Bulls Lose On McDonald's Corporation (MCD) Sales Slump

McDonald's Corporation has plunged 3.3% following its November sales report

by Karee Venema

Published on Dec 8, 2014 at 10:09 AM
Updated on Apr 20, 2015 at 5:09 PM

Call buyers have been active in McDonald's Corporation's (NYSE:MCD) options pits in recent months, as evidenced by the equity's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 2.29, which ranks in the 99th annual percentile. Simply stated, calls have been bought to open over puts with more rapidity just 1% of the time within the past year.

It was a similar set-up on Friday, with calls crossing the tape at a faster-than-usual clip, and outpacing puts by a 2-to-1 margin. Buy-to-open activity was detected at MCD's weekly 12/12 97-strike call, which speculators scooped up at a volume-weighted average price (VWAP) of $0.45. Based on this average entry price, breakeven for the call buyers at this Friday's close is $97.45 (strike plus VWAP). Profit will accrue north of here, while losses are limited to the initial cash outlay, should MCD settle south of the strike at week's end, when the series expires.

Unfortunately for this batch of option bulls, McDonald's Corporation (NYSE:MCD) has plunged 3.3% out of the gate to churn near $93.10 -- and is the leading laggard on the Dow -- after reporting a steep drop in global sales. What's more, the bid price of the weekly 12/12 97-strike call is currently docked at $0.05, meaning Friday's call buyers are already staring at paper losses. Plus, amid today's plunge, delta on the call has fallen to 0.06 after closing last week at 0.36, suggesting a slim 6% chance the option will be in the money at week's end.


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