Feeding frenzy in the Golden Arches: Options recap

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The world’s top burger joint has gone nowhere all year. But yesterday news of a corporate shakeup triggered a feeding frenzy in the Golden Arches.

McDonald’s (MCD) ripped 4.37 percent to $169.48, its highest close since early February. Investors supersized positions after management announced layoffs to cut $500 million of yearly expenses. That followed a rally of almost 6 percent when earnings came out in late April.

Call volume also spiked to a four-month high of 50,000 contracts as traders positioned for more gains in a hurry. The June 170s were the busiest overall, changing hands for $0.20 early and then spiking to $1.50 as the shares ripped higher. That kind of leverage is possible because calls fix the price where a stock can be purchased. See our Knowledge Center for more on the potential benefits and risks of trading options.

Almost 8,000 of the June 170s crossed the tape. The July 175s followed with volume of nearly 5,000 contracts, which mostly priced for $1.20 to $1.50 in the middle of the session. All told, calls accounted for a bullish 73 percent of options activity.

McDonald’s (MCD) chart with moving averages and historical call volumes.

Attention was focused on profit margins. After all, MCD’s traffic hasn’t been great. But they’ve been managing to squeeze more bacon out of each customer by hiking prices. Trimming the fat on headcount will let more of that dough go to the bottom line.

It seems to be yet another example of the company reinventing itself. They previously competed in price, pushed coffee, and served all-day breakfast. Now they’re turning to fresher beef and healthier Happy Meals. Judging by analyst reports, Wall Street thinks that special sauce will get a new generation of customers in the door.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.