Option Bulls Hungry For McDonald's Corporation (MCD) Gains

McDonald's Corporation (MCD) call options are popular today, with the weekly 9/30 series in focus

Aug 29, 2016 at 12:41 PM

With McDonald's Corporation's (NYSE:MCD) ex-dividend date scheduled for tomorrow, options volume has really picked up on the fast-food stock. This is especially true on the call side of the aisle, where contracts are crossing at double the usual intraday rate for MCD stock.

The most active option is the weekly 9/30 116-strike call, where more than 4,300 contracts have crossed. Fresh buyers are focusing on this strike, anticipating MCD will topple $116 by the time the weekly series expires, at the close on Friday, Sept. 30.

This bullish options action is par for the course. During the last 10 trading days, speculators have bought to open 1.72 MCD calls for every put at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The corresponding call/put volume ratio ranks in the bullishly skewed 89th annual percentile.

Meanwhile, short sellers have been turning tail. Short interest on MCD dropped 30% during the most recent reporting period, and now accounts for a slim 1.1% of the stock's total float. Interestingly, this plunge in short interest did not correspond with an uptick in the share price, hinting at potential underlying weakness.

Speaking of which, MCD has struggled since hitting an all-time high near $132 in early May. While the shares are up 0.9% this afternoon at $115.41 -- helping the Dow to a triple-digit intraday lead -- they've given back over 12% since topping out around three months ago. In other words, the optimism surrounding the stock hasn't exactly been justified from a technical perspective.

For contrarians, though, this setup is perfect. Assuming McDonald's Corporation (NYSE:MCD) continues to pull back from its record highs, a capitulation among option bulls and/or a renewed interest among short sellers could exacerbate pressure in the not-too-distant future.

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