Grab an Egg Mc Big Mac for the McDonald’s Earnings Preview

• Posted by Greg Harmon
• on October 21st, 2015

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Now that you can have breakfast all day you really only have to have one meal per day, if it is a triple patty Egg Mc Big Mac. Sounds great huh? I think I will grab a couple while lot at the stock as it heads into earnings in the morning.

The stock ($MCD) has moved mainly sideways all of 2015. The bulk of the time it has spent between 94 and 101, having a hard time maintaining over 100. That seemed to have changed at the start of October in anticipation of all day breakfast. It broke above 101 and rose slowly to 104. But some topping tails crept into the chart as it hit 104, and it is falling steadily today into earnings.

The momentum is also falling off. Although the RSI remains in the bullish zone it is pulling back. The MACD is about to cross down, a bearish signal. This portends for some short term downside. It is not uncommon for a breakout to retest the break out level before moving higher. This may be the case, or it may prove to be a failed breakout eventually. Either way the chart looks better to the downside into the report.

The price has moved an average of 1.23% following earnings over the last 6 quarters, which would make for about a $1.25 move at today’s price. The at the money weekly options suggest a larger $2.45 move by Friday. Open interest is biggest on the Put side and at the current levels with size at the 103 and 102 Strikes. The 105 Strike has the biggest open interest on the Call side. volume has been split pretty evenly today among Puts and Calls but the all of the big block trades have been buys on the Call side.

Trade Idea 1: Buy the October 23 Expiry 102/100 Put Spread for about 70 cents. This is a straight downside trade.

Trade Idea 2: Buy the October 23 Expiry 102/100 1×2 Put Spread for a 6 cent credit. A leveraged trade to the downside with risk of being put the stock at 98 if it closes under 100 Friday.

Trade Idea 3: Sell the October 23 Expiry 99 Put for 50 cents. Collect the premium, but be ready to own the stock at 98.50.

Trade Idea 4: Buy the October 23 Expiry/November 105 Call Calendar for $1.25. A time spread that looks for the price to hold or rise slightly by Friday then continue.

Trade Idea 5: Buy the October 23 Expiry/November 105 Call Calendar selling the November 96.5 Put for 25 cents. This adds leverage to the prior trade with the possibility of owning the stock in November near the bottom of the range.

I will be too busy eating to take any of these trades.

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