Thursday, December 29, 2011

For the owners of MCD

For the people that already have a position in MCD's. MCD does trade weekly on the CBOE which you should be able to collect a fair premium if you follow some basic rules. Now a days everyone has their rules. For me it would be to buy closer to the Low P/E rate range vs to purchase at or near the top.

I do realise that in some types of accounts one cannot write puts on a naked position. So it be best to either wait for MCD to fall into the P/E range that fits your calculations or buys and writes at the current prices. But if you are a person that has or is looking to manage their portfolio a bit more you could be selling covered calls on your holdings. For MCD the Dec 30th expiry is only two days away. I would be looking to sell the January 100 for 1.35 per share. For a number of reasons 1) MCD is trading near its 52 week high. 2) the high topped out at 100.55. At 135 per contract (before commish) 3) there is limited up side to this stock.

Note about commisions, the rate that I pay is pretty small, So I'll use a fair number of $7 dollars plus $1per contract. so using the above 135 for one contract equals $127 net. 2 contracts would net $261 and so on.

If your a current share owner that believes that MCD is at a fair value (like I do) and your average price per share is lower then the currnet price you could look at selling some of your position. An example would be my current average price for 200 shares is $64.15 you could sell one covered call for the $70 strike price for about $30 per share. Which is the same as if I was to sell it at or near the 52 week high. Please note that this option will be exercised and I don't believe that MCD will crash I just think that its at the higher end of fair value. Its just another way of rebalancing your holdings and getting paid to do so. I do own MCD at the above price and I'll be selling half of my shares via a deep in the money covered call. I'll be writing updates on my positions in the coming weeks, stay tuned.