Anatomy of a Trade – $MCD Strangburglar

by CC May 7, 2015 3:11 pm • Commentary

A week ago we detailed a way for a McDonald’s (MCD) shareholder to add 2% (yield or protection) in the next 5 trading days if MCD was between $100 and $95 (stock reference $97.80) on this Friday’s close in front of two events. Here was the trade:

Yield overlay idea against 100 shares of MCD at $97.80:

Sell the May 8th weekly 95 / 100 Strangle at $2

-Sell 1 May 8th 95 put at .90

-Sell 1 May 8th 100 call at 1.10

And Dan spoke more about it on last Friday’s Options Action on CNBC:

The thought process was that options prices appeared to be ridiculously high for those two events, presenting a potentially unique short term opportunity to add yield to an existing holding.

The first event (turnaround plan) came and went (basically a new costume for the Hamburglar) and the market’s reaction was basically meh:

Screen Shot 2015-05-07 at 1.03.54 PM
5 day MCD from LiveVol Pro

Now with the stock at 97.20 this strangle is offered at about .20 and can be closed for a 1.80 profit. If one did this trade it should definitely be closed today as the second event is tomorrow (April sales) and no need to wait around for that last 20 cents and potentially capping your upside or adding risk to the downside.