McDonald's Stock Dips on Analyst Bear Note

Today's negative price action has options traders picking up puts

Assistant Editor
Dec 7, 2020 at 1:37 PM
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The shares of McDonald's Corporation (NYSE:MCD) are down 1.5% at $207.57 at last check, after a downgrade from Stephens to "equal weight" from "overweight," with an added price-target cut to $225 from $250. The firm doesn't see a catalyst for further multiple expansion, and thinks the company's key international markets have deteriorated past what is reflected in Wall Street's quarterly estimates. 

Today's drop sent MCD below the 120-day moving average for the first time since July, and to its lowest levels since August. Currently, the equity is up 5.1% year-to-date.  

MCD Dec 7

Amongst the brokerage bunch, Stephens is breaking off from the bullish majority, with 16 out of 22 of the analysts in coverage sporting a "buy" or better rating coming into today. Meanwhile, the 12-month consensus price target of $240.38 is a 15.7% premium to current levels, meaning there's ample potential for future downgrades and price-target cuts. 

The options pits have echoed similar sentiment in the last two weeks, per MCDs 10-day call/put volume ratio of 4.30 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio stands higher than 97% of readings from the past year, indicating a strong preference for calls as of late.

Today, however, puts have gained popularity. So far, 14,000 calls and 12,000 puts have crossed the tape, with puts running at double what's typically seen at this point. The weekly 12/11 212.50-strike call is the most popular, followed by the January 180 put, with new positions being opened at the former. 

These premiums are well-priced at the moment too, per the stock's Schaeffer's Volatility Index (SVI) of 19%, which stands higher than 8% of all other readings in its annual range. This implies that options players are pricing in relatively low volatility expectations at the moment.

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