Options Update: McDonald' Corp. (MCD) & Archer Daniels Midland Co. (ADM)
MCD ñ McDonaldís Corp.
A bullish risk reversal in the January 2010 contract significantly reduced the price paid by one investor establishing an optimistic stance on the fast-food chain. Shares of MCD are trading 1.5% higher today to $61.20 despite yesterdayís downgrade to ëholdí by analysts at EVA Dimensions.
The investor sold 13,000 put options at the January 60 strike for an average premium of 1.91 apiece to partially offset the cost of purchasing 13,000 in-the-money calls at the same strike for 2.51 each. The net cost of the reversal amounts to 60 cents per contract.
ADM ñ Archer Daniels Midland Co.
Food products company, Archer Daniels Midland, jumped onto our ëmost active by options volumeí market scanner this afternoon due to bullish activity in the March 2010 contract. Shares edged 0.5% higher to $32.37 during the trading session after the firm revealed better-than-expected first-quarter profits of 77 cents per share.
One investor sold out-of-the-money put options to partially finance the purchase of a bull call spread. The call spread involved the purchase of 9,000 calls at the March 35 strike for 1.60 each, spread against the sale of the same number of calls at the higher March 40 strike for 40 cents apiece. The third-leg of the combo was the sale of 9,000 puts at the March 27 strike for 85 cents.
The net cost of the bullish play amounts to 35 cents per contract. The investor will profit if shares rally at least 9% from the current price to surpass the breakeven point at $35.35 by expiration. We note that ADMís shares have remained beneath $35.00 since June 11, 2008.
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