Buy Call SMR

October 24, 2024
Covered Call/Note the Expiration Date: Buy NuScale Power (SMR) Stock and Sell the November 17 Call (exp. 11/1)

My highest-conviction idea with just under two weeks until the election is that the market is unlikely to move dramatically in the short term. Essentially, who wants to make big portfolio moves ahead of a hotly debated presidential race? This set-up has led me to look for a new short volatility trade, which brings me to …

NuScale Power (SMR) stock has soared in the last month as traders have been hunting for power plays to feed the AI boom. And into that stock strength (stock has run from 7 to 19), call buying activity has been bullish throughout in SMR.

This call buying in SMR, as well as the wild day-to-day stock volatility, has driven option prices to very expensive levels, and today we are going to sell an in-the-money call expiring just short of the election and the company’s earnings.

To execute this trade you need to:
Buy SMR Stock
Sell to Open the SMR November 17 call (exp. 11/1)

For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …

The most you can lose on this trade is $1,650 per covered call should SMR stock go to zero.

The most you can make on this trade is $50 per covered call, or a yield of 3% in just over a week, should SMR close above 17 on 11/1.

Please note, we are selling an in-the-money call as this stock is crazy. And because of that, and the sale of the in-the-money call, our breakeven is at 16.5, which should/hopefully give us enough room to the downside should SMR fall.

Finally, here are two write-ups from fellow Cabot Analysts regarding SMR:

Tyler Laundon of Cabot Early Opportunities:

New technologies, including Artificial Intelligence (AI) and crypto mining, require a huge amount of energy. It’s projected that data centers alone could use up to 9% of total U.S.-generated electricity by 2030.

That’s a stunning projection, but they’re already using around 4%!

Beyond data centers, there are also 130 coal plants in the U.S. slated to be retired by 2050, growing demand for water desalination and, over time, greater need for clean energy to fill in the gaps from intermittent supply from wind and solar.

In other words, there’s no time to waste addressing rising electricity demand and climate change problems, and nuclear is on the list of solutions.

However, big nuclear power reactors are ungodly expensive and create a lot of controversy. Small modular nuclear energy reactors might be just the ticket.

This is where NuScale Power (SMR) comes in.

It is the only small modular reactor (SMR) company with a license to build from U.S. regulators. This gives NuScale a huge time advantage given that the time from submission to approval typically takes three years. No other company has even submitted for approval yet.

NuScale’s Power Module is vastly different from a traditional nuclear power plant.

For starters, everything that generates nuclear steam is contained in a single vessel, which includes the reactor core, steam generators and pressurizer. There are none of the coolant pumps and large-bore piping in complex, conventional reactors.

Carl Delfield of Cabot Explorer:

NuScale Power Corp. (SMR), an aggressive stock that went public via a SPAC on May 1, 2022.

Founded in 2007, NuScale is headquartered in Portland, Oregon. The company is developing a small nuclear reactor that is capable of generating 77 megawatts of electricity and recently received approval via the U.S. Nuclear Regulatory Commission’s (NRC) licensing process.

A proposed project with the Utah Associated Municipal Power Systems (UAMPS) fell apart late last year, leaving NuScale without an immediate path to deploy its novel reactors, however, it remains the only publicly traded company with NRC approval.

The company recently announced a strategic shift, intended to bolster and accelerate the commercialization of NuScale’s small modular reactor (SMR) technology while reducing costs.