Option Bulls Bet On Higher Highs for McDonald's Corporation (MCD)

The negativity surrounding McDonald's Corporation (NYSE:MCD) could actually help it hit new highs

by Josh Selway

Published on Nov 10, 2015 at 3:10 PM

McDonald's Corporation (NYSE:MCD) CEO Steve Easterbook earlier announced some major news for shareholders. Specifically, while unveiling details of the burger chain's turnaround plan, Easterbrook stated the company will not pursue a real estate investment trust (REIT). The shares were halted ahead of the announcement, but have since resumed trading to add 1.4% at $114.28, and earlier hit an all-time high of $114.99. Even so, it looks like some traders are betting on MCD to reach another technical milestone by week's end. 

Specifically, buy-to-open activity has been detected at the blue chip's weekly 11/13 115-strike call, meaning speculators are expecting fresh all-time highs before the contracts expire at the close on Friday. However, even if MCD fails to top $115 by week's end, the most these traders stand to lose is the initial premium paid. It should be noted that premium on short-term options is somewhat inflated right now, according to the security's Schaeffer's Volatility Index (SVI) of 29%, which tops more than four-fifths of readings from the previous 52 weeks. 

Interestingly, while the shares have been edging northward in November, pessimism has also been on the rise. First of all, MCD's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 0.84 is higher than 73% of readings, going back one year. This means put buying has been faster-than-usual of late. The stock's Schaeffer's put/call open interest ratio (SOIR) reveals similar behavior. At 0.81, this reading is currently higher than 99% of all others from the past year, revealing MCD's short-term speculators are extremely put-skewed. However, given MCD's technical backdrop, it's possible recent put buyers are simply shareholders hedging against an unexpected downturn

Meanwhile, bearish betting is occurring outside the options arena. During the two most recent reporting periods, short interest on the equity increased by 16%. This surge puts MCD short interest at an eight-year high.

Despite the equity's technical strength -- and knack for knocking out new highs -- there is one indicator working in the bears' favor. MCD's 14-day Relative Strength Index (RSI) stands at 72, meaning the stock is now overbought, and potentially due for a pullback. However, if the stock continues to move higher, all this negativity could unwind, pushing the shares higher.

In other news, fast-food workers across the nation are striking for a $15 minimum wage. Also, within the past hour, S&P announced it has slashed its credit rating on McDonald's Corporation's (NYSE:MCD) to "BBB+," citing the restaurateur's plans to return $10 billion to shareholders, which includes an increased quarterly dividend.

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