McDonald's Stock Pops On Earnings; Trade MCD With This Low-Risk Option Strategy | IBD

TL;DR

McDonald's stock has been trading sideways and shows relative strength compared to other stocks. This video teaches a low-risk strategy, a broken wing butterfly, using put options.

Transcript

[Applause] hey option traders for today's trade we are looking at an option play in dow jones component mcdonald's stock following their recent earnings announcement just yesterday the stock rose 2.7 in pretty strong volume mcdonald's has been consolidating and trading sideways since the start of the year shares initially took a dive and hit a low ... Read More

Key Insights

• ™️ McDonald's stock has been trading sideways and consolidating since the beginning of the year.
• 🛀 The stock has shown relative strength compared to other stocks during this time.
• 😘 The broken wing butterfly strategy allows for bearish trades with put options.
• 🔡 The strategy involves selling two puts, buying one lower strike put, and one higher strike put.
• ™️ The trade using put options benefits from decreases in volatility.
• 🌸 The risk of the trade is defined, and losses can be managed with stop-loss orders.
• 🤑 Practicing with virtual trading accounts is recommended before risking real money.

Questions & Answers

Q: What is the strategy of a broken wing butterfly with put options?

A broken wing butterfly with put options involves selling two puts at a given strike price, buying one lower strike put, and one higher strike put. The short puts have the same strike price, and all options have the same underlying stock and expiration date.

Q: What is the advantage of using a broken wing butterfly strategy?

The broken wing butterfly strategy allows traders to benefit from decreases in volatility. It offers a relatively low-risk trade with defined risk and profit zones.

Q: How does the trade using put options make a profit?

The trade using put options makes a profit if the stock price goes down but does not exceed the credit spread strikes. If the stock moves below the credit spread strikes, there will be a loss.

Q: What are the risks of a broken wing butterfly trade?

Broken wing butterfly trades are risky and advanced. It is important to practice in a virtual trading account before risking real money. Losses are defined, but a good understanding of the strategy is necessary.

Summary & Key Takeaways

• McDonald's stock has been consolidating and trading sideways since the beginning of the year.

• The stock has shown relative strength and has been holding up better than most other stocks.

• The video teaches a low-risk strategy called a broken wing butterfly using put options.