French Fries and Foie Gras

Hey there Shoppers,

 

I am making myself hungry for french fries looking at the McDonald’s stock chart.

 

The candlesticks are forming a reversal.

 

And it looks to me like McDonald’s (Ticker: MCD) is due for a pullback:

 

 

After trading up from a low of $202.73 on March 4, MCD shot up to $225.35 on March 18.

 

On the chart above, the last three days, Wednesday through Friday of this week, have formed a hanging man candlestick and two doji candles.

 

The hanging man develops when we have a short body, a long lower shadow and a very small or nonexistent upper shadow …

 

This type of candlestick is found at the top of an uptrend and could signal the end of that trend.

 

Along with the hanging man candle, we have not one, but two, doji candles.

 

The doji shows how buyers and sellers are battling it out with neither winning or taking over. This is signified by the small or nonexistent body and the long upper and lower shadows. Dojis also signal a trend change.

 

Vol Views

 

Let’s look at the implied volatility of the options versus the historical volatility of where the stock has been trading.

 

I like that the option implied volatility of 19.77 is lower than the 10-day and 20-day historical volatility of the stock.

 

I also like the fact that the 10-day vol of 24.14 is higher than the 20-day vol of 22.27. 

 

MCD volatility is going up, and with that rise the options look like a good purchase here.

 

Let’s take a look at the puts …

 

 

I like buying the Apr16 220 puts with an IV of 18.07 and selling the 210 puts with a 21.06 IV.

 

That is paying $2.35 for a $10 spread with 29 days left.

 

I think MCD stock could pull back to the $215 area, at the very least.

 

I will begin to take profits at $3.50 and higher.

 

I will take my losses if the spread trades down to $1.50.

 

Let’s Review

 

        • My SPDR S&P 500 (Ticker: SPY) Mar19 295/290 put spread was a great idea! Only the SPY opened down $1.38, so the spread I wanted to pay $1.36 for opened at $2. If you paid the $2, you are a winner. The SPY went out at $389.48 on Friday.

        • In Applied Micro Devices (Ticker: AMD) my Apr16 82.50/97.50 call spread traded up to $4.40 on Monday, that was up 41%. Unfortunately, I made the mistake of holding out for more money. Friday it traded down to my stop loss of $1.80 and I bailed. Lesson learned, sell at least half up 41% — quickly.

        • Taiwan Semiconductor (Ticker: TSM), I paid $10.35 for a longer term long position. I bought the Oct15 120 calls and sold the Apr16 130 calls, a call diagonal. Since then TSM has traded down from $119 to $113.63. My spread went out around $9.00. I am staying in.

Oh, and speaking of trades, one final note on the Golden Arches: The first market maker I worked for in the pit traded MCD! But that had nothing on the dinner rush.


Thanks for Reading … See You Next Tuesday!


Licia Leslie

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