Nucor Stock Trade Shows The Value Of Planning

Nucor Stock has been in my portfolio since 2010. I started Put Selling this stock at a time when the steel companies had been decimated by the recession and the credit crisis. Nucor stock though stood out to me because it is incredibly well-managed. It is one of the few base industrial companies that refused to cut its dividend in 2008-2009 and indeed increased it in the face of an extremely harsh recession. They put together a plan to survive the economic malaise and to return to profitability. It was planning that kept Nucor Corp viable during the economic mess and it shows the importance of having a plan.

Nucor Stock and Having A Plan

Just as Nucor Corp has to plan,  I also plan all my trades including Put Selling, within Nucor Stock. Having a plan is why my trades are profitable and successful. This morning’s trade within Nucor Stock was another example of the power of planning.

Putting Together the Plan – Understanding Support

One of the most important aspects of Put Selling Nucor Stock has been a solid understanding of where support is in the stock and what the process will be when that support breaks. I always plan out where I will be Put Selling and to do that I need to understand where support is in Nucor Stock.

Two Types Of Put Selling Investors

To me there are just two ways of Put Selling against risky assets like stocks. You either would own the stock or you would not. It is imperative when Put Selling that you understand exactly where you stand and what type of risk you are willing to assume. You must plan out your strategy to meet the type of put seller you are.

My Put Selling Plan for Nucor Stock

In my case I know with Nucor Stock I would own the shares at any level I have sold puts at and I know what I would do to keep bringing in income. To that end it is essential that I know where support is in any stock, Nucor stock included, to sell puts for income while avoiding stock ownership as long as possible. There is a distinct difference here. I would own shares in Nucor Stock but only when I am ready to or when the necessity dictates that it is the best choice. That is far different from not wanting to own shares but doing so because I am assigned. In other words if your plan is to never own shares than assuming those shares when you have been forced to take assignment is not planning at all.

Not Having A Plan

I hear from put sellers all the time that they would own shares in a stock. Then when they are assigned as the stock plummets, they panic wondering how to get out as covered call premiums evaporate at the level they have sold puts for. This type of put seller is actually not interested in owning shares and should therefore develop strategies to get out of sold puts that have turned the wrong way. In other words, you must plan for the type of investor you are. If you do not want to own shares then you plan for when to exit to control losses and never own shares. Nucor Stock is a good example. I have an investor friend who sells puts against Nucor Stock. He sold puts at $48 but as the stock pulled back he immediately bought back his naked puts and took a small loss to end the trade. He picks his point of loss and ends the trade. He realizes that planning is essential to consistently earning income and protecting his capital. He does not second guess his decision. He has it planned out and executes it when the moment comes.

Nucor Stock Support Levels

Today’s Nucor Stock trade shows the results of having a plan. In the recent downturn I had previously explained in other articles that there is some support at $44 and while it is poor support it is nonetheless support. This means that when $44 broke it became resistance as those investors who bought shares at $44 will want to get out if the stock should bounce back to $44.

This also means that other investors like myself know this and we will be waiting for a chance to buy shares below the previous $44 support level and unload them back at $44. This then makes up part of the plan.

Nucor Stock 3 month chart

Nucor Stock 3 month daily chart

To that end I explained in previous articles that I am Put Selling the $43 strike as it is below the $44 support level and the rest of my naked puts are down at $42 and $41 which are getting closer too much stronger support. Longer-term support lies around $40 in Nucor Stock. This is all planned out.

Lower Bollinger Band and Nucor Stock

The next part of the plan was to watch the Bollinger Bands. FullyInformed Members know about the Bollinger Bands Strategy Trade and the importance of the Lower Bollinger Band. Therefore the Bollinger Bands Strategy Trade becomes part of the plan. Now we have three parts to the plan in place. We know the $44 support level is now resistance, we know we want to buy some shares for a bounce back to that support level and we know the strategy to use is the Bollinger Bands Strategy Trade.

You can see in the chart below that the stock broke the Lower Bollinger Band two trading sessions earlier and yesterday Nucor stock fell to below the Lower Bollinger Band (POINT A) and hit an intraday low of $42.65. But Nucor stock did not close on the low but instead closed at $43.07. In other words Nucor stock told investors it was going to bounce because it pulled back to support at the $43 level. This was a clear signal that Nucor stock would most likely bounce today and those investors following the stock should buy shares.

This morning (Point B) Nucor stock opened higher than yesterday’s close another clue that it would most likely bounce.

Nucor Stock 1 month daily chart

Nucor Stock 1 month daily chart

Nucor Stock Plan Put In Place

To that end I put in my order to buy 500 shares at $43 before the markets opened. All the above clues told me that the stock was set to probably bounce and it was time to put in place by plan.

Nucor Stock Intraday Chart

The 1 minute intraday chart is below. The stock opened at $43.21 and then promptly fell to $43.00 where I was filled on 500 shares. I was lucky to get the fill and at the time is was the low for the day.

I immediately put in my order to sell at $44.00 which is the previous support level which is now resistance as explained.

The stock shot up from $43. I was working on a couple of emails and my trade alert for the buy of Nucor Stock when I saw the fill go through for $44.00 sell. The trade was over.

Intraday Nucor Stock

Nucor Stock Intraday 1 minute chart Apr 4 2013

The Nucor Stock Plan Reviewed

This entire trade was possible because I follow specific stocks and take time to lay out support and resistance levels in that stock. I knew once the $44 broke that the next move would be down to $43 and then to watch the Lower Bollinger Band.

Because the stock yesterday broke the $43 level but then recovered to it I know there is a very good chance the stock would bounce back higher. There was no guarantee that I would get my fill at $43 and there was no guarantee that the stock would bounce. But there was enough signs to warrant the risk. But because I had a plan in place how much risk was there in the trade?

Planning Handles The Risk Of The Nucor Stock Buy

So what risk would there have been with this trade? First, I put in the order before the markets opened but just a few minutes before and I could see that the stock was poised to open above $43, a good signal that there might have been a bounce in the works. If the signal was that the stock would open below $43 by simply looking at the opening bid I could easily have cancelled my order even 1 minute before the opening bell and the order would not have been filled.

Second, if the open had been higher and then the stock fell and I had got the fill but the stock kept falling I could have:

1) Sold the Nucor Stock shares for a loss within a few minutes of the fill. The loss would have then been small.

2) Held the shares of Nucor Stock and sold the $43 covered calls to reduce my cost.

3) Held the shares of Nucor Stock and sold the July $40 in the money covered calls which should have been trading around $4.15 with Nucor Stock at $42.50. This would have meant a small profit but also a chance to pick up the next dividend as well as roll the $40 covered calls further out in time for additional premium. The $40 call strike is deep in the money and at support. If it expired out of the money, my break-even for the $500 shares at $43 would have been reduced to $38.85 less any dividend earned. At $38.85 I would happily own it and sell more covered calls.

4) Since I have already earned $29,000 in Nucor Stock, my cost for 500 shares at $43 would have been zero if I decided to use my income earned to date to pay for these shares.

Planning Makes The Difference

I cannot stress often enough that having a plan based on sound trading and technical understanding of the underlying asset is essential. It is having a plan that makes every trade successful. Figuring out in advance of even doing the actual trade, how to handle the trade means no second guessing the trade. In today’s Nucor Stock trade, I might not have my fill at $43, but I also know that if I had not got the fill then there is no point to chasing the trade because that defeats the plan. This is why so many of my trades are successful. I have my plan in place prior to even entering the trade. There is never panic or an emotional sell taking a loss. Everything is planned out. This is what makes for consistent winning trades in all my stocks not just Nucor Stock – having a plan.

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