Typically, I would imagine that most people prefer to avoid the obvious trade. When too many people enter the same idea, there’s always a risk that the ensuing rewards could become diluted. In some cases, the entire narrative could temporarily (or even permanently) implode — the classic popping of the bubble. However, red-hot Nano Nuclear Energy (NNE) just might have the goods to keep the fire burning.
Let’s face it — NNE stock is an absolute monster. Since the start of the year, shares have gained over 547% of equity value. In the trailing month, they swung up nearly 43%. That’s significant because prior to the presidential election, it appeared that Nano Nuclear (a specialist in advanced nuclear energy technologies) was slowing down. However, the surprise victory of Donald J. Trump completely shifted the paradigm.
Of course, Trump has always been pro-domestic energy. However, he has also embraced the cryptocurrency ecosystem and the burgeoning decentralized economy. Indeed, several of his top backers have been longtime proponents of the underlying blockchain innovation. Therefore, the incoming administration should be decisively favorable for decentralized endeavors.
Not only that, U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler will step down when Trump is inaugurated. As someone who has hounded crypto service providers, his post had previously represented a dark cloud over the blockchain. With the veil potentially being lifted from the regulatory body, digital assets may flourish.
That’s good news for blockchain miners — and subsequently, it’s even better news for nuclear fuel specialists.
Don’t Overthink the Bullish Narrative for NNE Stock
Essentially, the idea comes down to this: as cryptos rise in market value, they become more difficult to mine. Higher difficulty translates to greater resource consumption to mine these assets. Since the cat’s already out the bag, we’re moving forward with decentralized innovation, not backward. Someone’s got to provide the power and it’s not going to exclusively hail from renewables.
That’s where nuclear energy comes into play. Further, we’ll have an administration that isn’t really interested in messing around with diverse viewpoints: it’s going to be Trump’s way or the highway. Because of this straightforward approach, NNE stock may fundamentally be a longtime beneficiary. It shouldn’t be more complicated than that.
Now, it’s also fair to point out that investors who are just considering Nano Nuclear are not necessarily early to this game. Buying call options is going to be an expensive endeavor, particularly with the high implied volatility (IV). However, there’s an interesting nuance. According to the IV rank, expected movement in NNE stock is currently quite low.
Still, with rising interest in nuclear energy — especially with Gensler stepping down and its implications for crypto-energy consumption — IV could rise from here. Since the election, IV rank has been trending upward. Everyday investors can gain access to this critical intelligence by becoming Barchart Premier members.
Should you anticipate that IV will continue a northward trajectory, a near-expiry bull call spread may be enticing. Here, you buy a call and sell a call at a higher strike price. The premium received from the sale of the short call helps to defray some of the debit paid for the long call. True, the short call also caps the maximum reward but with limited time, this “penalty” isn’t as onerous as it seems.
Choosing the Right Strike Price Combo
One of the advantages of having a Barchart Premier membership is the ability to quickly view all the available options strategies for a given expiration date. Let’s consider bull call spreads for the options chain expiring Dec. 6. The algorithm shows 21 different strike-price combinations. So, the natural question: which one to choose?
First, we need to establish a baseline regarding where the market anticipates NNE stock has the capability to move to. We can find this price unit of expected movement through a stochastic analysis. Just multiply these three metrics: share price, average IV of the options chain and the time decay adjustment (square root of the calendar days to expiration divided by 365 days).
For the aforementioned options chain, the metrics are as follows: $33.60, 149.43% and 0.1887. The product comes out to $9.28, meaning that NNE stock may rise to $42.88 or slip to $24.32. Looking at Barchart’s Expected Move calculator, it gives a more conservative estimate of $34.72 up, $23.78 down. Realistically, then, NNE stock should be able to hit $34.
Second, I want to find a balanced call spread that gives me as much reward as possible for the lowest amount of risk. This is where things get tricky because risk isn’t just about the cash in danger (the “Max Loss” category). Rather, it’s a multivariate concept that also encompasses the probability of success, which I define as the gap to breakeven.
Personally, I use a formulation I call risk-adjusted capital expenditure (RACE) to account for both types of risk. With this calculation along with the other datapoints, it’s my belief that the $31/$34 call spread offers a balanced approach. In this case, you put $170 at risk for the chance to gain $130 or a payout of 76.47%.
What’s enticing is that the breakeven point is $32.70, below the market price of $33.60 (as of Friday’s close). Therefore, it’s a relatively higher probability of success and with limited cash at risk (compared to the other spreads).
The ability to find these compelling ideas is what separates Barchart Premier from all the rest of the finpub noise. Be sure to sign up to have an edge in these wild markets!
