Nucor Stock has been an exceptional stock all year in my retirement account. Through earning the dividend and a very simple covered calls strategy I have earned double-digit returns annually in each of the past 4 years. Since buying Nucor Stock in October 2008 for $27.50, each year I have applied a simple covered calls strategy to boost the dividend without losing my shares in Nucor Stock through being exercised.
This is a great strategy for long-term investors who want to sell covered calls for income and avoid being exercised from long-term stock positions. It is also an excellent strategy for use when a long-term stock holding has been hammered in the stock markets but you do not want to sell your shares and get out. Instead you would like to continue to earn the dividend and boost it through a simple options strategy.
Nucor Stock Better Days
From 2006 to June 2008 Nucor Stock traded on average between $50 to $82. When the financial crisis hit, Nucor Stock plunged to $25.25 losing 70% of its value from the May-June 2008 highs. It was a tough time for steel but Nucor Stock refused to cut its dividend. Instead the company increased its dividend throughout the crisis and continues to increase it today. The dividend increases though, are small and may be warning investors about not just Nucor Stock but much of the economy in general. Consider reading this Nucor Stock article which looks at the dividend increases in Nucor Stock over the last couple of years.
Nucor Stock Covered Calls Opportunity
Nucor stock has been on a tear since mid-November and is now within a couple of dollars of its 52 week high. When a stock takes off and pushes up against the Upper Bollinger Band it can be quite profitable for long-term investors to sell covered calls. Nucor Stock is nearing a point where investors may want to consider covered calls.
Nucor Stock is back pushing towards its past 52 week high. Watch for signals of a stall or topping out in the stock to sell covered calls.
The problem for long-term investors is selling covered calls while at the same time protecting their stock from being exercised. One way to do this is to watch the stock for a move away from the Upper Bollinger Band where the stock begins to trend sideways. Then it is a matter of watching for any additional signal of the stock possibly topping out. At that point an investor could consider selling out of the money covered calls one or two months out.
Covered Calls For Income On Nucor Stock
Below is an earlier example from another run-up in Nucor Stock, this one from July to late August 2012. I have marked the key aspects of this covered calls trade.
Covered Calls For Income on Nucor Stock
Key Aspects Of Covered Calls Trade on Nucor Stock
A. Nucor Stock reached the Upper Bollinger Band. This is when I start watching for a covered calls opportunity on any stock I am holding longer-term.
B. Almost always once a stock reaches the Upper Bollinger Band there will be some weakness in the stock. There was weakness the day after Nucor Stock reached the Upper Bollinger Band.
C. The following day Nucor Stock pushed back to the Upper Bollinger Band. It then stayed moving higher along the Upper Bollinger Band each day until it pushed above the Upper Bollinger Band.
D. Nucor Stock then began to trend sideways and by point D covered calls could have been sold. I prefer staying one or two months out and 1 strike out of the money depending on how volatile the underlying stock is. The more volatile it is, the further out of the money I sell my covered calls. For example point D was August 14 and with the stock at $40.50 I would have sold the September $41 covered calls or the October $42 covered calls depending on how volatile the stock was.
Then it is a matter of watching Nucor stock for any signs that the stock will run higher and put my covered calls into the money.
E. By point E you can see that Nucor stock tried to rally back but was unable to recover the pervious high. Instead Nucor Stock pulled back and then fell.
Buying Back Covered Calls Sold for Income
When I am selling covered calls for income against a long-term stock position, I almost never hold onto the covered calls and let them expire unless there is only a few days left before options expiry. Normally when I sell covered calls for income, if the calls fall and I can close for 75% or 80% of the sold value within a few short weeks I will buy to close and end the trade.
This is a stock position which I am holding long-term. I am not willing to chance a quick run-up in the underlying stock if I can close for pennies. Why risk my being exercised from shares or having to buy back the covered calls for more than I sold them for, if I can close them for a few pennies. Closing early always makes sense on long-term stock positions.
This also allows me to be ready for the next move back up in the stock to repeat the profit a second time.
Nucor Stock and Covered Calls For Income Summary
This is a very simple strategy of selling covered calls for income against a long-term stock position. It is easy to implement, easy to manage and can be repeated at various times during the year. By selling Covered Calls when Nucor Stock has pushed to the Upper Bollinger Band and then drifted away from it, I can bring in some extra income during the year and reduce the risk of my stock being exercised from my portfolio.
Sometimes keeping a trade simple is best and using a simple strategy works best. A glance at stock charts on my long-term stock holdings such as Nucor Stock takes only minutes, but when I see the stock pushing to the Upper Bollinger Band, I know it is time to keep a daily watch in case there is a covered calls opportunity developing.
I never like to miss a Covered Calls opportunity on Nucor Stock and this strategy requires very little effort and does not need me to be watching my stocks throughout the day. Once I see the signals, it becomes a matter of waiting for Nucor Stock to pull back and then sell my Covered Calls.
This simple Covered Calls Strategy for Income can be applied to most stocks. This strategy is worth considering for paper trading as you may find that it is the perfect strategy for some of your long-term stock holdings. I know it has benefited my Nucor Stock trade for the best 4 years in my retirement account.