All Day McDonalds Breakfast is Coming to San Diego but Are Investors Hungry for McDonald’s Corp. (MCD) Stock?

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The fast food giant will begin offering all day breakfast at stores in San Diego next month. McDonald’s will be testing this new concept in San Diego stores to determine if this is something they would want to launch in broader markets. The move may be an attempt to stave off competition in the breakfast space from other chains like Taco Bell, who began offering breakfast items last year.

McDonald’s stock has been stagnant over the past 12 months, rallying only 0.3% over that time, as the company faces declining revenues and net income. Lower sales in the U.S. and currency headwinds abroad have weighed on the EPS of McDonald’s over the past 12 months. On the back of this disappointing year McDonald’s CEO Don Thompson stepped down and chief brand officer Steve Easterbrook was named his replacement.

The new CEO faces some serious challenges of declining sales and changing consumer tastes. This new market taste may be an effort to change things up at McDonald’s but will it be enough? Analysts at Bank of America have a $112 price target for the stock, a 14% premium from current levels, indicating that expectations for the new CEO are high. So if a trader wanted to play McDonald’s to the long side is there a way they can do it more efficiently with options?

With shares of McDonald’s Corp. (MCD) trading around $98.30 a trader can look to put on a trade known as a stock replacement strategy. With the options market implying a move of around $8.80 by September expiration an upside target of $107.10 can be calculated and used to set up a trade.

Trade: Buying the MCD Sep 90 Calls for $9.70
Risk: $970 per 1 lot
Reward: Unlimited
Breakeven: $99.70

This trade has a breakeven only $1.40 above the stock’s current price and is deep in the money so it will have a very similar P&L profile to a long stock position. This allows a trader to enter a position for much less capital than would be required for outright long stock.
Andrew Keene

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