McDonald's Corporation (MCD) Options Active Amid Pre-Earnings Slide

McDonald's Corporation (MCD) will report earnings later this week, and option sellers see a short-term ceiling

Oct 17, 2016 at 11:49 AM
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Just a few days ahead of delivering its third-quarter earnings, fast food giant McDonald's Corporation (NYSE:MCD) is facing an executive exodus (subscription required): Chief Field Officer Karen King, and a senior vice president of customer experience, Erik Hess, will both be retiring from their posts. In addition, Nomura this morning lowered its price target on MCD to $122 from $129, and trimmed its third-quarter same-store sales forecast. So far today, MCD is down 1% at $112.99, and the stock's options are crossing the tape at an accelerated clip.

In recent weeks, MCD has been testing the support of the $114 level, home to the shares' 320-day moving average. Today's move lower puts the shares south of the area for the moment, and the stock is currently set for a year-to-date closing low. So far in 2016, MCD has dropped 4%, and the security has surrendered 14.4% since touching a record high in May.

In the option pits, MCD puts are trading at twice the typical midday pace, outnumbering calls 5,931 to 5,260. Still, today's most active option is the December 115 call, with the International Securities Exchange (ISE) confirming some sell-to-open action, suggesting option players are betting on a ceiling at the $115 level. In addition, the December 115 call is already home to notable open interest -- the second-most popular strike among all series, with more than 14,800 contracts open -- which has seen significant buy-to-open activity in recent weeks.

Broadening the lens, bullish sentiment has been the norm in the MCD option pits, even amid the stock's recent retreat. McDonald's Corporation (NYSE:MCD) boasts a 50-day call/put volume ratio of 1.38 at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which is just 1 percentage point from an annual peak. MCD has ended the post-earnings session lower in five of the past eight quarters, and dropped 4.5% the day after its July 2016 earnings release.

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