MCD Analysis

McDonald’s Corp. (MCD)

Update 11/7/2018: I have exited MCD for a $962 debit per share, down $342 from entry, with shares at $183.29, up $16.14 from entry.

Shares rose 9.7% over 16 days, or a +220% annual rate. The options position produced a -35.6% loss for a -11% annual rate.

I have entered a short iron fly spread on MCD, using options that trade for the last time 25 days hence, on Nov. 16. The premium is a $6.20 credit per contract share and the stock at the time of entry was priced at $167.15

My decision to enter the trade was based on proximity to an earnings announcement, on Tuesday, Oct. 23, before the opening bell.

The profit zone for this position is between $173.50 on the upside and $163.50 on the downside.

Implied volatility stands at 25%, which is 1.3 times the VIX, a measure of the volatility of the S&P 500 index.

MCD’s IV stands higher than 64% of its daily readings over the past year.

The price used for analysis was $167.94.

Premium: $6.20 Expire OTM
MCD-iron fly Strike Odds Delta
Long 177.50 85.0% 16
Break-even 173.70 68.5% 33
Short 167.50 52.0% 50
Short 167.50 48.0% 50
Break-even 163.70 64.0% 35
Long 157.50 80.0% 19

The premium is 62% of the width of the position’s wings.

The risk/reward ratio is 0.6:1, with maximum potential loss of $377 per contract and maximum potential gain of $620 per contract..

The bid/ask spread was 2.9%.

By Tim Bovee, Portland, Oregon, Oct. 22, 2018


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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