Uranium: Yield Farming With Options

When it comes to commodity stocks, we’re big believers in income as a key source of superior returns and alpha.

In our inaugural premium research note we quantitatively screened North American oil & gas equities for high quality dividend yielders - the top 3 stocks we highlighted (Chord, Civitas and Pinecliff) had an average yield of 10.7% at publication.

Since the note was published on April 25th, the average total return of the 3 stocks is 19% and a whopping 5% of that return came from income; this compares to the US energy ETF (XLE) which had a total return of 7.6%.

Yield Matters.

Income, whether it be dividends or option premiums do two important things for commodity stocks:

• They provide downside protection (an income cushion) and

• They enhance returns in sideways markets (yield enhancement).

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Today we are turning our income lens to uranium.

You’re probably asking: How do you generate income in an industry like Uranium where there aren’t any dividends?

The answer is through options.

How to Generate Income in an Industry with No Dividends

Below we are going to reveal two specific ways to generate an attractive income stream from uranium leader Cameco while you wait for the next leg higher in the sector. We are talking up to 8% annual returns even if Cameco stock goes nowhere.

But before we get into the details, we want to expand on our uranium call from last week that said it was time to own uranium small caps in favor of large caps like Cameco.

We’re already seeing this strategy outperform Cameco in the recent selloff. In the current bull run (2020 - today) small caps have nearly always declined more than Cameco during drawdowns.

However, the recent consolidation has seen small caps go down less for the first time, potentially a turning point to small cap from large cap leadership.

We believe utilizing Cameco options to generate income is a very compelling way to enhance returns in the uranium sector and this takes us to strategy #1, selling puts for income.