The largest trade of the day today in a single stock option was in McDonald’s (MCD). Shortly after noon when the stock was $119.50, 50,000 of the Jan17 125 calls traded $3.15 to open. That’s $15.75 million in premium. These calls break-even at $128.15, up about 7% from the trading level. This is a fairly massive trade, and to be honest when I first saw them I assumed that it was an over-writer (an owner of the stock looking to add some yield for the next 6 months by selling upside calls against their holding).
It appears these calls were in fact bought to open. And a quick look at the chart shows the stock’s nearly 10% decline from the all time highs made May, and it seems like a long holder is levering up a position for a move back to the highs as opposed to capping their gains with an overwrite.
MCD bounced off of apparent technical support just above $115 earlier this week, with what looks like some near term resistance at $125, the strike that was purchased:[caption id="attachment_64711" align="aligncenter" width="600"] MCD ytd chart from Bloomberg[/caption]
Taking a slightly longer term view though, the breakout late last year from a 4 year consolidation was nothing short of epic, but a break-below the mid teens 2016 lows could make a gap fill very likely on the slightest bit of change in tune in same store sales and or a broad market downdraft:[caption id="attachment_64710" align="aligncenter" width="600"] MCD 5yr chart from Bloomberg[/caption]
Lastly, MCD is a great example of a U.S. multinational where investors have to weigh the potential of a continued sales turnaround from menu changes to offset the headwinds from the strength of the dollar on their 65% of their sales that come from outside the U.S. MCD trades 21.5x expected 2016 eps that consensus has growing 12% year over year, despite what should be their 3rd consecutive annual sales decline.
The next identifiable catalyst for MCD will be their Q2 results expected on July 26th, before the market open. The options market is currently implying about a 4.5% move in either direction between now and Friday July 29th close. While MCD is not historically a big mover on earnings (about a 2% one day average move the after earnings), July 29th weekly options will also catch the FOMC’s next rate decision, which as of now the Fed Fund futures are pricing a 0% chance of a raise).