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McDonald's (NYSE: MCD - option chain) Vice Chairman and CEO James Skinner sold 150,000 shares of the stock on the open market last week. That equates to $8.0M of selling against only a scant $269K of insider buying in the past three months. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on MCD.This morning, MCD opened at $54.34. So far today the stock has hit a low of $53.75 and a high of $54.46. As of 11:55, MCD is trading at $54.02, down $0.18 (-0.3%). The chart for MCD looks bullish and S&P gives MCD a positive 4 STARS (out of 5) buy ranking.
For a bearish hedged play on this stock, I would consider a July bear-call credit spread above the $60 range. A bear-call credit spread is an options position that combines the purchase and 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 a 4.2% return in two months as long as MCD is below $60 at July expiration. McDonald's would have to rise by more than 11% before we would start to lose money. Learn more about this type of trade here.
MCD hasn't been above $31 since January and shown resistance around $55 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 controls bullish hedged positions in MCD. Both those positions and the one above can expire profitably at the same time.
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