DailyPlay – Opening Trade (MCD) Closing Trade (JPM) – October 16, 2023

Closing Trade

• JPM – 31.33% Gain: Sell to Close 6 Contracts (or 100% of your Contracts) Nov 10th $146/$155 Call Vertical Spreads @ $4.15 Credit. DailyPlay Portfolio: By Closing all 6 Contracts, we will receive $2,490. We initially opened these 6 Contracts on Oct 10 @ $3.16 Debit. Our average gain, therefore, is $99 per contract. 

MCD Bullish Opening Trade Signal

View MCD Trade

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish

Details: Buy to Open 3 Contracts Dec 15th $250/$270 Call Vertical Spreads @ $6.55 Debit per contract.

Total Risk: This trade has a max risk of $1,965 (3 Contracts x $655) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $655 to select the # contracts for your portfolio.

Counter Trend Signal: This is a Bullish trade on a stock that found support and is expected to break out higher.

1M/6M Trends: Bearish/Bearish

Relative Strength: 3/10

OptionsPlay Score: 111

Stop Loss: @ $3.25 Credit. (50% loss of premium paid)

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Friday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

Price action on the S&P 500 left a lot to be desired at the end of last week. Bears managed to take control on Friday and close just below the key $4300 level and below the base line on the weekly cloud model. This maintains the bear case for the markets down to the $4100 downside target unless bulls can push the markets above $4380. While JPM jumped higher on earnings, price action was poor all day pushing it back towards the lows of the day. We are going to close the full JPM position and take profits here with less than 3 weeks to expiration. 

One emerging trend that I am starting to see are buying opportunities on severely oversold consumer stocks. MCD is an example of this, shedding 17% of its value over the past 3 months and now trading at just over 21x forward earnings which is a 15% discount to its historical average. Recently price has continued to move lower but momentum has started to diverge and showing signs of exhaustion to the downside. I see this as an opportunity to take a long position in MCD at a reasonable valuation near a possible trading bottom. Buy Dec $250/270 Call Vertical @ $6.55 Debit. With a hypothetical portfolio of $100,000, I recommend risking 2% of the portfolio’s value to this position, which is 3 Contracts for a risk of $1,965. We will set a stop loss on the call spread at around 50% of the premium paid @ $3.25 Credit.

MCD – Daily