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McDonald's Option Traders Place Short-Term Bullish Bets

MCD's 1/4 87.50-strike call is popular today

by 12/31/2012 1:48 PM
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Heading into the final hours of trading in 2012, calls are easily outpacing puts on McDonald's Corporation (NYSE:MCD - 87.57). By the numbers, around 16,000 call contracts have changed hands so far, compared to more than 4,800 puts. Short-term speculators have their eye on MCD's 1/4 87.50-strike call, which has seen roughly 2,100 contracts trade. A healthy majority of these have gone off at the ask price, implied volatility was last seen 2.7 percentage points higher, and only 175 contracts currently make up open interest at this in-the-money strike. Summing it all up, it seems that new bullish positions are being initiated here.

By buying these calls to open, traders expect the stock to jump 0.6% by week's end -- when the options expire -- in order to topple the $88.11 mark (the strike plus the volume-weighted average price [VWAP] of $0.61). Should MCD fail to muscle above breakeven in this abbreviated trading week, the most today's call buyers can lose is the initial premium paid.

From a wider perspective, option traders have been scooping up calls over puts with some rapidity of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open more than three calls for every put during the past 10 sessions. The resultant call/put volume ratio of 3.12 ranks higher than 89% of other such readings taken in the last year, pointing to a healthier-than-usual preference for bullish bets over bearish in recent weeks.

After being crowned Best Blue Chip of 2011, MCD began this year on a strong note. However, the upward momentum eventually stalled out, and the shares are now sitting on a 13.3% year-to-date deficit. On the charts, the stock has found a stern layer of resistance from its 50-week moving average, which has been pressuring MCD lower since mid-May.

At last check, the Dow component was lingering near breakeven to trade at $87.57.


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