Section 232 and the follow-up NFWG had a wider impact on utility buying than we would have predicted. This issue was further highlighted as the price failed to respond to the very positive World Nuclear Association nuclear fuel report.”

For Energy Fuels (TSX:EFR,NYSEAMERICAN:UUUU), a US producer and one of the companies that helped get the Section 232 investigation into foreign uranium launched, the opaqueness the investigation has brought to the sector was something the company had not accounted for.

“The Section 232 and subsequent US NFWG created a ton of uncertainty in the uranium market,” said Curtis Moore, vice president of marketing and corporate development at the company.

The lack of clarity was further compounded in mid-November, when the Trump administration rescinded waivers allowing Iran to work with Russia to advance the former’s nuclear fuel sector. Moore pointed out that the decision, which went into effect on December 15, could impact the country’s ability to import much-needed uranium and nuclear fuel from Russia.

“It has been difficult for us and our shareholders, of course,” said Moore. “But it must be extremely challenging for nuclear utilities, which have multibillion dollar investments to fuel. It is becoming increasingly clear that US utilities have taken on too much geopolitical risk with their uranium and nuclear fuel supplies.”

Learn to profit from the uranium market in 2020!

Read our free outlook report to learn how!

While Moore is sympathetic to the needs of domestic utility companies, he did note that they need to be cognizant of the role they have played in adding risk to the cycle.

“So when suppliers from geopolitical foes like Russia, Kazakhstan, China and elsewhere approach US utilities with cheap, subsidized nuclear material, we can see why it is alluring to sign up,” he said. “They have largely themselves to blame for creating exposure to these risks by not supporting a healthy domestic nuclear fuel cycle.”

In mid-December, news spread that the NFWG had passed its non-public report on to the president and had recommended some form of domestic quota.

Uranium outlook 2020: More ways to access the market

While the industry spent the vast majority of 2020 in a state of limbo, there was growth in the uranium exchange-traded fund (ETF) sector.

In May, Canada’s first uranium ETF was launched by Horizons ETFs Management under the ticker symbol HURA. The ETF aims to capitalize on the growing need for clean, carbon-free energy.

While Mercenary Geologist Mickey Fulp doesn’t participate in the ETF space, he does appreciate the exposure the products offer to the uranium industry.

“I’d rather play specific equities instead of playing a basket that is dependent on a higher uranium price,” Fulp told the Investing News Network (INN) in a late November interview.

ETFs may not be Fulp’s cup of tea, but he did note that royalty companies may be a good investment in the future. “There is Uranium Royalty; it’s going to go public at some point,” he said.

Fulp was correct, and the royalty company launched on the TSX Venture Exchange on December 12 under the ticker URC.

Additionally, the North Shore Global Uranium Mining ETF (ARCA:URNM) hit the market in early December.

Uranium outlook 2020: SMRs lighting the future

Along with growth in investment options, the uranium market itself is expected to expand as small modular reactors (SMRs) become less of a concept and more of a tangible, deployable product.

SMRs are designed to be compact and efficient, producing enough energy to power a small town or a mining operation. They can also be scaled up to meet demand and produce no carbon emissions.

In the opinion of Fission Uranium’s (TSX:FCU,OTCQX:FCUUF) Jeffrey Mushaluk, SMRs could help change the narrative around nuclear energy, which is often fraught with fear and tension.

“The nuclear power industry does a terrible job marketing itself and has such a bad stigma, and part of that is deserved from the reactor buildouts that happened before and came in way over budget, and took too much time,” Mushaluk said at the New Orleans Investment Conference in November.

Learn to profit from the uranium market in 2020!

Read our free outlook report to learn how!

“What government is going to want to commit that type of capital right now for something like that, that could have political pushback? So we really welcome new technologies like SMRs to come in and it could change the entire industry,” he explained.

In early December, premiers from Ontario, New Brunswick and Saskatchewan met to discuss the integration of SMR technology into their respective provincial power grids.

“Ontario, Saskatchewan and New Brunswick agreed today to work together to explore new, cutting-edge technology in nuclear power generation to provide carbon-free, affordable, reliable, and safe energy, while helping us unlock economic potential across Canada, including rural and remote regions,” reads a statement about the meeting.

The three leaders signed a memorandum of understanding pledging to work jointly on the innovation, development and deployment of SMRs in their provinces.

The decision for Ontario, Canada’s most populous province, and two other major economic hubs to commit to advancing the SMR agenda is the first of its kind in the world and could be a potential catalyst for other countries.

“I would hope that Canada would take the lead on this; they certainly have based on what they have done over the last 10 years. They have a leg up on SMRs compared to most other entities,” said Fulp.

Still, Fulp remains on the fence about how quickly any deployment will occur in the Great White North. “I’m always skeptical about these sorts of things in Canada because of what I see happening with mining projects, and with pipelines,” he commented.

Regardless, the discussion itself has helped to raise the profile of SMRs and nuclear energy as a whole.

Uranium outlook 2020: The year ahead

Although 2020 was not fruitful in terms of price growth, many of the analysts and companies INN spoke to over the year remain confident the uranium market will make gains in 2020 and beyond.

“We understand that the major producers have been running inventories to very low levels, which has kept a lid on prices. With this selling now largely out of the way the market is in serious undersupply,” said Craig Parry, CEO, president and director of IsoEnergy (TSXV:ISO,OTCQX:ISENF), a junior focused on advancing its Athabasca Basin project.

“Prices have started to rise once again in the later months of 2020 and are well set for a serious rally during 2020. 2020 could be the year for uranium,” noted Parry, who also highlighted that a return of investor interest is helping to bolster the market.

US-based producer Energy Fuels is also optimistic about the year ahead and an anticipated final decision around Section 232.

Learn to profit from the uranium market in 2020!

Read our free outlook report to learn how!

“We think there will be increased market activity as utilities try to mitigate their exposure to the Iran sanctions,” said Moore.

He noted there are already some indicators pointing to a stronger market in the months ahead.

“We’ve also seen conversion and enrichment prices rise, which could be leading indicators signaling higher U3O8 prices. And of course, the underlying market fundamentals appear to be strong.”

According to Western Uranium & Vanadium (CSE:WUC,OTCQX:WSTRF), a near-term producer developing projects in Colorado and Utah, the market will move regardless of a decision.

“Absent an industry positive trade outcome, we still expect a strong 2020 owing to cumulative producer supply cuts, increasing global demand, recognition of the future supply gap and the increased contracting needed to fulfill record levels of uncontracted nuclear fuel requirements,” CFO Robert Klein told INN via email.

“The bottom line is that the era of uranium sale prices being set by price-insensitive state-owned enterprises will likely come to an end in 2020; higher prices are required to re-initiate long-term contracting that incentivizes the new production needed to meet future nuclear reactor requirements.”

In July, at the Sprott Natural Resource Symposium, Rick Rule of Sprott (TSX:SII,OTC Pink:SPOXF) told INN that he foresees 2020 being a positive year for the energy fuel.

“But the truth is that when uranium markets move, the impacts on uranium stocks are more dramatic than any other stocks in the resource sector … When the uranium price does move, the anticipation that you’ll see from investors crowding into the few remaining uranium stocks on the planet, I think, will be very dramatic,” said Rule.

His sentiment was echoed in November by Lobo Tiggre, CEO of Louis James LLC, at the New Orleans Investment Conference.

“The price of uranium could literally double at that time (of contract signing) because the incentive price that you and I talked about is more than twice and sometimes three times the current spot price,” he said. “I can’t say when, but when it does happen we are going to see a very sudden and dramatic rise in uranium prices, and that is going to be extremely bullish for the uranium companies.”

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Energy Fuels, IsoEnergy and Western Uranium & Vanadium are clients of the Investing News Network. This article is not paid-for content.

The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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