Showing posts with label NUE. Show all posts
Showing posts with label NUE. Show all posts

Monday, May 9, 2022

Using low cost shares for income: keeping some powder dry.

Underlying Security Symbol: NUE

 

As a struggling income investor who uses call premiums, these past few sessions have been brutal.  If I can't sell calls and at least get my back my basis, I can't make a living.  Today's example shows the value of keeping some low cost shares to use for a rainy day. 

I have not written about every call I sell and I didn't want to bore you with the Nucor trade.  But this one is worthy of note.

I have a large position in Nucor and I have to sell calls on at least half of it to make up for the puny dividend yield of 1.53%.  Although the dividend yield needs supplementing, the recent dividend growth rate of this security is stellar.   I want to have it all and therefore I keep about half of my shares not on call to keep the dividend.

The calls have been very lucrative and that makes the trades enticing.  It would be easy to sell calls on all my shares. But every disciplined income investor must stick with their strategy.  My strategy is to milk both current and future income from my investments.  This requires restraint and keeping some shares unencumbered.

Back to Nucor, it has been very volatile and that makes it a terrific source of income.  I add on weakness and there has been ample opportunity.  I sell calls to buyers who have hope that Nucor will go up; and they too have been in ample supply.  Nucor is doing it's job of earning more than it pays in the dividend and is accelerating the payout to shareholders.  NUE's most recent dividend raise was over 23%.  All cylinders working on this income source.

April 25, 2022 I bought NUE at $157.65 and sold a May 6, 2022 $160.00 call.   I received $5.00 for that contract and it expired last Friday.   Here's the fun part.

With that expiration and those shares in my cabinet, I selected a lot of shares with a lower cost basis on which to sell a call.  March 11, 2022 I added NUE at $136.58.   I had not yet sold a call on that lot until today.  I try to think ahead.  What shares will I be able to use to create income when the market is soft as it is now.  I try to "keep a little power dry" as they say.  To some people that may mean cash but for me it often times means keeping those low cost shares for a rainy day.







 

 

 

 

 

 

The July 15, 2022 $140 call premium was $7.75.  This is equivalent to 15 and a half quarters of dividend payout.  

Yet the other shares with the basis of $157.65 are underwater at this time, the dividend they pay is safe and growing until we get a chance to sell more calls on that buy. 

My guess is this call will be assigned as the strike price is pretty low.  So far this year, I have had about 10 calls on NUE assigned at or around $140.  If NUE continues a downhill slide, I will most likely add and keep some of those shares for future call writing.

This post adds to my thesis that you need depth; you need to hold multiple lots of a good stock to receive adequate income from that chunk of money.

 

MM MoneyMadam 

Data from Schwab.com and Marketxls


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Tuesday, April 5, 2022

NUE call is my best today

Underlying Security Symbol: NUE

 

It seems I am repeating the first quarter.  Nucor, symbol NUE, is a stock on which I sold the second most calls during the first quarter of 2022.  And, today I am repeating that action.

I added to NUE today.  Just Google it, as they say, and you will find numerous articles supporting the need for steel and supporting the fact that NUE is one of the better producers.

Moreover, I like cheap stocks.  NUE carries a P/E of 6.6 with a D/E (debt to equity ratio) of .41 and revenue growth of 10.04%.   These are good fundamentals.  The hair on this baby is the tiny dividend yield.  As an income investor, I cannot waste these funds on a stock that does not deliver income even thought NUE has been on a nice roll lately.  

3 Month Chart of NUE price:(source MSN Money)


 

 

 

 

 

 

 

 

 

Therefore, I must be able to create income by selling covered calls. NUE call buyers pay a lot to have the option to buy the stock at a price they think is lower than it will be in May.


 

 

 

 

 

 

 

 

 

 

 

You can see the premium of $4.15 or $450 per contract is a 2.75% yield on my basis.  Just think if I sell two calls in a year with this income, I am netting a yield of  5.5%.  Find me a dividend stock with similar fundamentals that yields 5.5% and I would be a happy camper.  For now, I live on call premiums until the yield curve on bonds becomes competitive.

 

MM MoneyMadam 

Data from Schwab.com and Marketxls

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Thursday, March 31, 2022

Best Options YTD - quarterly review

Underlying Security Symbol: QCOM, NUE, AA, BBY, AAPL, DOW, PSX

 

The quarter ends today and I looked at the calls I wrote year to date.  I'm interested in looking at which stocks created the most income from call premiums during the quarter.  As my premise that concentrating your holdings provides for more opportunity to create income and yet maintain a position in those stocks around which you want to build your income portfolio

I sold 140 calls year to date.  I sold them on 25 different stocks.  I created $33,000 of call premium income.  24% of that income came from just two stocks and the next 20% came from three additional stocks.  The chart below shows the number of calls per stock but I parsed the data to include only those stocks on which I sold 3 or more calls.





 

 

 

 

 

 

 

The first of the two stocks that created the most call option income is QCOM.  Qualcomm is a chip maker and is doing poorly from a capital gains point.  It pays a 1.72% dividend yield.  Even though chip makers are under pressure, I have been able to sell calls, and although a few have been assigned, I continue to maintain a significant position on which I intend to continue to sell calls.

The second of the two stocks, is NUE. Nucor is a steel company.  It is doing very well and pays a .87% dividend yield.  As an income investor, I need NUE to create significant call premium income; otherwise I am wasting a chunk of money that could be creating more income.  NUE has been more active than QCOM, many contracts have been assigned and I have had to add to maintain a position.  Due to the demand for steel, I will stick with this holding as long as the calls are good.

The next three stocks are AA,  AAPL, and BBY.  Like Qualcomm, and Nucor, Alcoa and Apple pay paltry dividends but Best Buy pays a better yield just above 2%.  

The chart below shows the income per stock on those positions where I sold 3 or more calls.




 

 

 

 

 

 

 

Five stocks are high dividend yielders.  These are:  IBM 4.97%, GILD 4.72%, MDC 4.6%, PSX 4.36% and DOW 4.36%.   IBM, Gilead and MDC are dead money so being able to boost income above and beyond the dividend is important to me.  Each of these three has a chance to deliver capital gains. We get paid nicely to wait which makes them a hold for me. 

PSX and DOW are true winners.  The catalyst for their growth is energy for PSX and chemicals for DOW.  All are in demand right now.  PSX and DOW are a strong hold for me and I may accumulate to make sure I maintain a position while still boosting my income from call premiums.

It is notable that the concentration of call frequency and call income does not seem to correlate to dividend yield.  I do think this assessment confirms my thesis that having multiple options on a single position is valuable.  Better to sell calls on 20 or 25 stocks than one call on 80 stocks.

Use covered calls to boost your income.  MoneyMadam MM

Data from Schwab.com and Marketxls

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Monday, March 21, 2022

Short Duration Call: My favorite call today NUE 14% in 12 days

Underlying Security Symbol: NUE

 

Nucor has been a true money machine for me.  I am always nervous about a stock trading at its 52 week high but then again, when that stock carries a P/E under 6 I am more comfortable.

In order to calm my nerves about buying high, which I did today, is to sell a call with a quick expiration date.  I could have selected a May 20 expiration and received $4.05.  But that expiration carries more risk because it is longer.  Instead, I chose a $160 call that expires on April 1, 2022.  I received a premium of $3.70.  Moreover, depending on how savvy the call buyer is, I should also receive the $.50 dividend as NUE goes ex-dividend on March 30.  

In 12 days, if NUE continues on its upward trajectory, I would realize a return of more than 14%.  If I end up keeping this lot of NUE, I get a stock with a dividend yield of 1.39%; an immediate cash deposit of $3.70 or 2.59%: 



 

 

 

 

 

 

 

 

 

 

If this lot is not assigned I will have more opportunities to sell calls.  

Revenues are growing as is income, although income growth has slowed lately.  D/E ratio of .35 suggests NUE is a safe company. The risk of course is changes in tariff policies which have benefited U.S. steel producers.  It's a volatile time out there in the world and this justifies a short duration call.  

 

My hope is to get assigned on the expiration date.   

MM MoneyMadam

Data from Schwab.com and Marketxls

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Wednesday, January 19, 2022

Buy to Close then Sell to Open NUE

Underlying Symbol:  NUE

 

As we get close to options expiration on Friday January 21, I find some interesting action to take.


I purchased shares in Nucor symbol NUE last June 15, 2021.   I always keep careful track of the lots I buy.  Therefore, I know what basis I have on specific lots and pick my strike price based on that specific lot.  Very important.

On October 21, 2021, I sold $115 calls on the lot I purchased in June.  My basis on that lot is $100.25.  I received a whopping $3.50 per contract. That money is in the bank.

Now NUE has sunk to about $104.  Still above my basis on this lot.  This makes the January 21 $115 option pretty much worthless.  Therefore, I bought back the call for 6 cents.  This liberated these shares and I immediately sold a new $115 call with an expiration date of February 18, 2022 and received $2.00.   Since it cost me 6 cents to buy back the original call, my premium net on this call is $1.96.  I'll take that for a month's worth of work.

BUY TO CLOSE:











SELL TO OPEN:




















Keep track of your lots and work your calls.  You can boost your income significantly with these techniques.  And it is a lot of fun.

MM
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Monday, January 17, 2022

In anticipation of Tuesday Market in Nucor

Underlying symbol:  NUE

 
I am doing some prep for tomorrow's market.  If I were just buying or selling stocks, I could enter a buy or sell on open.  I could place a limit order or a stop on a position.  But options are different.  Option prices change dramatically based on what is going on with the underlying stock but also based on emotion.  I could put in a "sell to open" or a "buy to close" order on any given option, but I have no premarket activity to help me pick a price.

What I do is evaluate a few possible options.

The stock I am interested in is Nucor symbol NUE:

I own quite a bit of Nucor.  The yield is less than I would like and therefore, I use options to make this holding a good income investment.  

A few fundamentals to consider:

    EPS = $16.87
    ANNUAL DIVIDEND = $2.00
    INCOME = Y.O.Y down but most recent Quarter Up
    D/E ratio = .37

I call this a fundamentally sound company.  

My basis on the shares I would sell the call on is $106.   You can use the call calculator to determine how your basis affects the results; or use it to decide if you want to add at about $111.

Here are two options I am considering for tomorrow.  Since NUE was ex-div on Dec. 30, I am not going to capture the next dividend if either of these calls is exercised.   If NUE delivered a 5% yield, capturing the dividend would be of importance.  These options listed below do not include receiving the next dividend.




















This is an unusual expiration as it is a weekly expiration.  I use Schwab and could not find a Quarterly expiration for March.  Also open interest is very low.  We will just have to see if this call is available on Tuesday.  But all in all, I like the return.

The next call is more typical.  It carries a February expiration and has a lot of open interest.  With a lot of open interest, it is easier to find a buyer for my call.




















We will just have to wait and see what happens tomorrow.  But either way I like adding more than 2% yield on the call premium alone as I continue to build a position in Nucor.

MM

Long NUE with calls on some of my position














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Wednesday, December 12, 2018

December Call Expirations

I reviewed the calls I have working in December. My idea of a working call is a stock with a covered call option.  I do not trade options.  I use options to boost income from my income stocks. I review my calls routinely as it is the most actively managed portion of our portfolio. 

All of these calls will expire soon; I don't think any will be assigned.  This post is to demonstrate the result of using covered calls on dividend stocks to boost income. 

  • Eight dividend stocks and one none dividend stock delivered income equal to 5.24% over the past year.
  • Call option income from one call nearly doubled dividend income.
  • Except for Home Depot, HD, all stocks have acceptable D/E (debt to equity) ratios.
  • Except for Square, SQ, all stocks have EPS (earnings per share) greater than Dividend Paid out.

Earning over 5% on nine different stocks from the combined total of dividends and one call is the subject of this post.  Each stock has been in my portfolio for all of 2018 except for Square.   These are not all the stocks we own, nor all the stocks on which we sell calls.  These are just the stocks we sold calls on with a December expiration date.  

My goal is to receive no less than 5% income on my income stocks.   I could put it all in At&T or Ford and get more than 5%.  I confess, we have both of these in our income portfolio.  A well diversified portfolio cannot chase yield.  Our holdings must be balanced to sleep at night.

Nine Stocks with Calls that expire in December:


The stocks that are on call cost us about $110,000.  The average dividend yield of this group of nine stocks is 2.73%.   Clearly I needed to think of something to boost income from them.  I could sell the low yielding stocks and put it all in the one high yielding stock.  The dividend yield of these stocks ranges from 0% to 4.23%.  In stead of selling good companies with a lower yield than I need, I sell calls on shares of them.  

Two tables below present the result of this strategy on these nine stocks.   In the first table is the list of nine stocks, the strike price and income from 16 calls sold on the stocks, and the basis and current value.

Call income is presented in the first table.

Stock Symbol
Basis
Current
Strike Price
No Contracts
Call Premium
NTR
$56.28
$47.58
$55.00
1
$1.05
BAC
$26.58
$24.52
$30.00
1
$1.00
CVX
$106.00
$115.62
$125.00
1
$1.25
CVS
$75.00
$74.50
$77.50
2
$1.20
GILD
$74.00
$68.14
$77.50
1
$1.15

$74.00
$68.14
$82.50
1
$1.15
HCI
$42.00
$53.65
$55.00
5
$1.33
NUE
$58.29
$56.30
$60.00
2
$1.15
SQ
$70.68
$63.65
$75.00
1
$3.50

$70.68
$63.65
$80.00
1
$5.00
HD
$149.00
$174.21
$210.00
1
$2.25






SUM
$110,380.00
$115,536.00

INCOME
$2,770.00
Update by MarketXLS
12/12/2018


Call Inc Yld on Basis
2.51%


Dividend income is presented in the second table which also illustrates how the combination of dividend income and at least one call can get you more than 5% income.


Stock Symbol
Shares
Div Income
Div Yld on Basis
Call Income
Call Yld on Basis
NTR
100
$172.00
3.06%
$105.00
1.87%
BAC
100
$60.00
2.26%
$100.00
3.76%
CVX
100
$448.00
4.23%
$125.00
1.18%
CVS
200
$400.00
2.67%
$240.00
1.60%
GILD
200
$456.00
3.08%
$230.00
1.55%
HCI
500
$750.00
2.03%
$665.00
1.55%
NUE
200
$320.00
1.52%
$230.00
1.97%
SQ
200
$0.00
0.00%
$850.00
6.01%
HD
100
$412.00
2.77%
$225.00
1.51%
SUM

$3,018.00
2.73%
$2,770.00
2.51%


Combined Income
$5,788.00
Combined Yld on Basis
5.24%



Preservation of Principle 


I have always said, I don't care about the overall stock market.  We invest in stocks with good fundamentals that pay us income.  If the value of the stock goes down, we ignore it while we cash dividends.   However, when the stock price goes down so do call option opportunities.  Yet, if the fundamentals are good, it is not uncommon to be able to buy at a lower basis and sell a call when the market raises.    

The value of these nine stocks, I was pleased to find out, is above our basis.  That is a pleasant surprise as stock prices today are not so good.   There is a lot of volatility to use as a sling shot to income.   Some times your great stock will be called away.   Don't sell a call on a position you cannot afford to lose.  However, never feel you have to keep a stock just to sell calls on it.   You need a combination of good stocks, with good fundamentals on which you can sell calls.

When you use a group of dividend stocks to create call income, it is not like buying a put.  You are not paying for risk protection.  I believe that even when a stock's price goes down, the dividend is protection.   You can go a long time between times when call opportunities exist but you get paid dividends as you go. 


How I select my calls

  • Strike price above my basis
  • Call premium plus dividend yields more than 5% income per year
  • Expiration date captures the dividend when the call premium is less than 5%

Readers of this blog know I use a disciplined approach to everything and that include calls.  On stocks like these nine, I try for a strike price that is greater than my basis.   Sometimes I want even more.  When my  basis is low and I don't really want to lose the stock, I might pick a strike price at least 10% above the current price.  This means I have less chance of losing the stock.  Look at Chevron, CVX, and Home Depot, HD to see examples of strike prices well above my basis and above current trading levels.

It is important to note the strike price on CVS Health, CVS, Gilead, GILD, and Nucor, NUE are above my basis by not by much.   These are lower yielding stocks that I sell calls on a lot.  It is okay with  me if they are called away. 

Expiration dates are important.  I like expiration dates that capture the next dividend but are not more than 90 days out. 

You are fooling yourself when you sell calls on a stock and your expiration date is before the ex-dividend date.  If your stock is assigned you get to keep the call premium but you don't get the dividend. 

In situations like this you need to consider the call premium.  If the call premium is more than 5% income on your basis, then you have met the goal already.  Square, SQ, is a good example.  It doesn't pay a dividend so the expiration date is less important.  But the yield of 4.95% on one call and 7.07% on the other justify no dividend and short expiration dates.

It is possible to have a well diversified and safe group of stocks on which you can sell calls at least once per year and receive over 5% of income.   Just think how much income you could create by using calls more than once per year.

M* MoneyMadam
Disclosure:  Long all symbols with calls 



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