MCD Stock: This Option Trade Idea Will Profit From A Pullback – Here's How | IBD | Summary and Q&A

TL;DR

This video discusses a bearish option play called a put calendar spread in McDonald's stock, taking advantage of the volatility around earnings and potential pullback in the stock.

Key Insights

• 🖕 McDonald's stock has experienced a strong rally since mid-March and is currently trading in a buy zone.
• ❓ The stock is due for earnings, which could result in a significant move in either direction.
• ⌛ A put calendar spread is an advanced strategy that profits from time decay and potential volatility in the stock.
• 🥳 McDonald's is an attractive stock for this strategy due to its overbought status and high price to earnings ratio.
• 💍 It is recommended to practice with a virtual account and gain experience before engaging in options trading.
• 🪐 The net cost of the trade in McDonald's is $75 per spread, with a maximum profit potential of $350.

Transcript

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Questions & Answers

Q: What is a put calendar spread and how does it work?

A put calendar spread involves selling a short-term put option and buying a longer-term put option with the same strike price. It is a low-risk strategy that profits from time decay and/or an increase in implied volatility.

Q: Why is McDonald's considered a good stock for this strategy?

McDonald's has lower implied volatility relative to the overall market, making it suitable for a calendar spread. Additionally, it is the most overbought stock in the Dow index and has a high price to earnings ratio.

Q: How does the trade in McDonald's work?

The trade involves selling the April 28th 285 strike put and buying the May 12th 285 strike put. This creates a net cost of $75 per spread and a maximum profit potential of $350, depending on changes in implied volatility.

Q: What are the risks associated with options trading?

Options are complex and investors can lose 100% or more of their investment in some cases. It is important to practice with a virtual account and gain experience before risking real money.

Summary & Key Takeaways

• McDonald's stock has had a significant rally since mid-March, currently trading in a buy zone and holding high above its moving averages.

• The stock is due for earnings, which could result in another move higher or lower.

• The video introduces a put calendar spread as an advanced strategy to take advantage of volatility and potential stock pullback.