McDonalds (MCD): I’m Shortin’ It

by Dan May 8, 2012 11:16 am • Commentary

MCD ($94)

Couple quick bullets that support near term bearish thesis:

  • Technically the stock broke it’s 200 day moving average for the second time since 2009
  • Realized volatility in the name is near 5 year lows, with Implied volatility of 16 only 2 points above the 60 day realized vol
  • Given global uncertainty from US to Europe to Asia, pressing the short through the use of options makes sense in a name like this with defined risk.
1 YR MCD chart from Bloomberg


Implied vol has ticked up recently and is now slightly higher than the average for the past year. It is a couple of points higher than the recent actual volatility in the stock. Like most stocks, the vol levels reached much higher heights during last summer’s European mess. The current levels in implied vol are approaching levels the options have seen going into the last few earnings reports:

Source: LivevolPro

 Here’s the trade:

TRADE: MCD ($94) Bought the June 92.50 Put for 1.60
Break-Even on June Expiration:
-Profits btwn 90.90 and below.
-Losses of up to 1.60 btwn 90.90 and 92.50, with max loss of 1.60 or less than 2% of the underlying.

TRADE RATIONALE: Generally I don’t love pressing shorts on big down days, but MCD made a new all time highs and Jan and since has been trending lower. This stock along with names like CAT and PG could be the poster children for the deceleration of the global recovery. I initiated half a position here and will look to add on a bounce.

As with any trade where you’re pressing a market short, one has to be careful of timing. We look to put on these types of trades when an intra-day market bounce looks set to fail.