McDonald's shares poised for big move; bullish bets rise

Fri May 1, 2015 2:34pm EDT
 
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By Saqib Iqbal Ahmed

NEW YORK (Reuters) - Options traders appear poised for a big move in McDonald's Corp's (MCD.N: Quote) shares as the world's biggest restaurant chain is set to unveil a much-awaited turnaround plan on Monday, and bullish bets have picked up in recent days.

McDonald's shares have struggled in the last year as the company faces consumers' changing tastes and growing preference for healthier fare over processed fast food.

Smaller, nimbler competitors such as Wendy's Co WEN.O and Chipotle Mexican Grill Inc (CMG.N: Quote) have been more responsive to those changing tastes.

After dismal first-quarter results in April, McDonald's new chief executive, Steve Easterbrook, said he would soon share details on plans to reinvigorate the company. Bullish options have been bid up in anticipation of the plan.

"In stark contrast to the typical post-earnings selloff in implied volatility, McDonald's options have seen a consistently high bid since the announcement of the turnaround plan," said Anshul Agarwal, equity derivative strategist at Bay Crest Partners.

Implied volatility, a gauge of the risk of large moves in a stock, typically rides up ahead of earnings reports and then collapses once the event is over.

For McDonald's the 30-day implied volatility is at 26.57 percent, or about the highest it has been over the last two years, according to Livevol data.

On Friday, the cost of a May weekly straddle in McDonald's options, a strategy in which a trader buys an at-the-money put option and a similar call option, implies a move of about 4.5 percent in either direction by May 8.   Continued...

 
McDonald's Golden Arches are seen at the Times Square location in New York January 29, 2015. REUTERS/Shannon Stapleton