EOT Trade Alert – December 31, 2012

| December 31, 2012

December 31, 2012

Trade Alert:

   Buy MCD Feb 2013 $85 Puts at $1.30 or better

Company Background:

McDonald’s (MCD) doesn’t need an introduction.  The iconic American fast food restaurant operates 34,000 locations in 120 countries around the world.

Short-Term Catalyst:

Don’t get me wrong, I love McDonald’s as much as the next guy.  But the short term headwinds for the stock are too numerous to overcome.

First off, the fundamentals aren’t great.  They haven’t been since 2011 when they were introducing new coffee drinks, revamping the menu, and growth in China was booming.

But over the last year, slowing sales growth, shrinking margins, and rising commodity prices are the grim reality of the state of MCD’s business.  And so far, management hasn’t had an answer for these problems.

I do see MCD righting the ship next year.  I think the second half of 2013 will be great. But this quarter is an entirely different story.

MCD faces tough comparisons to a great quarter they had in the same period a year ago.  On a relative basis, 4th quarter 2012 is going to look pretty ugly compared to the company’s performance in the 4th quarter of 2011.

What’s more, if the issues with the fiscal cliff aren’t solved quickly, the entire market is going to hell in a hand basket anyway.

Finally, MCD is dealing with an ugly chart.  The technical picture is simply bearish.  The downtrend over the last year is the dominate force.  And the 200-day moving average forms a formidable resistance level just overhead.

This looks like an opportunity to profit from short term weakness in MCD.

Trade Details:

Underlying Stock Symbol: MCD
Current Bid-Ask Price: $1.20 – $1.22
Option “Buy Up To” Price: $1.30
Break-Even On Stock At Expiration: $83.70
Maximum Risk Per Contract: $130

Exit Strategy:

MCD is trading at $87.31 per share.  Resistance levels will be at $90.00 and again at $91.00.  Remember, we want this stock to move lower.  Support levels will be at $84.00 and $82.00.  Conservative investors should look to exit at the first support or resistance level.  Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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