Nucor Stock Could Get Gamma Squeezed

NUE has pulled back to a confluence of moving averages

CMT, Senior Market Strategist
Nov 8, 2022 at 10:11 AM
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Below is an excerpt from this yesterday's episode of Schaeffer's Playbook of the Week, featuring Schaeffer's Senior Market Strategist Matthew Timpane. Below, Matthew makes a bullish case for Nucor Corporation (NYSE:NUE).

"It was definitely a tough week; we’re getting to a point where we’re unsure of direction. But at least for another week, we’re going to go with a bullish pick on steel stock Nucor (NUE). It’s breaking out of a downtrend, finding support a confluence of moving averages, per the chart below.

NUE Stock Chart

It also found support at +10% year-to-date and broke above peak call adds at the November 130 strike. We’re looking for a gamma-type squeeze where market makers have to buy this stock for all of the calls sold at the 130 to hedge that position.

Analyst ratings are also a bearish stance; one strong buy, 10 holds, and two “sells.” Hold positions are almost bearish because markets typically go up and to the right.

There's a preference for puts of late. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), NUE sports a 50-day put/call volume ratio of 1.49, which stands higher than 94% of readings from the past 12 months. In other words, puts have rarely been more popular during this timeframe. 

Nucor stock's Schaeffer's Volatility Index (SVI) of 48% sits in the 36th percentile of its annual range, suggesting options traders are pricing in low volatility expectations right now. Plus, its Schaeffer's Volatility Scorecard (SVS) reading of 99 out of 100 means the security tends to outperform said volatility expectations."

Join Schaeffer's Playbook of the Week now and tune in every Monday morning at 8:30 a.m. to get ready for the trading week with me. Click here for more information to get started.

Schaeffer's Playbook of the Week


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