Nucor Stock (NUE) – The Importance Of Put Selling Planning

Nucor stock followed the rest of the steel stocks moving lower during the day. The move lower in Nucor Stock though accelerated around 2:00 PM this afternoon (April 2 2013). The collapse was quick and took Nucor Stock from $44.55 around 2:00 PM down to a low of $43.46 at 3:45 PM. This marked a drop of 2.2%. The drop is not unheard of in any stock but definitely not in Nucor Stock which has done these types of drops many times in the past.

Nucor Stock Daily Chart

The 5 minute chart for April 2 2013 is below. The drop in Nucor Stock around 2:00 PM is obvious. I took advantage of the plunge and around 3:50 with Nucor stock climbing back a bit I sold additional puts.

Nucor Stock April 2 2013

Nucor Stock (NUE) April 2 2013 5 minute chart

Nucor Stock Strategy Going Forward

I don’t think this downturn today should be a surprise to any investor. Nucor Corp directors advised weeks ago that earnings would not meet expectations. Indeed they made comments that they did not see the supposed recovery in the US economy that so many investors obviously did.

But in late December investors began to push up Nucor Stock from $42.50 up to $48 by mid to late January 2013. At that time I indicated that Nucor Stock was overvalued and I stayed far away from those heights.

Prime Put Strikes For Put Selling

My prime put strikes for Put Selling have been $43 and below. Anything above $43 I believe is suspect and I would not want to own shares above $43.

Put Selling Support on Nucor Stock

My strategy will be taking a slight twist to my strategy at this point. If we look at the 6 month daily chart on Nucor Stock you can see three different support levels. You can also see the last dip since the run-up at the start of the year which took the stock back to $43.41. You can see that the rally off that low made a lower high than the previous high, which is a sign of weakness.

Today’s drop pretty well matched that low so it will be interesting to see if the low holds here or the stock moves lower.

But when you look at the support levels I have marked, and you look at volume, you can see that average volume most days has not spiked. Indeed almost all of these days for the past 6 months have been close to average. This tells us that there is not much support here certainly not longer-term. Therefore we need to look at the 12 month chart.

Nucor Stock (NUE) 6 month daily chart

Nucor Stock 12 Month Chart

The 12 month daily chart on Nucor Stock gives us the answers we need. When you look at volume for the 12 months you can see that there is longer-term (1 year) support for Nucor Stock at $39 to $40 and even better support at $35 to $37.50.  Note how the summer period last year was poor for Nucor Stock. I will not be surprised to see Nucor Stock fall lower again this summer as well.

Nucor Stock (NUE) 12 month daily stock chart

This means the stock could easily fall back to the $42 level and from there down to $40.

I am holding for the next two and a half weeks puts at $43, $42 and $41.

Nucor Stock Strategy Scenario 1:

If Nucor Stock should continue to fall and break through $43, I will buy back the $43 naked puts and roll them to $41 and out into May. I will then roll my $41 naked puts from April into May at $41 to assist the roll down of the $43 naked puts if needed to make sure that the roll down from $43 to $41 is done with a net credit.

If Nucor Stock hits $42 before April 20 options expiry I will buy them back and roll down and out to $40 into May or July but also I will add additional puts at $39 or $38 to help make sure any roll down from $42 is done with a net credit.

Nucor Stock Strategy Scenario 2:

If Nucor stock falls to $43 I will roll down per scenario 1 above but I will sell naked calls as well to bring in further income and not worry about selling additional naked puts. I will continue this strategy for the $42 naked puts as well should Nucor Stock fall to $42.

My $41 naked puts I will not roll down but will roll them out sideways.

Nucor Stock Strategy Scenario 3:

Added to the above, if the stock should fall as low as it did in the summer months last year (2012), I will sell puts but also I will be buying stock. This will coincide nicely with my selling naked calls as once I buy stock any naked calls will become covered calls.

Nucor Stock Strategy Summary

I like Nucor Stock and I particularly like the management. A lot of other investors are into United States Steel Corp (Symbol X) and I can understand why, however I believe the management at Nucor Stock is vastly superior. Not only did United States Steel Corp slash their dividend from .30 cents to .05 cents in 2009 but they have been unable to increase it since. Further the company continues to operate with a significant loss in earnings whereas Nucor is quite profitable. Therefore those who believe Nucor Stock is overvalued I believe are wrong. I believe Nucor Stock is fairly valued around between $39 to $41.50, overvalued above $43 and undervalued below $37.50. I believe Nucor management have done a terrific job in what has been an incredibly difficult economic climate and they have not failed to support shareholders with a generous dividend payout.

To date I have earned $29000 plus through Put Selling Nucor Stock over the past 4 years. In 2013 to date I have earned $8000. I have built up a nice cash cushion that should I be assigned on all 2800 shares of Nucor stock my average cost basis would be:

1000 shares at $43.00

1300 shares at $42.00

500 shares at $41.00

Cost Basis = $42.17 which is below the $43 threshold where I believe Nucor Stock to be overvalued.

If I take into account the $29149.00 I have earned to date selling puts, my break-even would place these 2800 shares at $31.79, far below where I believe Nucor stock to be undervalued at $37.50.

You can see then that there is a long-term put selling strategy in use here. The continual income stream made through put selling keeps reducing my share valuation to the point that when I am finally willing to accept shares my cost basis will be deep into what I believe is undervalued valuations.

Investing is about earning profits, compounding my portfolio and protecting my original capital from loss. You can see from the article above that all of this is being met by having in place a rescue strategy which encompasses three different scenarios, each of which can be acted upon independently or in combination with one another. By having the strategy in place long before it is needed, I can remain comfortably invested and be able to take advantage of days like today when Nucor Stock plunges and instead of worrying about tomorrow, I am already prepared for what may happen not just on the next day but for weeks to come.

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