Option Bears Take Another Chance on McDonald's Corporation (MCD)

McDonald's Corporation (NYSE:MCD) has hit yet another record high, but bearish options traders won't surrender

by Josh Selway

Published on May 4, 2016 at 3:29 PM
Updated on Jun 24, 2020 at 10:16 AM

Unlike some large-cap stocks that have made their outsized moves in one fell swoop, Dow component McDonald's Corporation (NYSE:MCD) has gained steadily since the August sell-off. Since MCD bottomed at $87.50 on Aug. 24, the shares have climbed over 48%, including another 0.9% pop today -- putting the stock at $129.60. Thanks to strong earnings and its game-changing all-day breakfast menu, MCD has hit new high after new high, including its record peak today of $130.43. Even so, the purchase of put options has remained popular on the outperforming blue-chip stock.

Looking at data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), MCD has accumulated a 20-day put/call volume ratio of 2.18. In other words, put buying has more than ​doubled​ call buying over the past four weeks. Not only that, but MCD's Schaeffer's put/call open interest ratio (SOIR) comes in at 1.30. This SOIR arrives in the 90th percentile of its annual range, indicating short-term McDonald's speculators are far more put-skewed than normal

This isn't a trend that appears to be slowing, either. In today's trading, put volume is running at 1.4 times the intraday average, putting it in the high 89th percentile of its annual range. The most popular option is the June 125 put, where more than 6,000 contracts have traded -- almost twice as much as the next closest option. Data confirms buy-to-open activity at this strike, meaning traders are betting on MCD to fall back below $125 before the contracts expire at the close of Friday, June 17. Meanwhile, others are selling to open the June 125 put, expecting the underfoot level to act as near-term support.

Now, there's a chance that some of today's seemingly bearish activity in the stock's options pits is actually just shareholders using options to protect their paper profits. That said, MCD could stand to benefit as the "vanilla" bears close out their positions. 

Outside the options pits, short sellers have been throwing in the towel. In the most recent reporting period alone, short interest on the stock dropped by 17.9%. The majority of covering brokerage firms are still bearish, though. Of the 24 that track MCD, 14 say it's a "hold" or worse. So, there's potential for a sentiment shift among analysts to help the stock, as well. 

In the meantime, McDonald's Corporation (NYSE:MCD) continues to innovate -- likely encouraged by the success of its all-day breakfast campaign. The fast-food chain last week said it was testing preservative-free McNuggets in over 100 stores, and more recently added that it's trying out garlic fries

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