Fast Food Behemoth Falters on Earnings Bust

There remains more bullish sentiment to be unwound

Deputy Editor
Jul 28, 2020 at 10:26 AM
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The shares of McDonald's Corp (NYSE:MCD) are down 1.3% to trade at $198.69 today, after the fast food giant reported second-quarter earnings of 66 cents per share, lower than than Wall Street's estimates of 74 cents per share. This marks MCD's second quarterly earnings miss in 12 months. McDonald's also reported a dip in global sales, down by nearly a third thanks to coronavirus-related lockdown measures, though U.S. comparable sales did come in better than expected. As a result, McDonald's decided to withhold any forecast for its future performance. 

Last time we checked in on McDonald's stock, the company had just rolled back dine-in plans while managing an impressive rally off its March three-year lows. Since then, the equity has enjoyed a rise on the charts, moving back toward annual high territory and above its 320-day moving average. On the other hand, continued COVID-19 measures could continue to take their toll on the fast good giant, who remains down 6.6% year-over-year. Plus, today's dip has the shares once again facing off with their year-to-date breakeven level, a trendline that sits just below the $202 level, which turned away their early June rally.

Meanwhile, options players are optimistic. This is per MCD's 50-day call/put volume ratio of 2.71 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than all but 4% of readings from the past year. This indicates that traders have bought nearly three MCD calls for every put during the past 10 weeks, meaning an unwinding of these bullish bets could put more pressure on the shares.

Lastly, this earnings bust has not affected the price of McDonadl's stock contracts, which are still relatively cheap. MCD's Schaeffer's Volatility Index (SVI) of 25% stands higher than just 16% of all other readings from the past year, implying that near-term option traders are pricing in relatively low volatility expectations.


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