As preferred by the Covered Calls Advisor, Nucor's next quarterly earnings report on October 21st, 2021 will be after the October 8th, 2021 options expiration date. Given the Covered Calls Advisor's current cautious market outlook, an in-the-money Covered Calls position was established with a Delta of 79.5 (a 79.5% probability of assignment) when the buy/write limit order was executed.
Nucor has an attractive valuation since its P/E Ratio based on the average estimates for FY2020 and FY2021 only 6.0 compared with its prior 5-year historical average of 15. The average target price of the 11 analysts that cover Nucor is $112.36 (+11.1% above today's stock purchase price).
As detailed below, a potential return-on-investment result is +0.9% absolute return (equivalent to +66.9% annualized
return for the next 5 days) if the stock is assigned early (business day
prior to the September 29th ex-dividend date); OR +0.9%
absolute return (equivalent to +32.8% annualized return over the next 15
days) if the stock is assigned on the October 8th, 2021 options expiration date.
Nucor Corporation (NUE) -- New Covered Calls Position
The simultaneous buy/write transaction today was as follows:
09/24/2021 Bought 200 Nucor shares @ $101.14
09/24/2021 Sold 2 Nucor 10/08/2021 $95.00 Call options @ $7.01
Note: the Implied Volatility of the Calls was 36.4 when this transaction was executed, well above the S&P 500 Volatility Index (VIX) of 17.7.
09/29/2021 Upcoming quarterly ex-dividend of $.405 per share
Two possible overall performance results (including commissions) for this Nucor Covered Calls position are as follows:
Covered Calls Cost Basis: $18,827.34
= ($101.14 - $7.01) * 200 shares + $1.34 commissions
Net Profit Components:
(a) Options Income: +$1,400.66
= ($7.01 * 200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Sept 29th ex-div date): +$0.00; or
(b) Dividend Income (If Nucor shares assigned at the Oct. 8th, 2021 options expiration): +$81.00
= ($.405 dividend per share x 200 shares)
(c) Capital Appreciation (If Nucor shares assigned early on Sept.29th): -$1,228.00
+($95.00 - $101.14) * 200 shares ;or
(c) Capital Appreciation (If Nucor shares assigned at $95.00 strike price at options expiration): -$1,228.00
+($95.00 - $101.14) * 200 shares
These returns will be achieved as long as the Nucor stock is above the $95.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $93.725 ($101.14 -$7.01 -$.405) provides 7.3% downside protection below today's purchase price.
The Covered Calls Advisor has established a set of nine criteria to evaluate potential Covered Calls using a Dividend Capture Strategy. The minimum threshold desired to establish a position is that at least eight of these nine criteria must be achieved. As shown in the table below, all nine criteria are met for this Nucor Corporation Covered Calls position.
