Wednesday, September 8, 2010

Nucor (NUE) - Oct Calls Bought, Sep Skew Turns

NUE closed $39.38 yesterday, with vol on the rise. The LIVEVOL™ Pro Summary is below.

Nucor Corporation (Nucor) along with its affiliates is engaged in the business of manufacturing of steel and steel products, with operating facilities and customers primarily located in North America.

Jeff Kearns from Bloomberg sent me this headline (By Arie Shapira):
High-beta steel stocks [...] may rally near term on reports of China steel capacity cuts.

The company traded over 24,000 options yesterday on total daily average option volume of just 6,244. The action was focused in the Oct 40 calls, where more than 12,000 traded; substantially purchases. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that the calls are mostly opening (compare OI to trade size). Note that Oct vol is higher than both Sep and Jan'11.

The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.

We can see how the Sep upside is bid, bending upwards to the buying interest in Oct. The Oct options are yet to react substantially.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

We can see the stock has been on the rise in the near term, going from $36 up to over $38 in the last two weeks. Also note that IV30™ has spiked past HV20™ as of yesterday. Check out the green colored volume bar at the bottom. This indicates customer opening order call purchases This buying interest pushed vol up.

Trades to Analyze
This is an infrastructure stock, with bullish action. Though Oct vol is the highest, it's the upside in Sep that's really high. A small calendar is interesting. Maybe Sep/Oct 41 or 42 call spread, selling Sep. Really anything that sells that little kink in the skew and covers with lower vol is a candidate for further analysis. I think this trade is only interesting if there is at least a two point vol difference in the spread.

This is trade analysis, not a recommendation.

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