The largest trade in the single stock options pit today was a bullish roll in shares of McDonald’s (MCD). When the stock was $116 a trader sold to close 24,000 March 115 calls at $2.40 (or $5.76 million in premium) and bought to open 24,000 April 22nd (weekly) 116 calls for $3.60 (or $8.64 million in premium).
There are two things I find interesting about the roll. First that the trader chose April 22nd weekly expiration, the day of their Q1 earnings results, and second, the six month chart shows the importance of the $115 support level:
The April 22nd weekly 116 calls that were bought break-even at $119.60, up 3% from the trading level, but likely target a move back to the prior all time highs made in early February just below $125.
After having a monster year in 2015, up 26%, vs the S&P 500 (SPX) flat, the stock has continued with mild relative out-performance, down about 1% vs the SPX down 2.65%.
One reason it could make sense to define risk into the Q1 print could be the high expectations that surround the company’s revamped menu that has shown some near term results in U.S. comp store sales. MCD trades nearly 22x expected 2016 eps growth of 8%, and what is expected to be their third consecutive annual sales decline of 5%. On a trailing 12 month basis, MCD trades very near a 10 year high at 23.5x, just below where it topped out in 2007:
If the company were disappoint in the U.S. and be subject to the continued headwinds in emerging markets, Europe and the strength of the dollar, a move back to the breakout level near $110 would be very likely, with the potential for a gap fill back towards $100.
Oh, and one last point. Short dated options prices have come in hard, making new 2016 lows, and just a couple ticks from its 52 week lows made last July: