McDonald's (NYSE: MCD - option chain) announced yesterday evening that it was increasing its dividend payout from 0.375 per share to 0.50 per share. If you think that the company 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 MCD, and a covered call should also allow you rake in the dividend in late November or early December.MCD opened this morning at $62.05. So far today the stock has hit a low of $62.05 and a high of $62.99. As of 12:55, MCD is trading at $62.54, up 27 cents (0.4%). The chart for MCD looks neutral and S&P gives MCD a 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a January covered call at the $65 level. A covered call is an options position that combines the purchase of stock with the sale of call 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 8.6% return in just 4 months if MCD is above $65 at January expiration. If it isn't above $65, then we just get a free 2.60 per share. (I it a bonus dividend) McDonald's would have to fall by more than 4% before we would start to lose money. Learn more about this type of trade here.
MCD has not been below $60 (the break-even point) since early August and has shown support around $61 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 owns and controls a long hedged position in MCD.
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Reader Comments (Page 1 of 1)
9-26-2008 @ 6:14PM
Dividends Anonymous said...
This news made my week!!!