In 2010 when I first started Put Selling Nucor Stock in 2010, steel companies had been decimated by the recession and credit crisis. Nucor’s management did everything right and put in place a plan to survive the economic mess. That the kind of management I like to see in a company. It was the biggest crisis for the steel industry in perhaps 50 years. Nucor stock has been terrific for my portfolio bringing in income repeatedly, month after month. I have owned stock only a few times but just for a handful of weeks to months.
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. The biggest part of the plan with Nucor Stock is to not chase the stock. While the belief is that the economy is getting better, which it does appear to be doing, a lot of investors have jumped into Nucor Stock a couple of times and pushed the stock too high. That of course is my opinion, but I am determined that I will not be assigned shares at valuations that are too high.
In April I took assigned of 100 shares of Nucor Stock at $43.00. I did this as I felt the stock was a bit undervalued based on its trading pattern. By May Nucor Stock had recovered to $47, but rather than unloading my shares for a $4.00 gain, I instead sold covered calls, in the money at the $43 call strike for the month of July. Instead of earning $4.00, the covered call brought in $5.10. I picked up the dividend on those shares which brought in another $367.50 and then in July the shares were exercised away at $43.00.
To have a trade like that unfold properly takes confidence in the underlying stock but also takes planning and studying chart patterns of the underlying security.
Nucor Stock Was Overvalued
In August I had another set of 5 naked puts expire at the $43 put strike. I stopped selling puts though as I felt the stock was overvalued. I have enough stocks in my watch list that I can easily move to another stock and wait for Nucor Stock to return to what I consider fair valuation.
Nucor Stock Returns For Put Selling
Nucor Stock is returning back to fair valuation and Put Selling is starting to look attractive again. You can see in the Nucor Stock chart since January 2013 below that the $44 and $43 put strikes have been excellent valuations for profits and income. Nucor stock has enough volatility that option premiums remain very good. For example on Friday with the stock closing at $45.49, the September 21st expiry $44 put strike was trading for .50 cents and the $43 could have been sold for .30. Going out to October 19 expiry, the $43 could have been sold for .83 cents and an investor with patience could probably get .85.
You can also see in the chart below the volume technical indicator. On Friday volume was decidedly negative which could mean better put premiums in the upcoming week. Volume is starting to pick up in the stock as well which you can see in the chart below.
Nucor Stock 3 Month Chart
Looking at the 3 month chart you can see the present problem. At point A the stock fell back below the Upper Bollinger Band. This would have made an excellent naked calls trade for those following Nucor Stock for both put and call selling. The stock then fell back to the Lower Bollinger Band within 7 trading days and then attempted a bounce. The bounce though failed to even reach the Middle Bollinger Band as you can see at point B which is basically a 20 day moving average. You can see that in the run up in July the stock stayed above the Middle Bollinger Band and indeed most of the time it clung to the Upper Bollinger Band.
That has now changed and the stock has fallen back toward the Lower Bollinger Band but did not break through it. Instead Nucor Stock has turned sideways as you can see at Point C. The problem now is that this sideways pattern is not resulting in the stock moving back up. Instead Nucor Stock is trending sideways and the volume indicator on Friday might be indicating that the stock is above to move lower. That will be my signal to sell the $43 naked puts.
Working With A Plan When Put Selling Nucor Stock
I only sell puts against stocks I would own. That does not mean I simply sell puts and hope for the best. It means I sell puts at strikes I would own the stock to get exercised back out it. The Nucor Stock trades this entire year demonstrate this strategy. If I sell the $43 strike as I did in April, and the stock falls I would take assignment because I believe the stock will rebound and I will be able to either sell any assigned shares or sell covered calls to be exercised out of the stock.
There are two key components to trading in most stocks. One is having a plan and the second is studying the chart pattern. These two components give me the confidence to risk my capital against a stock like Nucor Stock.
Early next week then should be interesting. I am hoping the stock pulls back just a bit further so I can sell the $43 put strike for more profits in my Nucor Stock trades for 2013..
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