Quick Takes Pro MarketTechnician Michael Kahn Analyzes the S&P 500:
At the time of analysis,the S&P 500 index was trading at 2097.56, just above its 50 day movingaverage. Michael states that “SPX is right where it has been for months. Take alook at this year, for the most part it’s flat, yet approaching the this yearssupport line near the 2050 level.
Michael Kahn’s Chart ofthe Day: McDonald's (MCD):
McDonald’s has beensitting above its 50 day and 200 day moving averages for about a month and wastrading between the levels of 100.50 and 101.10 during the time of broadcast.Michael stated a strong resistance level of 101 and notes that while its tradingrange has been flat for the last 6 months, the most recent decline inon-balance volume may helps support his bearish outlook.
TradeKing “Options Guy”Brian Overby Analyzes McDonald's Volatility & Dividends:
MCD’s 30-day ImpliedVolatility (IV) sat near 17% and its 30-day Historical Volatility was around12% during the time of analysis, both about average for the company.
McDonald's has anex-dividend date of August 28, 2015. The company is anticipated to pay a hefty$0.85 per share which will drive up the price of puts price relative to callsprices in expirations after the ex-dividend date. The dividend will be in playwith the expirations Brian will use in his paper-trade strategies. The companyreported Q2 earnings last month on July 23, 2015 and is expected to report Q3in October which shouldn’t affect Brian’s strategies.
Brian Overby Shares MCDPaper-Trading Strategies:
Brian’s first papertrade was a Long Put based on the stock’s average 30-day ImpliedVolatility and Michael’s bearish analysis. His second trade was also bearishand looks to secure a credit with a Short CallSpread.
Brian’s First PaperTrade - Long Put
- Buy 1 September 18th2015 MCD 97.50 Call
- 31 days to expiration
- Net Bid 1.09, Mid1.10, Ask 1.10 for the strategy
- Net debit is 1.10 ifwe get it at the mid-price, though note this is not always possible
- Maximum potentialloss: $1.10
- Maximum potentialgain: There’s a substantial profit potential. Ifthe stock goes to zero you make the entire strike price minus the cost of theput contract. Keep in mind, however, stocks rarely go to zero.
- Total commission toenter this trade at TradeKing is $5.60
Brian’s Second PaperTrade - Short CallSpread
- Buy 1 August 28th 2015MCD 105.00 Put
- Sell 1 August 28th2015 MCD 102.00 Put
- 10 days to expiration
- Net Bid 0.48, Mid0.52, Ask 0.55, for this strategy
- Net Credit is 0.52 ifwe get it at the mid-price, though note this is not always possible
- Maximum potentialloss: $2.48
- Maximum potentialgain: $0.52
- Total commission toenter this trade at TradeKing is $6.25
Important notes: option prices are given as a per-contract amount.Multiply loss and gain figures by 100 shares and by the number of contractstraded to determine the amount of the full potential loss or full potentialgain. No additional calculations are needed to determine commission costs.
TradeKing Options Toolsused:
- Long Put
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