McDonalds Stock Decline Offers Put Selling Chance For Income

McDonalds Stock has been a stellar performer. I have nothing but praise for McDonalds stock and the income it has generated for my portfolio. The stock though is starting to become overvalued and I have waited patiently for it to pull back. The news today that the outlook for 2013 is for consumers to be more frugal with dining out seems at odds with dropping McDonalds Stock. The report actually said that while more consumers intend to dine out in 2013 than in 2012, they plan to be more careful at the expense of dining out. To me this means McDonalds Stock should do just fine in 2013. McDonalds has some of the best prices for the quality of the product being sold. They are extremely responsive to consumers and provide a variety of products that they continue to refine and target to the user. It is an extremely well-managed company with potential to turn in even better profits in 2013. I am not expecting anything major out of McDonalds Stock, but I do think it should continue to do just fine. Sales growth similar to 2012 would be terrific for the stock I can see it continuing to trade in a narrow range.

Meanwhile President Obama announced plans to increase the minimum wage to $9.00, a move that many investors felt would cut into earnings at fast food outlets such as McDonalds. This too pressured the stock.

McDonalds Stock Put Selling Range

The past 6 month daily chart for McDonalds Stock is below. It has had a very nice trading range between about $86 to $92.00. This has made Put Selling very simple as I try to stay at $90.00 and below. $87.50 is an excellent price point for Put Selling but only when put premiums are reasonably high. The Bollinger Bands Strategy Trade has worked amazingly well this year and I am expecting the results will continue in 2013.

McDonalds Stock Put Selling Range

Past 6 month range for McDonalds Stock

January Put Selling Options Expired

In January I was holding naked puts at $82.50 as the stock climbed back above $90.00. Since then I have done only two trades. On January 16 I sold the Feb $90 puts for $1.25 and I bought 500 shares of McDonalds Stock for $91.10 which I sold Feb 4 for $95.00. Since then I have waited to get back to put selling a few more puts.

McDonalds Stock Past 3 Months Action

There has not been a lot of Put Selling opportunities lately in McDonalds Stock. Anywhere above $92.50 does not interest me as I believe it is overvalued when it gets above $92.50. The $90 strike is certainly attractive but with low volatility in the stock Put Selling has meant small premium which I don’t feel justifies my risking my capital. The key aspects of the past 3 months of McDonalds Stock are in the table below.

MCD Stock 3 Month Chart

3 month chart of McDonalds Stock

A. Point A is Dec 31 2012 when the stock hit a lot of $86.81. Unfortunately I already had $83,000 tied to McDonalds Stock naked puts for January 2013 at $82.50 or I would have bought 500 shares. You can review the 2012 McDonalds Stock Trades through this link.

But point B is important because if McDonalds Stock should fall that low between now and May, it would definitely be worth buying shares or at the least selling the $85 naked puts.

B. Point B is January 16 where I sold the Feb $90 puts and bought 500 shares of McDonalds Stock. I only did 5 naked puts as I was unsure whether the stock would fall further. It didn’t and I have not seen any further Put Selling opportunities since point B.

C. That is until Point C. Today’s sell-off is also profit taking. You can see in the McDonalds Stock chart above that the past few trading sessions the stock has gone sideways. It’s because of this that today’s opportunity to sell brought out investors who want to close their gains but were looking for a reason to sell. This report on dining out gave them the excuse they are looking for.

Taking The Slow Road For Put Selling McDonalds Stock

I only sold 5 naked puts today for April at $90 strike for .97 because McDonalds Stock may move lower over the next few days. I am not one to sit back and wait forever when it comes to Put Selling opportunities. I know in advance what strikes I like and what price point I would be pleased to get assigned. $90.00 right now makes a good entry but by doing only 5 naked puts I have lots of opportunity for more Put Selling in the next few weeks should McDonalds Stock move lower.

There is never a need to rush in, but instead take opportunities when they occur. In the case of McDonalds Stock today’s selling more be a knee-jerk reaction that could see the stock quickly recover. By taking it slow and selling just 5 naked puts, I have lots of chances ahead to sell more puts but if the stock fails to fall at least the 5 puts I sold today are assisting in brining in income for the next two months.

McDonalds Stock Internal Links

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  • Yes, KO Stock is starting to look attractive again.