Scoping Stocks That Glow in the Dark

This column was originally published on RealMoney on June 6 at 10:39 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.

Sometimes looking at the most-active list helps you learn something beyond simply the amount of contracts trading and may even generate some investment ideas.

Showing up on the above-average option volume list Monday was USEC(USU), a company that supplies uranium enrichment for commercial nuclear power plants and performs all sorts of services such as plant design, maintenance and research.

Yesterday its July $10 puts traded 7,900 contracts, which was eight times the normal volume. On Friday, the stock spiked 10% to $13, but it closed yesterday at $11.50 per share. Outside of the news surrounding Iran's plans to develop nuclear power, there has been no company-specific news.

Uranium has participated in the bull market in metals, its price up over 70% in the last 52 weeks. USEC is less levered to the price of uranium than it is to the growth of nuclear energy, and it is making a big bet by building a $1.5 billion enrichment facility. The long-term picture is probably constructive as more countries, especially in Europe and Asia, are willing to use nuclear energy. The industry expects the number of plants worldwide to increase from 440 to 500 in the next five years.

At the moment, investors don't seem to be buying into USEC's business, as the stock is basically flat over the past 52 weeks. But it wouldn't be out of the realm of possibility for USEC to be awarded a major contract from either the U.S. Department of Energy or a "friendly" country like India, so it might be worth taking a shot at some longer-dated calls.

With the stock trading around $11.50, the January '07 $12.50 calls are priced at around $2 per contract. This seems relatively cheap, and given that the stock's 52-week high is $16, having a $14.50 break-even point does not seem too high a hurdle for the stock to achieve on some good news.

If you're looking for a purer play on the price of uranium, Cameco(CCJ) is the largest uranium miner, with about 20% market share. Its stock has performed well, up more than 100% the past 52 weeks. But it ran into a double top at $44 last week, which coincided with the market selloff. Today it closed down $2.01 to $40.14 per share. There is decent support at $38, which might be an area to look at buying some call options.

Now this is admittedly a very cursory look, and I doubt I'll do anything in the next week, but it's two new names for me to add to my watch list and hopefully learn more about.

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