) is scheduled to unveil its quarterly report on Friday, and
yesterday's option players expressed optimism ahead of the results.
Around 10,000 calls traded throughout the course of Tuesday's
session, representing a 65% mark-up to the average daily volume.
The lion's share of attention was centered at MCD's May 105 call,
where 7,811 contracts crossed the tape for a volume-weighted
average price (VWAP) of $0.87. The majority of these
out-of-the-money calls went off at the ask price, and open interest
added 5,580 positions overnight, pointing to buy-to-open activity.
purchasing these calls
, traders expect McDonald's to tackle the $105 mark by the close on
May 17, when back-month options expire. More specifically, the
options will begin to see a profit once MCD moves north of $105.87
(strike price plus the VWAP), or 2.7% above the stock's current
perch at $103.04. This breakeven mark resides in uncharted
territory for the stock. At last night's close, delta for the call
was docked at 0.35, suggesting a 35% chance the option will land in
the money by expiration. Should MCD fail to topple the strike price
over the next five weeks, the most yesterday's traders stand to
lose is the initial premium paid.
On the charts, McDonald's has put in a solid performance since
hitting an annual low of $83.31 on Nov. 16, with the shares up
nearly 24%. Highlighting this technical prowess has been the
stock's 10-week moving average, which has helped usher MCD aloft
since early December.
As mentioned, McDonald's Corporation's will reveal its
first-quarter earnings results ahead of the open on Friday. The
company has a mixed history in the confessional, and has matched or
exceeded analysts' bottom-line estimates in two of the past four
quarters. For MCD's first quarter, Wall Street is calling for a
profit of $1.27 per share.
This article by Karee Venema was originally published on
Schaeffer's Investment Research
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