Old McDonald Had a Put Buyer

• Posted by Adam Warner
• on November 10th, 2009

Just the other day I noticed it’s been month’s since I had one of those Angus burgers from McDonald’s. Or anything from there for that matter. Apparently, word has filtered out to the options markets. This from Schaeffer’s.

In options trading yesterday, the stock saw nearly 80,000 contracts cross the tape, which is almost three times the equity’s average daily trading volume of 27,724 contracts, according to data from WhatsTrading.com.

Overall, traders have shown a preference for puts on the security. The Schaeffer’s put/call open interest ratio for MCD comes in at 1.34, as put open interest outnumbers call open interest among options slated to expire in less than three months. This ratio is higher than 87% of all those taken during the past 12 months. In other words, short-term options speculators have been more skeptical of the shares only 13% of the time during the past 12 months.

Volatility has spiked a bit in the past week, though a “spike” here consituted a lift from 17 volatility to 20 volatility.

I literally never look at big cap low volatility names like this, but really should. Options almost always a sale when you look in hindight as whatever move it sees happens at a snail’s pace. The issue is if you have a short gamma position in something like MCD, you do need to keep flat with stock, as over time they do trend. In other words, on the day to day it might move at a 15 volatility clip, but those small moves can all be in the same direction. MCD chugged up 10 points, or 20%, in about 2 month’s.

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