Two trades in McDonalds Stock this morning to discuss. The stock trades on New York under the symbol MCD. This the the leader in the fast food industry. The other stock I trade is YUM Stock. Other than those two stocks I have no interest in other fast food restaurant chains. Revenue and earnings on Jan 23 failed to inspire confidence from investors. Therefore selling has been the story for McDonalds Stock over the past week. I have waited for this opportunity for a while now and the recent overall market weakness has been just perfect for pushing this stock lower and setting up my next trades.
McDonalds Stock 6 Month Daily Chart
The 6 month chart of McDonalds Stock below shows that at $92.50 if I am assigned, I will be sitting at the lowest level in the stock in over 6 months. While the stock could fall below this level I will still be in an excellent defensible position which not only will be easy to roll down or roll out from but also to apply a variety of different strategies to. Therefore this morning I sold 5 naked puts at 90 cents at the open. Part of the reason was because yesterday the stock plunged through the Lower Bollinger Band but then closed back up and this morning the stock opened below the Lower Bollinger Band but immediately began to climb back.
The Slow Stochastic is very neutral and has been for three days on the stock.
MACD is still signaling sell however and the histogram (behind the MACD signal lines) is still declining. This is why it is important to pick a defensible valuation which I believe $92.50 is.
Since just before earnings the accumulation distribution shows that sellers have been dumping shares of the stock and it is now extremely oversold.
However volume is perhaps the most interesting technical indicator as it shows that the selling pressure is lacking conviction. It is primarily light as the stock fell to take out the Lower Bollinger Band. At this point I therefore sold the Feb 22 $92.50 naked puts and I bought 300 shares of stock for $93.09. I believe the stock will bounce back from here as it has before when it hit the Lower Bollinger Band. This marks the lowest move for the stock in over 6 months and while I do believe it could move lower I think the stock will bounce back first and I can sell my 300 shares for a small profit which is all I want.
McDonald Stock 6 months to Jan 30 2014
McDonalds Stock Trade Details
Jan 30 2014 – Sold 5 Naked Puts Feb 22 options expiry at the $92.50 strike for .90 cents.
Jan 30 2014 – Bought 300 shares of stock for $93.09
Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. Trade at your own risk. Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed and presented are financial or trading advice or recommendations. Everything presented and discussed are the author’s own trade ideas and opinions which the author may or may not enter into. The author assumes no liability for topics, ideas, errors, omissions, content and external links and trades done or not done. The author may or may not enter the trades mentioned. Some positions in mentioned stocks may already be held or are being adjusted.
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