Option Trade of the Day: McDonald’s (MCD)
Yesterday’s trading action produced mixed results with the Dow gaining 0.66% while the S&P only gained 0.1%. The Nasdaq lost 0.11% and the Russell 2000 was the biggest laggard with a loss of 0.12%.[hana-code-insert name=’adsense-article’ /]This could be a sign of a shift in risk with investors seeking large-cap names and avoiding smaller-cap names and higher risk sectors.
After three straight bearish trade ideas, I was looking for another bullish opportunity and found one in a large-cap stock.
I received a bullish signal on McDonald’s Corp. (NYSE: MCD) last night and that was due to a bullish crossover in the daily stochastic readings.
However, it was what I saw on the weekly chart that really got my attention.
We see that the stock is the most oversold it has been, based on the weekly oscillators, since October ’16. The stock dipped down to its 52-week moving average two weeks ago and has stabilized since then. We also see a trend channel that has formed over the past few years with the stock just above the lower rail. You could argue that it is two separate trend channels on the same plane with a shift upward in mid-2017. Either way, I look for MCD to start moving higher again.
Buy to open the April18 155 strike calls on MCD at $8.20 or better. These options expire on April 20. These options are deeper in the money than the usual trade idea, but I want to make sure they can withstand a slight pullback without getting stopped out of the trade.
For these options to double, the stock will need to get to $171.40, but that is about the point the mid-point trendline would be at in a few weeks. I would target a double or 100% gain on this trade and I would shut the trade down if the stock moves below its 52-week moving average.
— Rick Pendergraft
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