As preferred by the Covered Calls Advisor, Nucor's next (Q4 2021) earnings report on January 27th, 2022 will be after the January 7th 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 75.5 (a 75.5% probability of assignment) when the buy/write limit order was executed.
Nucor appeared in the Covered Calls Advisor's 'Acquirers Multiple' screener which combines two valuation factors: EV/EBITDA and P/E Ratio in addition to several other factors. It has an especially attractive valuation since its P/E Ratio based on the average estimates for FY2021 (which ends upon its next quarterly earnings report on 1/27/2022) is only 4.8.
As detailed below, a potential return-on-investment result is +1.3% absolute return (equivalent to +65.8% annualized
return for the next 7 days) if the stock is assigned early (business day
prior to the December 30th ex-dividend date); OR +1.7%
absolute return (equivalent to +39.6% annualized return over the next 16
days) if the stock is assigned on the January 7th, 2022 options expiration date.
Nucor Corporation (NUE) -- New Covered Calls Position
The simultaneous buy/write transaction today was as follows:
12/23/2021 Bought 300 Nucor shares @ $112.69
12/23/2021 Sold 3 Nucor 1/07/2022 $107.00 Call options @ $7.03
Note: the Implied Volatility of the Calls was 36.0 when this transaction was executed, well above the S&P 500 Volatility Index (VIX) of 18.3.
12/30/2021 Upcoming quarterly ex-dividend of $.50 per share
Two possible overall performance results (including commissions) for this Nucor Covered Calls position are as follows:
Covered Calls Cost Basis: $31,700.01
= ($112.69 - $7.03) * 300 shares + $2.01 commissions
Net Profit Components:
(a) Options Income: +$2,106.99
= ($7.03 * 300 shares) - $2.01 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Dec. 30th ex-div date): +$0.00; or
(b) Dividend Income (If Nucor shares assigned at the Jan. 7th, 2022 options expiration): +$150.00
= ($.50 dividend per share x 300 shares)
(c) Capital Appreciation (If Nucor shares assigned early on Dec. 29th): -$1,707.00
+($107.00 - $112.69) * 300 shares ;or
(c) Capital Appreciation (If Nucor shares assigned at $107.00 strike price at options expiration): -$1,707.00
+($107.00 - $112.69) * 300 shares
These returns will be achieved as long as the Nucor stock is
above the $107.00 strike price at assignment. If the stock declines
below the strike price, the breakeven price of $105.16 ($112.69 -$7.03 -$.50)
provides 6.7% 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.
