This Steel Stock Looks Like a Strong Pick for Options Bulls

An unwinding of skepticism could send the stock higher

Mar 15, 2022 at 11:35 AM
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The shares of steel producer Nucor Corporation (NYSE:NUE) have recently pulled back from fresh all-time highs, but are still enjoying a roughly 100% year-over-year lead, and have added about 18% in 2022. What’s more, the company raised its quarterly dividend 23% in December, and announced a $4 billion share buyback program, which is about 10% its market value. In other words, now looks like a great opportunity to bet on NUE’s next move higher.

 

nue march 15

 

The brokerage bunch is skeptical of Nucor stock, with five of the seven analysts in question carrying a tepid “hold” rating, while the 12-month consensus target price of $118.13 is a 12.8% deficit to its Friday close. What’s more, short interest added 33% over the past two months. An unwinding of the pessimism surrounding NUE could help the shares move higher in the near future.
 
A sentiment shift in the options pits could also boost Nucor stock. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), NUE’s 50-day put/call volume ratio sits higher than 97% of readings from the past year. This indicates long puts have been picked up at a much quicker-than-usual clip in the last 10 weeks. 
 
Echoing this, the security’s Schaeffer's put/call open interest ratio (SOIR) ranks in the elevated 89th percentile of its 12-month range, suggesting short-term options traders have rarely been more put-biased.
 
It's also worth noting Nucor stock's Schaeffer's Volatility Scorecard (SVS) sits at a 99 out of 100. In other words, the security has exceeded option traders' volatility expectations during the last year. Our recommended call has a leverage ratio of 4.3, and will double in a 23.4% 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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