McDonald's (NYSE: MCD - option chain) shares slightly higher today after the company reported this morning Q3 EPS of $1.05 per share, beating estimates of $0.98. Revenues rose 6% year-over-year. Combined with MCD lifting their dividend about a month ago, it seems that this stock might be a good one for the current economy. If you think that the stock 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. MCD opened this morning at $55.16. So far today the stock has hit a low of $53.60 and a high of $56.18. As of 12:30, MCD is trading at $55.58, up $0.45 (0.8%). The chart for MCD looks neutral and S&P just upgraded MCD today to a 4 STARS (out of 5) buy ranking.
For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $45 range.
A bull-put credit spread is an options position that combines the purchase and sale of put 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 8.7% return in just one month as long as MCD is above $45 at November expiration. McDonald's would have to fall by more than 19% before we would start to lose money. Learn more about this type of trade here.
MCD hasn't been below $45 at all in the past year and has shown support around $52 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 bullish hedged positions in MCD.
Nuclear power is on the comeback trail
Apple backs AT&T in continuing spat with Verizon
Closing Bell: The recession is still over, still... do you feel it?
Reader Comments (Page 1 of 1)
10-22-2008 @ 2:12PM
SCOTT said...
Interesting to see what the future holds for these companies. I understand that there will be a few bankrupt companies that are very large in size!www.thecomingdepression.blogspot.com
10-22-2008 @ 7:48PM
Badabing said...
Funny how the writers name is Archer (get it- golden arches). Enough with the bad jokes- but I do agree with the obvious, that the down economy will boost up earnings of McD's , as cheap food becomes more of a staple for the struggling masses. $1.00 Hot dogs anyone?