Options Update: What’s the Best Way to Play McDonald’s After Sales Spike?

Yesterday, fast-food behemoth ^MCD^ reported that its February comparable sales topped the consensus estimate. Sales increased 4.8 percent, compared to the Street’s estimate of 2.1%. The company announced that system wide sales increased 11.2 percent or 6.4 percent taking the impact of currency translations out of the equation.

The strong sales were attributed to the Breakfast Dollar Menu, McCafe beverages, and a Chicken McNugget promotion that focused on the Olympics. Worldwide sales were solid, with European sales increasing 5.4 percent and sales from Asia, Middle East, and Africa increasing 10.5 percent. Sales in the United States increased 0.6 percent.

By the end of the trading day, McDonald’s increased more than two percent. The good news and the stock’s subsequent rally prompted heavy activity in the option pits. The March 65 strike saw heavy activity on both the put and call side of the equation, with volume on the calls coming in far higher than puts. The March 65 call saw volume of 8,083, with open interest of 19,646.

Turning to the puts, the March 65 contract saw volume of 2,669 with open interest of 3,329. Most of the option activity on both of these contracts was comprised of small trades with a smattering of potential institutional activity of blocks trading in the 100-to-300-contract range.

The situation was the same for the April 65 call contract. This strike saw volume of 2,397 with open interest of 3,496. Again, we were dealing with a lot of smaller trades – with the largest block checking in at 126 contracts.

Dan Passarelli is the author of the book Trading Option Greeks and founder and CEO of Market Taker Mentoring LLC. Passarelli began his trading career trading on the floors of the Chicago Board Options Exchange and the Chicago Board of Trade making markets in options. He regularly shares trading insights and educational tips in his options blog (markettaker.com/options_blog/). Dan can be reached through his website MarketTaker.com and can also be followed on Twitter at twitter.com/Dan_Passarelli.

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