McDonalds (MCD) PriceWatch Alert With 2.46% Downside Protection

Posted on Wednesday, September 03, 2008 8:07 AM

McDonalds (NYSE: MCD) ended the last trading session at $62.91. So far the stock has hit a 52-week low of $48.81 and 52-week high of $67.00. McDonalds stock has been showing support around 61.30 and resistance in the 65.10 range. Technical indicators for the stock are Bullish and S&P gives MCD a neutral 3 STAR (out of 5) hold rating. MCD appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Dec '08 67.50 covered call (MCD LU) for a net debit in the $61.36 area. That is also the break even stock price for this trade. This covered call has a 108 day duration, provides 2.46% downside protection and a 10.01% assigned return rate for a 33.82% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the MCD Jan '10 45 Call (WMN AI) and selling the Dec '08 67.50 call (MCD LU) for an $18.45 debit. The trade has a 108 day life and would provide no downside protection and a 21.95% assigned return rate for a 74.00% annualized return rate (for comparison purposes only). McDonalds has a current annual dividend yield of 0.60%. [For more information on these strategies along with more details on possible risks go to www.iotogo.com/HPWAinfo]