Unwinding of Pessimism Could Send Steel Producer Even Higher

The equity looks ripe for a round of upgrades

Sep 22, 2021 at 9:07 AM

The shares of Nucor Corporation (NYSE:NUE) recently pulled back to their 80-day moving average, which has acted as a springboard for the equity in the past. In addition, NUE is up nearly 100% year-to-date, and the company gave optimistic guidance for its upcoming third-quarter earnings report. All of this combined makes now an intriguing entry point for bulls to bet big on NUE.

The options pits have also been unusually pessimistic. This is per NUE's Schaeffer's put/call open interest ratio (SOIR), which ranks in the 86th percentile of its annual range, meaning short-term options traders have rarely been more put-biased. A shift in sentiment here would provide additional tailwinds for Nucor stock.

An unwinding of pessimism from the brokerage bunch could also send the shares higher, as five of the six in coverage still recommend a tepid "hold" rating. What's more, the stock nearly doubled in 2021, despite a 30% increase in short interest, which indicates serious underlying strength.

Options traders are in luck currently. NUE's Schaeffer's Volatility Scorecard (SVS) stands at 85 out of 100, indicating the equity has exceeded options traders' volatility expectations over the past year -- a boon for potential buyers. Our recommended call has a leverage ratio of 5.6, and will double in value on an 18% pop in the underlying shares.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this NUE commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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