Nucor (NYSE: NUE - option chain) shares are rising today after iron-ore miner Rio Tinto (NYSE: RTP) agreed to cut its iron ore prices for Japan's Nippon Steel Corp by more than 30%. The steelmakers have already been driven lower as demand for their product has slowed, but now they are less likely to be charged boom-time prices for their raw materials on top of that. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on NUE.NUE opened this morning at $39.44. So far today the stock has hit a low of $39.14 and a high of $41.41. As of 11:35, NUE is trading at $41.25 up 1.16 (2.9%). The chart for NUE looks bearish and S&P gives NUE a negative 2 STARS (out of 5) sell ranking.
For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $30 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just two months as long as NUE is above $30 at July expiration. Nucor would have to fall by more than 27% before we would start to lose money. Learn more about this type of trade here.
NUE has not been below 16 since March and has shown support around $38 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in NUE nor RTP.
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