Modular nuclear reactor developer NuScale Power Corporation (SMR) is up 58% over the past year, and up over 5 times from its lows. One trader sees shares pulling back in the coming weeks.
That’s based on the August 16 $10 puts. With 43 days until expiration, 4,063 contracts traded compared to a prior open interest of 119, for a 34-fold rise in volume on the trade. The buyer of the puts paid $1.25 to make the bearish bet.
Shares recently traded just shy of $11, meaning the stock would need to drop by $1, or about 9%, for the option to move in-the-money. NuScale has come off a 52-week high of $12.40.
The company is in its early stages and is still posting losses. However, the company’s next-generation nuclear reactor technology is getting regulatory approval.
While that makes for a good story, the time it will take to shift from a story to fully-operating rectors will take time. That suggests that the big rally in shares is likely to have some kind of meaningful pause over the coming weeks.
Action to take: Interested investors can likely get shares at a lower price with some patience. A market panic or pullback will likely lead to a big but short-term drop in shares.
For traders, the August $10 puts play well to a potential pullback. The option can likely deliver mid double-digit profits, possibly more, depending on the extent of a drop in the coming weeks.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.